<PAGE>
As filed with the Securities and Exchange Commission on April 21, 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)
Delaware 7370 54-1322110
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
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)
--------------
Copies to:
Martin H. Levenglick, Esq. Morris J. Kramer, Esq.
Orrick, Herrington & Sutcliffe LLP Skadden, Arps, Slate, Meagher & Flom
666 Fifth Avenue LLP
New York, New York 10103 919 Third Avenue
(212) 506-5000 New York, New York 10022
(212) 735-3000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective time of the Registration Statement and the
effective time of the merger (the "Merger") of a subsidiary of America Online,
Inc. with and into MovieFone, Inc., as described in the Agreement and Plan of
Merger, dated as of February 1, 1999, among America Online, Inc., MF
Acquisition Corporation and MovieFone, Inc., attached as Annex A to the proxy
statement-prospectus forming a part of this Registration Statement as
described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum
Securities to be Registered Offering Price Aggregate Offering Amount of
Registered (1) Per Share Price(2) Registration Fee(3)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share (4).... 4,154,717 -- $489,789,129 $136,161.38
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares of Common Stock, par value $0.01
per share ("America Online Common Stock"), of America Online, Inc.
("America Online") that may be issued pursuant to the Merger.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"). This fee has been computed pursuant to Rules 457(f) and (c) thereof
and is based on (i) $39.375, the average of the high and low per share
prices of Common Stock, par value $0.01 per share ("MovieFone Common
Stock") of MovieFone, Inc. ("MovieFone") on the Nasdaq National Market on
April 19, 1999, and (ii) the maximum number of shares of MovieFone Common
Stock to be acquired by America Online pursuant to the Merger.
(3) Pursuant to Rule 457(b) under the Securities Act, $69,437.17 of the
registration fee is offset by the filing fee previously paid by MovieFone
in connection with the filing of preliminary proxy materials on Schedule
14A on February 28, 1999. Accordingly, a registration fee of $66,724.21 is
being paid herewith.
(4) The America Online Common Stock being registered hereby includes
associated preferred stock purchase rights.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE
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- -------------------------------------------------------------------------------
<PAGE>
[MOVIEFONE INCORPORATED]
To the stockholders of MovieFone, Inc.
Special Meeting of MovieFone Stockholders
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
MovieFone's board of directors unanimously approved a merger agreement
among America Online and MovieFone. Your vote, as stockholders of MovieFone,
is now needed to adopt the merger agreement.
In the merger, each share of your MovieFone common stock will be exchanged
for a fraction of a share of America Online common stock ranging between .3339
and .4518. America Online common stock is listed on the New York Stock
Exchange under the trading symbol "AOL". On April 20, 1999, America Online
common stock closed at $128.6875 per share. The merger cannot be completed
unless the holders of the MovieFone Class A common stock and Class B common
stock, representing a majority of the votes entitled to be cast, adopt the
merger agreement. Only stockholders who hold their shares of MovieFone common
stock at the close of business on April 9, 1999 will be entitled to vote at
the special meeting. Each holder of a share of MovieFone Class A common stock
will be entitled to cast one vote and each holder of a share of MovieFone
Class B common stock will be entitled to cast five votes.
After careful consideration, your board of directors has unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. MovieFone's board of directors has 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 13 of this proxy statement-prospectus.
You can find out how to obtain additional information regarding America
Online and MovieFone in the section entitled "Where You Can Find More
Information" on page 55.
The date, time and place of the special meeting:
Friday, May 21, 1999
9:00 a.m., local time
MovieFone, Inc.
335 Madison Avenue, 27th Floor
New York, New York 10017
Please use this opportunity to take part in the affairs of MovieFone by
voting. 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 MovieFone and consideration of this matter.
ANDREW R. JARECKI
/s/ Andrew R. Jarecki
Director and Chief Executive Officer
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 April 21, 1999 and was first
mailed to stockholders on or about April 23, 1999.
<PAGE>
[MOVIEFONE LOGO APPEARS HERE]
MOVIEFONE, INC.
335 Madison Avenue, 27th Floor
New York, New York 10017
Notice of Special Meeting of MovieFone Stockholders
May 21, 1999
at 9:00 A.M.
To the stockholders of MovieFone:
Notice is hereby given that a special meeting of stockholders of MovieFone,
Inc. ("MovieFone") will be held on Friday, May 21, 1999 at 9:00 a.m. local time
at the offices of MovieFone, at 335 Madison Avenue, 27th Floor, New York, New
York 10017 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 February 1, 1999, by and among
America Online, Inc. ("America Online"), MF Acquisition Corporation, a wholly
owned subsidiary of America Online ("MF Acquisition Corporation"), and
MovieFone, pursuant to which MF Acquisition Corporation will merge with and
into MovieFone (the "Merger") and MovieFone will survive the Merger as a wholly
owned subsidiary of America Online. 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 MovieFone common stock at the close of
business on April 9, 1999, the record date, are entitled to vote on the matters
listed in this Notice of Special Meeting of MovieFone Stockholders. You may
vote in person at the MovieFone special meeting even if you have returned a
proxy.
By Order of the Board of Directors
of MovieFone, Inc.
/s/ Adam H. Slutsky
Secretary
April 21, 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of the Proxy Statement-Prospectus.................................. 1
The Companies............................................................ 1
Questions and Answers About the MovieFone/America Online Merger.......... 2
Summary of the Transaction............................................... 3
Selected Historical Financial Data....................................... 10
Unaudited Comparative Per Share Information.............................. 11
Comparative Per Share Market Price Data.................................. 12
Risk Factors............................................................... 13
The Value of the America Online Common Stock You Receive in the Merger
May Vary................................................................ 13
MovieFone Officers and Directors Have Conflicts of Interest Relating To
Their Approval and Support of the Merger................................ 13
Parties to Contracts With MovieFone May be Competitors of America Online
Which May Impact Their Decision Whether to Renew Their Contracts With
MovieFone............................................................... 14
Failure to Complete the Merger Could Negatively Impact MovieFone's Stock
Price and Future Business and Operations................................ 14
Potential Year 2000 Problems May Have an Adverse Effect On America
Online's and MovieFone's Operations and Ability to Offer Products and
Services Without Interruption........................................... 14
America Online's Anti-Takeover Defense Provisions May Deter Potential
Acquirors of America Online and May Depress its Stock Price............. 16
The Special Meeting of MovieFone Stockholders.............................. 17
Proxy Statement-Prospectus............................................... 17
Date, Time and Place of the Special Meeting.............................. 17
Purpose of the Special Meeting........................................... 17
Stockholder Record Date for the Special Meeting.......................... 17
Vote of MovieFone Stockholders Required for Adoption of the Merger
Agreement............................................................... 17
Proxies.................................................................. 18
The Merger................................................................. 19
Background of the Merger................................................. 19
Joint Reasons for the Merger............................................. 21
MovieFone's Reasons for the Merger....................................... 22
Recommendation of MovieFone's Board of Directors......................... 23
Opinion of MovieFone's Financial Advisor................................. 23
Interests of Certain MovieFone Directors, Officers and Affiliates in the
Merger.................................................................. 29
Completion and Effectiveness of the Merger............................... 29
Structure of the Merger and Conversion of MovieFone Common Stock......... 30
Exchange of MovieFone Stock Certificates for America Online Stock
Certificates............................................................ 30
Material United States Federal Income Tax Consequences of the Merger..... 31
Accounting Treatment of the Merger....................................... 32
Regulatory Filings and Approvals Required to Complete the Merger......... 32
Restrictions on Sales of Shares by Affiliates of MovieFone and America
Online.................................................................. 33
Listing on the New York Stock Exchange of America Online Common Stock to
be Issued in the Merger................................................. 33
Dissenters' and Appraisal Rights......................................... 33
Delisting and Deregistration of MovieFone Common Stock After the Merger.. 33
The Merger Agreement..................................................... 33
The Stock Option Agreement............................................... 41
The Stockholders Agreement............................................... 42
Operations After the Merger.............................................. 42
Comparative Per Share Market Price Data.................................. 43
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Comparison of Rights of Holders of MovieFone Common Stock and America
Online Common Stock...................................................... 44
Classes of Common Stock of MovieFone and America Online................. 44
Classified Board of Directors........................................... 44
Number of Directors..................................................... 44
Removal of Directors.................................................... 44
Filling Vacancies on the Board of Directors............................. 45
Limits on Stockholder Action by Written Consent......................... 45
Ability to Call Special Meetings........................................ 45
Advance Notice Provisions for Stockholder Nominations and Proposals..... 46
Preferred Stock......................................................... 47
Amendment of Certificate of Incorporation............................... 47
Amendment of Bylaws..................................................... 48
State Anti-Takeover Statutes............................................ 48
Limitation of Liability of Directors.................................... 48
Indemnification of Directors and Officers............................... 48
Fair Price Provision.................................................... 49
Stockholder Rights Plan................................................. 50
Share Ownership by Principal Stockholders, Management and Directors of
MovieFone................................................................ 52
Legal Opinion............................................................. 54
Experts................................................................... 54
Stockholder Proposals for the 1999 Annual Meeting of MovieFone
Stockholders if the Merger is Not Completed.............................. 55
Where You Can Find More Information....................................... 55
Statements Regarding Forward-Looking Information.......................... 57
ANNEX A--Agreement and Plan of Merger..................................... A-1
ANNEX B--Stock Option Agreement........................................... B-l
ANNEX C--Stockholders Agreement........................................... C-l
ANNEX D--Opinion of Salomon Smith Barney.................................. D-l
</TABLE>
(ii)
<PAGE>
[MOVIEFONE LOGO]
[LOGO OF AMERICA ONLINE]
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 stockholders
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 MovieFone 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 55 of this proxy statement-
prospectus.
The Companies
MovieFone, Inc.
335 Madison Avenue, 27th Floor
New York, New York 10017
(212) 450-8000
http: //www.moviefone.com
MovieFone is a leading provider of interactive advertising, information, and
ticketing services to the motion picture industry and moviegoers through its
interactive telephone movie guide, MovieFone, and its online service,
moviefone.com.
MovieFone provides moviegoers with movie listings for approximately 17,000
movie screens. This represents more than 95 percent of all movie screens in
MovieFone's markets. MovieFone also provides the ability to purchase tickets in
advance by credit card for many of these screens.
Advertising space on the MovieFone services, which MovieFone sells primarily
to motion picture studios, provides these advertisers with a highly targeted
medium for marketing their movies, with the added benefit of a link to a direct
ticket-selling mechanism. MovieFone also provides "Private Label" MovieFone
systems for individual theater chains.
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
http: //www.aol.com
Founded in 1985, America Online, based in Dulles, Virginia, is the world
leader in interactive services, Web brands, Internet technologies, and e-
commerce services.
America Online has two major lines of Internet businesses organized into four
product groups:
. the interactive online services business, comprised of the
Interactive Services Group, the Interactive Properties Group and the
AOL International Group, and
. the enterprise solutions business, comprised of the Netscape
Enterprise Group.
The product groups are described below.
The Interactive Services Group develops and operates branded interactive
services, including:
. the AOL service, a worldwide Internet online service with more than
17 million members
. the CompuServe service, a worldwide Internet online service with
approximately 2 million members
. the Netscape Netcenter, an Internet portal with more than 15 million
registered users
. the AOL.com portal
. the Netscape Navigator and Communicator browsers
The Interactive Properties Group is built around branded properties that
operate across multiple services and platforms, such as:
. Digital City, Inc., the No. 1 branded local content network and
community guide on the AOL service and the Internet
. ICQ, a portal that provides instant communications and chat
technology
The AOL International Group oversees the AOL and CompuServe operations
outside the United States.
The Netscape Enterprise Group focuses on providing businesses a range of
software products, technical support, consulting and training services. These
products and services historically enabled businesses and users to share
information, manage networks and facilitate electronic commerce.
1
<PAGE>
Questions and Answers About the MovieFone/America Online Merger
Q: Why are we proposing to merge? (see page 21)
A: Our merger with America Online will result in MovieFone stockholders
becoming stockholders of America Online through the exchange of their
MovieFone common stock for America Online common stock on what the MovieFone
Board of Directors believes are favorable terms.
By combining with America Online, MovieFone can benefit from America
Online's substantial human, financial, marketing and technological
resources as well as its significant presence on the Internet and broad
customer base. We expect this will:
. expand the reach of MovieFone to new customers and into new markets,
. provide new cross-promotion and branding opportunities for MovieFone and
America Online, and
. enable MovieFone to develop the area of online entertainment ticketing
and related electronic commerce opportunities.
Q: What will I receive in the merger? (see page 30)
A: If the merger is completed, you will receive a fraction between .3339 and
.4518 of a share of America Online common stock for each share of MovieFone
common stock you own. The fraction will be determined based on the average
closing price per share of America Online common stock on the New York Stock
Exchange for the 20 consecutive trading days ending two trading days before
the completion of the merger. This average is referred to throughout this
document as the "Average America Online Stock Price." America Online will
pay you cash based on the Average America Online Stock Price instead of
issuing any fractional shares of common stock.
The table below illustrates the fraction of a share of America Online
common stock that you would receive for each share of MovieFone common
stock at different assumed Average America Online Stock Prices after
adjustment for America Online's two-for-one stock split which was effected
on February 22, 1999. This fraction is referred to as the "exchange ratio."
The exchange ratio is designed so that the value of the America Online
common stock you receive in exchange for each share of your MovieFone
common stock will be fixed at $29.25 as long as the Average America Online
Stock Price is at least equal to $64.745 but not greater than $87.595 and
as long as the trading price of America Online common stock on the date you
actually exchange your shares is the same as the Average America Online
Stock Price. However, if the Average America Online Stock Price is less
than $64.745, the exchange ratio remains fixed at .4518 and the value of
the America Online common stock you receive in exchange for each share of
your MovieFone common stock may be less than $29.25.
If the Average America Online Stock Price is above $87.595, then the
exchange ratio remains fixed at .3339 and the value of the America Online
common stock you receive in exchange for each share of your MovieFone stock
may be more than $29.25. The merger agreement cannot be terminated and
MovieFone will not be obligated to resolicit proxies if the Average America
Online Stock Price is less than $64.745.
The actual value of America Online common stock to be received in the
merger will not be determined at the time you vote on the merger.
This table assumes that the Average America Online Stock Price and the
price at which America Online common stock is trading on the day you
actually exchange your shares is the same. Of course, we cannot assure that
this will be the case. We expect to complete the merger within two weeks
after the stockholders meeting, assuming the stockholders vote to adopt the
merger agreement at the meeting.
<TABLE>
<CAPTION>
Average Closing Value Per
Price on the Share of
NYSE of AOL Exchange MovieFone
Common Stock Ratio Common Stock
--------------- -------- ------------
<S> <C> <C>
$150.00 .3339 $50.09
145.00 .3339 48.42
140.00 .3339 46.75
135.00 .3339 45.08
130.00 .3339 43.41
125.00 .3339 41.74
120.00 .3339 40.07
115.00 .3339 38.40
110.00 .3339 36.73
105.00 .3339 35.06
100.00 .3339 33.39
95.00 .3339 31.72
90.00 .3339 30.05
87.595 .3339 29.25
85.00 .3441 29.25
80.00 .3656 29.25
75.00 .3900 29.25
70.00 .4179 29.25
65.00 .4500 29.25
64.745 .4518 29.25
60.00 .4518 27.11
55.00 .4518 24.85
50.00 .4518 22.59
</TABLE>
2
<PAGE>
Summary Of The Transaction
Stockholder Actions Required for the Transaction to be Completed (see page 17)
The merger agreement must be adopted by MovieFone stockholders for the
merger to occur. MovieFone has called the special meeting of stockholders to
which this proxy statement-prospectus relates so MovieFone stockholders can
vote on whether to adopt the merger agreement. The stockholders meeting will be
held on Friday, May 21, 1999, at the offices of MovieFone at 335 Madison
Avenue, 27th Floor, New York, New York.
You may vote in person at the meeting or by proxy by following the
instructions provided. You will be entitled to one vote for each share of
MovieFone Class A common stock and five votes for each share of MovieFone Class
B common stock you hold. A majority of the aggregate voting power of the shares
of MovieFone common stock entitled to vote at the special meeting must vote in
favor of the proposal to adopt the merger agreement for the merger to occur.
Consequently, abstentions, failures to vote, and broker non-votes have the same
effect as a vote against adoption of the merger agreement. If the stockholders
vote to adopt the merger agreement and the merger occurs, the MovieFone common
stock will be exchanged for shares of America Online common stock based on the
exchange ratio. Following the merger, the exchange agent will send to each
stockholder of record on the closing date instructions on how to exchange the
shares of MovieFone common stock for the appropriate number of shares of
America Online common stock.
Recommendation of MovieFone's Board of Directors
(see page 23)
After careful consideration, MovieFone's board of directors unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. MovieFone's board of directors approved the
merger agreement and unanimously recommends its adoption by you.
Opinion of MovieFone's Financial Advisor
(see page 23)
On January 31, 1999, Salomon Smith Barney, MovieFone's financial advisor,
delivered its oral opinion, subsequently confirmed in writing on February 1,
1999, to MovieFone's board of directors that, as of the date of its opinion and
subject to the considerations described in its opinion, the exchange ratio in
the merger agreement was fair from a financial point of view to MovieFone
stockholders. The complete opinion of Salomon Smith Barney is attached as Annex
D. We urge you to read it in its entirety.
Structure of the Transaction(see page 30)
MovieFone will merge with MF Acquisition Corporation, a subsidiary of
America Online, and become a wholly owned subsidiary of America Online. Based
on the exchange ratio, MovieFone common stock will be exchanged for shares of
America Online common stock. Following the merger, as a stockholder of America
Online, you will have an equity stake in MovieFone's parent company, but will
no longer have any direct interest in MovieFone alone.
Completion and Effectiveness of the Merger(see page 29)
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 Secretary of State of the State of Delaware.
Conditions to Completion of the Merger(see page 37)
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of the conditions listed below. If either America Online
or MovieFone waives any of the conditions, MovieFone will consider the facts
and circumstances at that time and make a determination as to whether a
resolicitation of proxies from MovieFone stockholders is appropriate. The
conditions that must
3
<PAGE>
be satisfied or waived before the merger is completed include the following:
. the merger agreement must be adopted by MovieFone stockholders
. 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
. 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 covenants and agreements in the
merger agreement
. MovieFone 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 in writing by Ernst & Young LLP, its
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 MovieFone
stockholders in the merger must have been approved for listing on the New
York Stock Exchange
. related agreements must be in full force and effect as of the completion
of the merger unless the agreement cannot go into effect due to the death
or disability of the other party to the agreement
Termination of the Merger Agreement(see page 39)
The merger agreement may be terminated at any time before the completion of
the merger under the circumstances summarized below.
The merger agreement may be terminated by our mutual consent.
The merger agreement may also be terminated by either of America Online or
MovieFone 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 which cannot be cured or is not cured within 30 days. Further, the merger
agreement may be terminated by either of America Online or MovieFone if the
conditions to completion of the merger would not be satisfied because of a
representation or warranty of the other in the merger agreement becoming untrue
in any material respect that cannot be cured or is not cured within 30 days.
In addition, the merger agreement may be terminated by either of America
Online or MovieFone under any of the following circumstances:
. if the merger is not completed by September 30, 1999, although this date
will be extended to December 31, 1999 if the applicable waiting periods
under the antitrust laws have not then expired or been terminated
. if a final court order prohibiting the merger is issued and is not
appealable
. if the MovieFone stockholders do not adopt the merger agreement at the
special meeting
Furthermore, the merger agreement may be terminated by America Online if
MovieFone's board of directors takes any of the following actions:
. fails to recommend that MovieFone stockholders adopt and approve the
merger agreement, or withdraws or modifies its recommendation in a manner
adverse to America Online, or proposes or resolves or announces its
intention to do so
. makes, resolves to make or announces its intention to make, any
recommendation to MovieFone stockholders, other than a recommendation to
reject, with respect to an extraordinary transaction of the nature
specified in the merger agreement involving MovieFone and a party other
than America Online, such as a merger, other business combination,
issuance or acquisition of 20%
4
<PAGE>
or more of the outstanding voting capital stock of MovieFone or a sale of
a substantial portion of MovieFone's assets
. upon a request by America Online, fails to reaffirm its recommendation
that MovieFone stockholders adopt the merger agreement, or resolves or
announces its intention to do so
. takes, or resolves to take, or announces its intention to take, any
action with respect to an extraordinary transaction of the nature
specified in the merger agreement involving MovieFone and a party other
than America Online, such as a merger, other business combination,
issuance or acquisition of 20% or more of the outstanding voting capital
stock of MovieFone or a sale of a substantial portion of MovieFone's
assets, including soliciting, initiating or knowingly encouraging a party
to propose an extraordinary transaction or engaging in discussions with a
party regarding an extraordinary transaction
. engages, resolves to engage or announces its intention to engage in
discussions with a third party concerning an extraordinary transaction of
the nature specified in the merger agreement involving MovieFone and a
party other than America Online, such as a merger, other business
combination, issuance or acquisition of 20% or more of the outstanding
voting capital stock of MovieFone or a sale of a substantial portion of
MovieFone's assets
. enters into a definitive or binding agreement with a party other than
America Online with respect to an extraordinary transaction of the nature
specified in the merger agreement involving MovieFone and a party other
than America Online, such as a merger, other business combination,
issuance or acquisition of 20% or more of the outstanding voting capital
stock of MovieFone or a sale of a substantial portion of MovieFone's
assets, that is on terms that are more favorable to
MovieFone's stockholders then those provided for in the merger, or
resolves, or announces its intention to do so
. materially breaches the stock option agreement, or resolves, or announces
its intention to do so
America Online may also terminate the merger agreement if:
. a third party acquires 33% or more of the outstanding shares of capital
stock or other equity interests of MovieFone or
. there occurs a material breach of the stockholders agreement by any of
the stockholders of MovieFone who are parties to the stockholders
agreement which denies America Online the material benefits contemplated
by the stockholders agreement and the breach remains uncured.
Payment of Termination Fee And Expenses(see page 40)
MovieFone has agreed to pay America Online a termination fee of $12 million
if the merger agreement is terminated in either of the following circumstances:
. if the merger agreement is terminated by America Online because
--MovieFone's board of directors takes any of the actions described in the
fifth paragraph under "Termination of the Merger Agreement" above (other
than engaging in discussions with a third party regarding an
extraordinary transaction) or
--a third party acquires 33% or more of the outstanding shares of capital
stock or other equity interests of MovieFone
. if the merger agreement is terminated because MovieFone's stockholders do
not adopt the merger agreement and
--an extraordinary transaction of the nature specified in the merger
agreement such as a merger, other business combination, issuance or
acquisition of 20% or more of the outstanding voting capital stock of
MovieFone or a sale of a substantial portion of MovieFone assets,
involving MovieFone and a party other than America Online is proposed
before the special meeting or
5
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--MovieFone enters into a binding agreement for an extraordinary
transaction of the nature specified in the merger agreement, such as a
merger, other business combination, issuance or acquisition of 20% or
more of the outstanding voting capital stock of MovieFone or a sale of a
substantial portion of MovieFone assets, within twelve (12) months
following termination of the merger agreement
MovieFone has agreed to pay America Online up to $2.5 million of reasonable
and documented out-of-pocket fees and expenses actually incurred by America
Online in connection with the merger agreement and the merger, if the merger
agreement is terminated in the circumstances identified above (including if
the board engages in discussions with a third party regarding an extraordinary
transaction) or if MovieFone has materially breached the merger agreement and
such breach remains uncured.
Promotion Agreement if Merger Is Terminated Due to Inability to Account for
Transaction as Pooling of Interest (see page 41)
America Online has agreed to purchase from MovieFone $5 million per year of
advertising over a three year period pursuant to a promotion agreement entered
into between the two if the merger is not consummated solely as a result of
the determination that the merger cannot be properly accounted for as a
pooling of interests due solely to any action or inaction by America Online
that is within the control of America Online and provided all other conditions
to the closing of the merger have been satisfied.
No Other Negotiations Involving MovieFone(see page 36)
Until the merger is completed or the merger agreement is terminated,
MovieFone has agreed not to directly or indirectly take any of the following
actions:
. solicit, initiate or knowingly encourage or take any action to facilitate
or encourage an extraordinary transaction of the nature specified in the
merger agreement, such as a merger, other business combination, issuance
or acquisition of 20% or more of the outstanding voting capital stock of
MovieFone or a sale of a substantial portion of MovieFone assets,
involving MovieFone and a party other than America Online
. with respect to any person, entity or group that is pursuing such an
extraordinary transaction:
--participate or engage in discussions or negotiations
--disclose any information relating to MovieFone
However, MovieFone may engage in these acts, other than solicitation,
initiation or knowing encouragement, if all of the following occur:
. the third party has submitted an unsolicited written proposal regarding
an extraordinary transaction of the nature specified in the merger
agreement, which is to effect a merger, consolidation or sale of all or
substantially all of the assets or capital stock of MovieFone
. MovieFone's board of directors determines in good faith, after taking
into account all relevant factors (including the advice of MovieFone's
financial advisor) that a particular proposal for which fully committed
financing has been obtained concerning a merger, consolidation or sale of
all or substantially all of the assets or capital stock of MovieFone,
will result in a transaction more favorable to MovieFone's stockholders
than the merger (or any revised proposal by America Online)
. MovieFone's board of directors receives advice of reasonably competent
outside counsel, and determines in good faith, that taking such action is
required to satisfy the board's fiduciary duties under applicable law and
. MovieFone enters into a confidentiality agreement with the third party in
connection with the disclosure of information relating to MovieFone
6
<PAGE>
America Online Required MovieFone to Enter Into a Stock Option Agreement That
May Discourage Third Parties Who are Interested in Acquiring a Stake in
MovieFone (see page 41)
MovieFone entered into a stock option agreement with America Online which
grants America Online the option to buy up to 6,186,762 shares of MovieFone
Class A common stock, which represents approximately 49.8% of the shares and
approximately 15.2% of the voting power of MovieFone common stock outstanding
on February 1, 1999, or approximately 33.3% of the shares and approximately
14.0% of the voting power of the shares after issuance of the shares of
MovieFone common stock subject to the option. The exercise price of the option
is $29.25 per share.
America Online required MovieFone 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 MovieFone 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 MovieFone Stockholders have Entered into a Stockholders Agreement(see page
42)
MovieFone stockholders Andrew R. Jarecki, Thomas A. Jarecki, Eugene D.
Jarecki, Divonne Jarecki, Adam Slutsky, J. Russell Leatherman, Robert Gukeisen
and several trusts and limited partnerships controlled by Henry G. Jarecki
entered into a stockholders agreement with America Online. The stockholders
agreement requires these MovieFone stockholders to vote all shares of MovieFone
common stock beneficially owned by them in favor of adoption of the merger
agreement. These MovieFone stockholders were not paid additional consideration
in connection with the Stockholders Agreement.
The MovieFone stockholders who entered into the stockholders agreement
collectively held approximately 78.4% of the outstanding MovieFone common stock
on the record date and controlled approximately 93.4% of the voting power of
the outstanding common stock because some of the MovieFone common stock they
hold is MovieFone Class B common stock which is entitled to five votes per
share.
You are urged to read the stockholders agreement in its entirety.
Interests of Certain Persons in the Merger(see page 29)
When considering the recommendation of MovieFone's board of directors, you
should be aware that certain MovieFone directors and officers have interests in
the merger that are different from, or are in addition to, yours.
In particular, eight officers of MovieFone have signed letters which contain
offers of employment from America Online that will become effective upon the
completion of the merger. These officers are identified under "Interests of
Certain MovieFone Directors, Officers and Affiliates in the Merger" on page 28.
In addition, J. Russell Leatherman has also entered into a voice recording
contract with America Online that will become effective upon the completion of
the merger.
In addition, 422,870 unvested stock options granted under MovieFone's 1994
Stock Option Plan to Andrew R. Jarecki, Adam H. Slutsky, J. Russell Leatherman
and all other officers and directors of MovieFone will vest upon completion of
the merger in accordance with existing plan provisions.
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.
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<PAGE>
On the record date, directors and executive officers of MovieFone and their
affiliates beneficially owned approximately 76.4% of the outstanding shares of
MovieFone common stock, which constituted 92.8% of the voting power of the
outstanding MovieFone common stock.
U.S. Federal Income Tax Consequences of the Merger(see page 31)
We have structured the merger so that, in general, America Online, MovieFone
and their respective stockholders will not recognize gain or loss for United
States federal income tax purposes in the merger, except with respect to cash
received by MovieFone stockholders instead of fractional shares. It is a
waivable condition to the merger that we receive legal opinions to this effect.
Accounting Treatment of the Merger(see page 32)
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 by
America Online, it is highly unlikely that America Online would waive this
condition. 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 the operating results of MovieFone only
for the quarter in which the merger is completed.
Antitrust Approval Required to Complete the Merger(see page 32)
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. The
applicable waiting period under the antitrust laws expired on April 10, 1999.
The Department of Justice or the Federal Trade Commission may challenge the
merger at any time before its completion.
Restrictions on the Ability to Sell America Online Stock(see page 33)
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, as amended. 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 33)
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in the merger.
Where You Can Find More Information(see page 55)
If you have any questions about the merger, please call the Secretary of
MovieFone at 1-212-450-8020. You may also call America Online Investor
Relations at 1-703-265-2741.
Forward Looking Statements in this Proxy Statement-Prospectus(see page 57)
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 MovieFone'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
8
<PAGE>
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 13.
9
<PAGE>
Selected Historical Financial Data
The following tables present selected historical financial data of America
Online and selected historical financial data of MovieFone. Because the
operating results of MovieFone are not material to America Online's operating
results, pro forma combined financial statements are not presented and prior
periods will not be restated to combine historical reported results for the
combined company.
The selected historical financial data of America Online have been derived
from the audited historical consolidated financial statements and notes thereto
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 MovieFone
have been derived from the audited historical consolidated financial statements
and notes thereto of MovieFone for each of the years in the five-year period
ended December 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 MovieFone and America Online's Current Report on Form 8-K/A filed on April
21, 1999, which contains restated financial statements to account for the
merger with Netscape Communications Corporation, which have been incorporated
in this proxy statement-prospectus by reference. All America Online per share
data have been adjusted to reflect America Online's two-for-one stock split
which was effected on February 22, 1999.
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.............. $2,146 $3,089 $2,197 $1,323 $ 425 $122
Income (loss) from
operations................. 207 (116) (485) 64 (41) --
Net income (loss)........... 198 (71) (485) 35 (55) (2)
Net income (loss) per
share--diluted............. 0.16 (0.08) (0.58) 0.04 (0.09) --
Net income (loss) per
share--basic............... 0.20 (0.08) (0.58) 0.05 (0.09) --
<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................ $3,816 $2,867 $1,501 $1,271 $ 459 $159
Total debt.................. 400 372 52 25 24 9
Stockholders' equity........ 1,852 991 610 705 242 101
</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 $94 in connection with
its acquisitions of Mirabilis, Ltd., Personal Library Software, Inc., Actra
Business Systems, L.L.C. and Netchannel, Inc.; a charge of $17 in connection
with a settlement for a class action lawsuit; and a merger and restructuring
charge totaling $75. 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; a settlement charge of $24 in connection with a
settlement with various State Attorneys General; and charges for acquired
research and development totaling $9 in connection with the acquisitions of
Portola Communications, Inc. and DigitalStyle Corporation. 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 $8 related to the acquisition of
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Insoft, Inc., Collabra Software, Inc., NetCode Corporation and Paper Software,
Inc. In 1995, America Online incurred merger expenses totaling $2 related to
the acquisition 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 from operations would be $70, $6, $89 and $11 for the years
ended June 30, 1998, 1997, 1996, and 1995, respectively.
MovieFone, Inc. and Subsidiary
Selected Historical Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues .................. $25,396 $20,598 $15,355 $11,245 $ 8,140
Net loss......................... (2,186) (1,774) (1,957) (1,723) (1,943)
Net loss per share--basic and
diluted......................... (0.18) (0.14) (0.15) (0.13) (0.17)
<CAPTION>
As of December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .................... $21,262 $21,593 $23,956 $24,020 $25,152
Total long-term debt............. -- -- -- -- --
Stockholders' equity (deficit)... 13,537 15,838 19,692 21,625 23,348
</TABLE>
Unaudited Comparative Per Share Information
We have summarized below the per share information for America Online and
MovieFone on a historical basis and equivalent basis. The MovieFone Per Share
Equivalents are calculated by multiplying the America Online per share amounts
by .3339, the estimated exchange ratio based on America Online's closing stock
price of $147 on March 31, 1999. The actual exchange ratio will be determined
upon the consummation of the merger (see page 2).
<TABLE>
<CAPTION>
As of or for
the six months As of or for
ended the year ended June 30,
December 31, -------------------------------
1998 1998 1997 1996
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
America Online--Historical:
Net income (loss) per common
share........................ $0.16 $ (0.08) $ (0.58) $ 0.04
Cash dividends declared per
common share................. -- -- -- --
Book value per common share... $1.81 $ 1.02
<CAPTION>
As of or for
the year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
MovieFone--Historical:
Net loss per common share..... $ (0.18) $ (0.14) $ (0.15)
Cash dividends declared per
common share................. -- -- --
Book value per common share... $ 1.09 $ 1.28
<CAPTION>
As of or for
the six months As of or for
ended the year ended June 30,
December 31, -------------------------------
1998 1998 1997 1996
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
MovieFone Per Share
Equivalents:
Net income (loss) per common
share........................ $0.05 $ (0.03) $ (0.19) $ 0.01
Cash dividends declared per
common share................. -- -- -- --
Book value per common share... $0.60 $ 0.34
</TABLE>
11
<PAGE>
Comparative Per Share Market Price Data
America Online common stock is traded on the New York Stock Exchange under
the symbol "AOL." MovieFone common stock is traded on the Nasdaq National
Market under the symbol "MOFN."
The following table sets forth the closing prices per share of MovieFone
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) January 29, 1999, the business day before the public
announcement that America Online, MF Acquisition Corporation and MovieFone had
entered into the merger agreement and (2) April 20, 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
on February 22, 1999.
The following table also sets forth, in the column titled "Equivalent per
Share Price," the value, including any premium, you would have received for
each share of MovieFone common stock you own, if the merger had been completed,
and you had exchanged your shares of MovieFone common stock for shares of
America Online common stock on the dates listed. The value was calculated by
(1) computing the average closing price per share of America Online common
stock on the New York Stock Exchange for the 20 consecutive trading days ending
two trading days before each of the dates listed, (2) using these values for
the Average America Online Stock Price to determine the exchange ratios and (3)
multiplying the exchange ratios by the closing price of America Online common
stock on the dates listed below. The calculations were made assuming America
Online's two-for-one stock split that was effected on February 22, 1999, had
occurred as of January 29, 1999.
<TABLE>
<CAPTION>
America
MovieFone Online Equivalent
Common Common per
Stock Stock Share Price
--------- --------- -----------
<S> <C> <C> <C>
January 29, 1999................................ $25.00 $ 87.937 $34.37
April 20, 1999.................................. $42.50 $128.6875 $42.97
</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.
12
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Risk Factors
By voting in favor of the merger and holding your MovieFone shares until 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.
The Value of the America Online Common Stock You Receive in the Merger May
Vary.
Upon completion of the merger, each share of MovieFone common stock will be
exchanged for between .3339 and .4518 of a share of America Online common
stock. There will be no adjustment in the event of fluctuation in the market
price of MovieFone common stock. As described in "Structure of the Merger and
Conversion of MovieFone Common Stock" on page 30, the exchange ratio will be
adjusted only within this range based on changes in the Average America Online
Stock Price. 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. As of
April 20, 1999, the last trading date for which information was available
before the printing of this proxy statement-prospectus, the closing price of
America Online common stock was $128.6875 per share. The share prices of both
MovieFone common stock and America Online common stock are by nature subject to
the general price fluctuations in the market for publicly traded equity
securities and have experienced significant volatility. No prediction can be
made as to the market prices of either MovieFone common stock or America Online
common stock at any time before the completion of the merger or as to the
market price of America Online common stock after the completion of the merger.
MovieFone Officers and Directors Have Conflicts of Interest Relating To Their
Approval and Support of the Merger.
The directors and officers of MovieFone 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, eight officers of MovieFone have signed letters containing
offers of employment from America Online that will become effective upon the
completion of the merger. These officers are identified under "Interests of
Certain MovieFone Directors, Officers and Affiliates in the Merger" on page 29.
In addition, J. Russell Leatherman has also entered into a voice recording
contract with America Online that will become effective upon the completion of
the merger.
In addition, 422,870 unvested stock options granted under MovieFone's 1994
Stock Option Plan to Andrew Jarecki, Adam Slutsky, J. Russell Leatherman and
all other officers and directors of MovieFone will vest upon the completion of
the merger in accordance with the existing plan provisions.
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.
On the record date, directors and executive officers of MovieFone and their
affiliates beneficially owned approximately 76.4 % of the outstanding shares of
MovieFone common stock, which constituted 92.8% of the voting power of
outstanding MovieFone common stock.
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Parties to Contracts With MovieFone May Be Competitors of America Online Which
May Impact Their Decision Whether to Renew Their Contracts With MovieFone
MovieFone has contracts with:
. movie studios
. movie exhibitors
. media, such as local newspapers, magazines, radio stations and television
stations.
These contracts provide for:
. sales of advertising by MovieFone to movie studios
. right to sell tickets by MovieFone for movie exhibitors
. cross-promotions between MovieFone and local print, radio and television
outlets.
Parties to these contracts may be competitors or affiliated with
competitors of America Online, which may affect the likelihood of contract
renewals or negotiation of new contracts with MovieFone after the merger.
Failure of movie studios, movie exhibitors and local print and radio and
television stations to renew or enter into new agreements with MovieFone could
impair the combined company's ability to realize the expected benefits of the
merger.
Failure to Complete the Merger Could Negatively Impact MovieFone's Stock Price
and Future Business and Operations.
If the merger is not completed for any reason, MovieFone may be subject to
the following material risks:
. MovieFone may be required to pay America Online a termination fee of $12
million, plus up to $2.5 million of expenses incurred by America Online
. the option granted to America Online by MovieFone may become exercisable
. the price of MovieFone common stock may decline to the extent that the
current market price of MovieFone 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
. the competing bidder for MovieFone may no longer be interested in
acquiring MovieFone.
If the merger is terminated and MovieFone'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 the limited exceptions
described on page 36 of this proxy statement-prospectus, MovieFone 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 MovieFone common stock, MovieFone would not
be able to account for future transactions as a pooling-of-interests.
Potential Year 2000 Problems May Have an Adverse Effect on America Online's
and MovieFone'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 its online services and Web sites, the proprietary software
of the AOL and CompuServe services, Netscape software products, member and
customer
14
<PAGE>
services, network access, content providers, joint ventures and various
administrative and billing functions. To the extent that these applications
contain source codes that are unable to appropriately interpret the upcoming
calendar year 2000, some level of modification, or even possibly replacement
may be necessary.
In 1997, America Online 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
company-wide compliance and is overseeing testing. America Online's system
hardware components, client and host software, current versions of Netscape
software products and corporate business and information systems are currently
undergoing review and testing. 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.
America Online intends to make Year 2000 compliant certain versions of the
client software for the AOL service and the CompuServe service that are
available on the Windows and Macintosh operating systems, as well as versions
of Netscape software products that are currently shipped. These versions of the
software incorporate proprietary software and third-party component software
that may not be Year 2000 compliant, and testing continues. A patch or upgrade
may be required for members or customers using some of these versions to
achieve Year 2000 compliance. Over the coming months, America Online will be
working to obtain and make available any required patches or upgrades at no
cost to members of the online services and to communicate their availability.
America Online also will make available, at no additional cost to customers,
any required patches to the versions of Netscape software products currently
being shipped to customers and communicate their availability. In addition,
America Online will be encouraging members and customers to upgrade to versions
of the software that are expected to be Year 2000 compliant, if they have not
already done so.
In addition, America Online is continuing to gather information from its
vendors, join 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. 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 through March 1999 to address Year 2000 compliance were
approximately $7 million. America Online currently estimates it will incur a
total of approximately $20 million in costs to support its compliance
initiatives. America Online cannot predict the outcome 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. Failure to
achieve Year 2000 compliance could result in interruptions in the work of its
employees, the inability of members and customers to access America Online's
online services and Web sites or errors and defects in the Netscape products.
This, in turn, may result in the loss of subscription services revenue,
advertising and commerce revenue or enterprise solution revenue, the inability
to deliver minimum guaranteed levels of traffic, diversion of development
resources, or increased service and warranty costs. Occurrence of any of these
may also result in additional remedial costs and damage to reputation.
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.
MovieFone is dedicating both internal and external resources to make the
required modifications and test Year 2000 compliance. MovieFone expects to
complete the testing process of all significant applications by September 30,
1999.
15
<PAGE>
In addition, MovieFone has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which MovieFone is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
MovieFone's systems rely will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with MovieFone's
systems, would not have a material adverse effect on MovieFone.
The total cost of MovieFone's Year 2000 project is estimated at $800,000 and
is being funded through operating cash flows. To date, MovieFone has incurred
approximately $150,000 related to the assessment of, and preliminary efforts in
connection with, its Year 2000 project and the development of its remediation
plan. Purchased hardware and software will be capitalized in accordance with
MovieFone's normal policy. Personnel and all other costs related to the project
are being expensed as incurred. In the event that MovieFone's material systems
are not Year 2000 compliant, MovieFone may experience reductions or
interruptions in operations which could have a material adverse effect on its
business, financial condition or results of operations.
MovieFone has contingency plans for some mission-critical applications and
is working on plans for others. It is MovieFone's intention to implement its
contingency plans no later than September 30, 1999.
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
MovieFone 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.
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 make it more difficult for a third party to acquire, or could
discourage 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 non-
procedural 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 50 through 51 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.
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The Special Meeting of MovieFone Stockholders
Proxy Statement-Prospectus
This proxy statement-prospectus is being furnished to you in connection with
the solicitation of proxies by MovieFone's board of directors in connection
with our proposed merger.
This proxy statement-prospectus is first being furnished to stockholders of
MovieFone on or about April 23, 1999.
Date, Time and Place of the Special Meeting
The special meeting of stockholders of MovieFone is scheduled to be held as
follows:
May 21, 1999
9:00 a.m., local time
MovieFone, Inc.
335 Madison Avenue, 27th floor
New York, New York 10017
Purpose of the Special Meeting
The special meeting is being held so that stockholders of MovieFone may
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of February 1, 1999, by and among America Online, MF Acquisition
Corporation, a newly formed and wholly owned subsidiary of America Online, and
MovieFone 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 MovieFone adopt the merger agreement, MF Acquisition
Corporation will merge with and into MovieFone and MovieFone will survive the
merger as a wholly owned subsidiary of America Online. You will receive between
.3339 and .4518 of a share of America Online common stock for each share of
MovieFone common stock you hold, as more fully described in the "Structure of
the Merger and Conversion of MovieFone Common Stock."
Stockholder Record Date for the Special Meeting
MovieFone's board of directors has fixed the close of business on April 9,
1999 as the record date for determination of MovieFone stockholders entitled to
notice of and to vote at the special meeting. On the record date, there were
5,335,435 shares of MovieFone Class A common stock outstanding, held by
approximately 56 holders of record, representing approximately 1,700 beneficial
stockholders, and 7,080,053 shares of MovieFone Class B common stock
outstanding, held by approximately six holders of record.
Vote of MovieFone Stockholders Required for Adoption of the Merger Agreement
A majority of the outstanding voting power of the shares of MovieFone 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 the aggregate voting
power of MovieFone's common stock outstanding and entitled to vote at the
special meeting is required to adopt the merger agreement. You are entitled to
(1) one vote for each share of MovieFone Class A common stock and (2) five
votes for each share of MovieFone Class B common stock, held by you on the
record date on each proposal to be presented to stockholders at the special
meeting.
The MovieFone stockholders who are parties to the stockholders agreement
with America Online agreed, subject to the terms and conditions of the
stockholders agreement, to vote their shares of MovieFone common stock in favor
of the adoption of the merger agreement. As of the record date, these
stockholders held
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approximately 2,660,732 of the shares of MovieFone Class A common stock and
7,080,053 of the shares of MovieFone Class B common stock. These share numbers
represented approximately 78.4% of the outstanding shares of MovieFone common
stock and approximately 93.4% of the voting power of the outstanding shares of
MovieFone Common Stock entitled to vote as of the record date at the special
meeting. Accordingly, it is highly likely that the merger will be approved.
On the record date for the special meeting, directors and executive officers
of MovieFone and their affiliates beneficially owned approximately 9,490,728
shares of MovieFone common stock. These share numbers represented approximately
76.4 % of all outstanding shares of MovieFone common stock and approximately
92.8% of the voting power of the outstanding shares of MovieFone common stock
entitled to vote as of the record date at the special meeting.
Proxies
All shares of MovieFone 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 MovieFone 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 MovieFone 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 the voting power of MovieFone's common stock outstanding on
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.
MovieFone 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 MovieFone at 335 Madison Avenue,
New York, New York, 10017,
. granting a subsequent proxy or
. 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. MovieFone will 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
MovieFone common stock will be mailed to you as soon as practicable after
completion of the merger.
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The Merger
This section of the proxy statement-prospectus describes material aspects of
the proposed merger, including the merger agreement, the stock option agreement
and the stockholders 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. In addition, we incorporate important
business and financial information about each of us into this proxy statement-
prospectus by reference. 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 55 of this proxy statement-prospectus.
Background of the Merger
America Online and MovieFone have been familiar with each other's business
for several years. In 1995, America Online and MovieFone entered into a
transaction under which each company agreed to provide links to the other
company's World Wide Web site and MovieFone was made the exclusive provider of
movie showtimes and theater information on the AOL service. This agreement
terminated in early 1998.
Beginning in late October 1998, Andrew R. Jarecki, Chief Executive Officer
of MovieFone, and Adam H. Slutsky, Chief Financial Officer of MovieFone, held a
series of meetings with senior executive officers of another company exploring
the possible combination of the two companies.
On December 10, 1998, Mr. Jarecki attended the premiere of the movie "You've
Got Mail," which featured America Online, and talked with Robert W. Pittman,
President and Chief Operating Officer of America Online, about opportunities
for America Online and MovieFone to work together. Mr. Pittman suggested that
Mr. Jarecki call and arrange a time for them to get together. Mr. Jarecki spoke
with Mr. Pittman on December 21, 1998, to arrange a meeting between them.
On December 30, 1998, Mr. Pittman met with Mr. Jarecki and MovieFone board
member Strauss Zelnick to discuss possible mutual business opportunities,
including the merits of a possible business combination between America Online
and MovieFone.
On January 5, 1999, Mr. Jarecki and other MovieFone management personnel met
with the CEO of the other company that had expressed interest in a business
combination with MovieFone. At this meeting, the other company indicated its
desire regarding a possible business combination.
On January 7, 1999, Donn Davis, Senior Vice President, Business Development,
of America Online met with Mr. Jarecki and Mr. Slutsky to conduct further
discussions on the possible business combination of America Online and
MovieFone.
On January 8, 1999, Mr. Jarecki and Mr. Slutsky met at MovieFone's offices
with representatives from Salomon Smith Barney to discuss how that firm might
serve as MovieFone's investment banker in a potential business combination
transaction. Salomon Smith Barney had been the co-manager of MovieFone's
initial public offering in 1994.
During the week of January 11, 1999, members of America Online management
spoke with representatives of America Online's financial advisor, Lazard Freres
& Co. LLC and with America Online's counsel, Orrick, Herrington & Sutcliffe
LLP, regarding Lazard Freres' and Orrick's representation of America Online in
connection with the possible MovieFone transaction. Thereafter, through the
execution of the definitive merger agreement, members of America Online's
management regularly discussed the possible business combination with both
Lazard Freres and Orrick.
On January 13, 1999 and January 14, 1999, representatives of America Online
and its legal and financial advisors met with Mr. Jarecki, Mr. Slutsky and
other members of MovieFone management at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, MovieFone's counsel, to conduct preliminary due diligence
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investigations of MovieFone. From January 13, 1999 through the execution of
the definitive merger agreement, America Online's financial and legal advisors
conducted due diligence on MovieFone, and MovieFone's financial advisors
periodically conducted financial due diligence on America Online.
On January 15 and 16, 1999, Mr. Jarecki had discussions with senior
representatives of the other bidder, and from January 17, 1999 through January
19, 1999, two senior officers from the other bidder and several outside
advisors to the other bidder conducted due diligence meetings with Mr.
Jarecki, Mr. Slutsky and other MovieFone officials at Skadden Arps' offices in
New York.
On January 20, 1999, the MovieFone board of directors met to approve the
engagement of Salomon Smith Barney as MovieFone's financial advisor, and to
receive a briefing by Salomon Smith Barney with respect to financial and stock
market information about America Online, the other bidder and other potential
merger parties. MovieFone management was instructed by the board to continue
discussions with all interested parties about a potential business combination
transaction.
On January 21, 1999, the other bidder delivered a written proposal for a
combination transaction with MovieFone, and Mr. Jarecki had discussions with
the other bidder about its proposal. Later that day, Mr. Jarecki and Mr.
Pittman met in New York and discussed the merits of a transaction between
MovieFone and America Online, and how MovieFone would fit into the America
Online organizational structure.
On January 25, 1999, America Online's board of directors held a regularly
scheduled meeting. Mr. Davis gave a presentation to America Online's board of
directors on the proposed merger, which included an overview of the
transaction, the rationale for the merger, a summary of proposed deal terms
and the financial analysis related thereto.
On the evening of January 25, 1999, America Online submitted a term sheet
to MovieFone setting forth America Online's formal proposal of terms. Later in
the evening of January 25, 1999, Mr. Davis spoke with Mr. Jarecki to discuss
the proposed term sheet and America Online's proposed price.
On January 25, 1999, Mr. Jarecki and a senior officer of the other bidder
had a meeting to discuss the proposed combination transaction.
On January 26, 1999, the other bidder delivered an increased proposal for a
combination transaction with MovieFone.
On January 26, 1999, Mr. Davis spoke again with Mr. Jarecki to continue
negotiating on pricing terms.
On January 26, 1999, the MovieFone board discussed America Online's
proposal of January 25, 1999, and the other bidder's proposal of January 26.
The MovieFone board instructed MovieFone management to continue discussions
with America Online and to continue discussions, through Salomon Smith Barney,
with the other bidder.
From January 26, 1999 through February 1, 1999, members of management of
America Online and MovieFone, along with their respective legal and financial
advisors, met in New York to negotiate the terms of the proposed merger of
America Online and MovieFone. During such time, the parties negotiated the
principal terms of the agreements and other related documents, including the
exchange ratio and the mechanism for adjustment for MovieFone stock, the
representations, warranties, covenants, termination provisions, conditions to
closing and deal protection provisions.
On January 27, 1999, America Online's board of directors held a special
meeting via telephone conference to discuss the proposed transaction. Mr.
Davis gave another presentation on the terms of the transaction. J. Michael
Kelly, Senior Vice President and Chief Financial Officer of America Online,
informed the board that America Online's financial advisors would be
delivering a fairness opinion on the deal based on the terms discussed by Mr.
Davis. Stephen M. Case, Chairman and Chief Executive Officer of America Online
discussed the strategic rationale for the transaction. 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 and the related agreements substantially in the form presented, and
authorized management to finalize the details of the merger agreement and the
related agreements.
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On January 28, 1999, the MovieFone board of directors held a meeting to
report on merger discussions with America Online and the other bidder and made
a preliminary determination that the terms of the America Online proposal were
preferable. The MovieFone board of directors made this determination because
the America Online proposal was for a transaction in which MovieFone
stockholders would receive an historically highly liquid stock on a tax free
basis. The competing bidder's proposal did not offer the same benefits to
MovieFone stockholders. The MovieFone board of directors also determined that
there was an opportunity for MovieFone and its stockholders to realize greater
long term value in a transaction with America Online than in a transaction with
the competing bidder.
On the evening of January 31, 1999, the MovieFone board of directors held a
meeting via telephone conference to consider the terms of the proposed
transaction with America Online. At this meeting, management of MovieFone
discussed the results of the negotiations with America Online and the terms of
the proposed merger; representatives of Salomon Smith Barney presented an
analysis of the financial terms of the proposed merger and delivered an opinion
as to the fairness of the exchange ratio, from a financial point of view, to
the holders of MovieFone common stock; and representatives of Skadden, Arps
outlined the terms of the proposed merger agreement, the stock option
agreement, the stockholders agreement and the other documents. Following these
presentations and the related discussions by the MovieFone board, the entire
MovieFone board unanimously concluded that the merger was in the best interests
of MovieFone and MovieFone stockholders, unanimously approved the proposed
terms of the merger and the merger agreement in substantially the form
presented, and authorized MovieFone's officers to complete the negotiation and
execution of the merger agreement.
On the morning of February 1, 1999, America Online and MovieFone agreed that
the value of the America Online common stock to be exchanged in the merger per
share of MovieFone common stock would be $29.25, and agreed upon the
calculation of the exchange ratio and collar.
Additionally, during the morning of February 1, 1999, MovieFone issued a
press release announcing that MovieFone was in discussions which could lead to
a sale of MovieFone.
In the afternoon of February 1, 1999, MovieFone and America Online entered
into the merger agreement and the stock option agreement, the MovieFone
stockholders identified on page 42 under the heading "Stockholders Agreement"
entered into the stockholders agreement with America Online, and each of the
members of the board of directors of MovieFone and appropriate officers of
MovieFone entered into the MovieFone affiliate agreements. The board of
directors and appropriate officers of America Online are subject to
restrictions on trading under existing affiliate agreements. On February 1,
1999, America Online and MovieFone issued a joint press release announcing the
merger.
Joint Reasons for the Merger
The Boards of Directors of America Online and MovieFone have determined that
following the merger the combined company would have the potential to realize
long-term improved operating and financial results and a stronger competitive
position. America Online's and MovieFone's boards of directors have identified
potential benefits of the merger that they believe will contribute to the
success of the combined company. These potential benefits from combining
MovieFone with America Online include the following:
. advancing a multiple brand strategy by adding one of the entertainment
information and ticketing industry's best known brands, MovieFone, to
America Online's brands, which include the AOL service, CompuServe
service, ICQ, Netscape and Digital City brands
. enhancing the leadership of AOL's Digital City in local interactive
services
. expanding the reach of MovieFone to new customers and in existing and new
markets
. providing new cross-promotional and branding opportunities
. enabling America Online to develop the area of online entertainment
ticketing and related electronic commerce opportunities
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MovieFone's Reasons for the Merger
In addition to the anticipated potential joint benefits described above,
MovieFone's board of directors believes that the following are additional
reasons the merger will be beneficial to MovieFone:
. combining with America Online will allow MovieFone to expand its core
telephone information and ticketing business through the combined
company's wide brand recognition and expanded audience base
. the merger will enhance the opportunity for the realization of
MovieFone's strategic objectives of achieving greater scale and presence
on the Internet through access to America Online's expanded audience base
. combining with America Online will increase the advertising and commerce
relationships available to support MovieFone's products and services
. the combined company will provide the opportunity for expanded research
and development of MovieFone's telephone and online products
. MovieFone's stockholders will have the opportunity to receive a
significant and immediate value premium for their shares of MovieFone
common stock
. MovieFone's stockholders will have the opportunity to participate in the
potential for growth of the combined company after the merger
. the America Online common stock to be received by MovieFone stockholders
has historically enjoyed a great deal of liquidity and has been the
subject of a large volume of published investment research and analysis
In the course of deliberations, the MovieFone board reviewed with MovieFone
management and outside advisors a number of additional factors relevant to the
merger, including:
. historical information concerning America Online's and MovieFone's
respective businesses, financial performance and conditions, operations,
technologies, managements and competitive positions, including public
reports concerning results of operations during the most recent fiscal
year and fiscal quarter for each company filed with the SEC
. MovieFone management's view as to the financial condition, results of
operations and businesses of America Online and MovieFone, before and
after giving effect to the merger, based on management's due diligence
and publicly available earnings estimates
. current financial market conditions and historical market prices,
volatility and trading information with respect to America Online common
stock and MovieFone common stock
. the consideration to be received by MovieFone 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 MovieFone common stock in light
of comparable merger transactions
. the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable
. MovieFone management's view as to the prospects of MovieFone as an
independent company
. MovieFone management's view as to the potential for other third parties
to enter into strategic relationships with or to acquire MovieFone
. detailed financial analysis and other information with respect to the
companies presented by Salomon Smith Barney to the board, including
Salomon Smith Barney's opinion that, as of the date of its opinion, the
exchange ratio pursuant to the merger agreement was fair, from a
financial point of view, to the MovieFone stockholders, which is attached
as Annex D, and stockholders are urged to carefully review this opinion
. reports from management and financial advisors as to the results of their
due diligence investigation of America Online.
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MovieFone's board of directors also considered the terms of the merger
agreement regarding MovieFone's rights and limits on its ability 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, MovieFone'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 merger. MovieFone's board of directors also
considered various alternatives to the merger, including combining with
companies other than America Online or remaining as an independent company.
MovieFone'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 consummated and the effect
of public announcement of the merger on (a) MovieFone's sales and
operating results, (b) MovieFone's ability to attract and retain key
management, marketing and technical personnel and (c) progress of
MovieFone's current development and marketing projects
. the substantial charges to be incurred in connection with the merger,
including the 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
. the other risks described under "Risk Factors" on page 13.
MovieFone'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 of the factors considered
by MovieFone's board of directors. Each member of MovieFone's board may have
considered different factors, and MovieFone's board did not quantify or
otherwise assign relative weights to factors considered.
Recommendation of MovieFone's Board of Directors
After careful consideration, MovieFone's board of directors unanimously
determined the merger to be fair to you and in your best interest, and declared
the merger advisable. MovieFone's board of directors approved the merger
agreement and unanimously recommends your adoption of the merger agreement.
In considering the recommendation of the MovieFone board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of MovieFone have certain interests in the merger that are different
from, or are in addition to, the interests of MovieFone stockholders generally.
Please see the section entitled "Interests of Certain MovieFone Directors,
Officers and Affiliates in the Merger" on page 29 of this proxy statement-
prospectus.
Opinion of MovieFone's Financial Advisor
At the meeting of the MovieFone board of directors held on January 31, 1999,
Salomon Smith Barney delivered its oral opinion, subsequently confirmed in
writing on February 1, 1999, that, as of that date, the exchange ratio was fair
to the holders of MovieFone common stock from a financial point of view. The
MovieFone board did not impose any limitations on the investigation made or the
procedures followed by Salomon Smith Barney in rendering its opinion.
The full text of the written opinion of Salomon Smith Barney is set forth as
Appendix D to this proxy statement-prospectus and sets forth the assumptions
made, procedures followed and matters considered by Salomon Smith Barney.
MovieFone stockholders are urged to read carefully Salomon Smith Barney's
opinion in its entirety.
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In connection with rendering its opinion, Salomon Smith Barney reviewed
certain publicly available information concerning MovieFone and America Online
and certain other financial information concerning MovieFone, including
financial forecasts, that MovieFone provided to Salomon Smith Barney. Salomon
Smith Barney discussed the past and current business operations, financial
condition and prospects of MovieFone with certain officers and employees of
MovieFone. Salomon Smith Barney also considered other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the information
it reviewed, and Salomon Smith Barney did not assume any responsibility for
independent verification of the information. Salomon Smith Barney assumed the
financial forecasts of MovieFone were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the management of
MovieFone. Salomon Smith Barney expressed no opinion with respect to these
forecasts or the assumptions on which they were based. Salomon Smith Barney
also assumed that the merger will be consummated according to the terms of the
merger agreement. Salomon Smith Barney did not make or obtain, or assume any
responsibility for making or obtaining, any independent evaluation or appraisal
of any of the assets or liabilities of MovieFone.
Salomon Smith Barney's opinion is necessarily based upon conditions as they
existed and could be evaluated on the date of the opinion. Salomon Smith
Barney's opinion does not imply any conclusion as to the likely trading range
for America Online common stock following the completion of the merger, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities. Salomon Smith
Barney's opinion does not address MovieFone's underlying business decision to
effect the merger. Salomon Smith Barney did not consider the terms of the
proposal to MovieFone from the competing bidder in arriving at its opinion.
Salomon Smith Barney expressed no view on the effect on MovieFone of the merger
and related transactions. Further, Salomon Smith Barney's opinion is directed
only to the fairness, from a financial point of view, of the exchange ratio to
holders of MovieFone common stock and is not a recommendation concerning how
those holders should vote on the proposal regarding the merger and the merger
agreement.
In connection with its opinion, Salomon Smith Barney performed certain
financial analyses, which it discussed with the MovieFone board on January 31,
1999. The material portions of the analyses performed by Salomon Smith Barney
in connection with the rendering of its opinion dated February 1, 1999 are
summarized below. The summary of certain of the financial analyses includes
information presented in tabular format. In order to understand fully the
financial analyses used by Salomon Smith Barney, these tables must be read
together with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses.
(1) Historical Stock Price Performance. Salomon Smith Barney reviewed
the relationship between movements of the following for the one- and three-
year periods ending January 26, 1999:
. MovieFone common stock
. America Online common stock
. an index composed of e-commerce common stocks
. an index composed of online media common stocks
. the Standard & Poor's 500 Index.
Salomon Smith Barney also reviewed the trading volume and price history
of the following:
. MovieFone common stock for the period from January 15, 1998 through
January 26, 1999
. America Online common stock for the period from January 2, 1998
through January 26, 1999.
Salomon Smith Barney noted that over these periods MovieFone common
stock performed comparably or outperformed the Standard & Poor's 500 Index
and underperformed the following for most of these periods, with the
underperformance becoming more dramatic in 1997 and 1998:
. America Online's common stock
. the index composed of e-commerce common stocks
. the index composed of online media common stocks.
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(2) Historical Exchange Ratio Analysis. Salomon Smith Barney reviewed
the daily closing prices of MovieFone common stock and America Online
common stock during the period from January 1, 1998 through January 26,
1999 and the implied historical exchange ratios determined by dividing the
price per share of MovieFone common stock by the price per share of America
Online common stock over that period. Salomon Smith Barney calculated that
during this period the historical exchange ratio ranged from a high of 0.78
to a low of 0.20 with an average of 0.40 and an exchange ratio on January
26, 1999 of 0.26. These historical exchange ratios have been adjusted in
the same manner as the exchange ratio under the merger agreement to reflect
America Online's two-for-one stock split which was effected on February 22,
1999.
(3) MovieFone Valuation Analysis. Salomon Smith Barney arrived at a
range of values for MovieFone by utilizing the following four principal
valuation methodologies:
. Public Market Analysis. A public market analysis reviews a business'
operating performance and outlook relative to a group of publicly
traded peer companies to determine an implied unaffected market
trading value.
. Private Market Analysis. A private market analysis provides a
valuation range based upon financial information of companies which
have been acquired in selected recent transactions and which are in
the same or similar industries as the business being valued.
. Segment Valuation Analysis. A segment valuation analysis separately
values distinct segments of a company using a public or private
market analysis with publicly traded companies or acquisition
transactions comparable to each segment and uses those valuations to
arrive at a range of values for the consolidated entity.
. Discounted Cash Flow Analysis. A discounted cash flow analysis
provides insight into the intrinsic value of a business based on the
projected earnings and capital requirements and the net present value
of the subsequent cash flows anticipated to be generated by the
assets of the business.
No company used in the public market analysis or in the public market
segment valuation analysis described below is identical to MovieFone. No
transaction used in the private market valuation analysis or private market
segment valuation analysis described below is identical to the merger.
Accordingly, an examination of the results of the analyses described below
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of the businesses
and other facts that could affect the public trading value or the
acquisition value of the companies to which they are being compared.
In the public and private market valuation analyses described below,
Salomon Smith Barney calculated a range of implied equity values per share
of MovieFone common stock based on a range of multiples of firm value to
revenues based on companies that derive their revenue from targeted
advertising sales or reservation and ticketing services. For the segment
valuation analyses described below, Salomon Smith Barney separately valued
the Internet component of MovieFone's business by applying a median
multiple of firm value to revenue for companies that derive their revenue
from the Internet to the portion of MovieFone's revenue expected to be
derived from the Internet. In addition, Salomon Smith Barney also
calculated a range of implied equity values per share of MovieFone common
stock based on adjusting upward the multiples of firm value to revenues for
companies that derive their revenue from targeted advertising sales or
reservation and ticketing services to reflect the greater projected growth
of MovieFone as compared to those other companies. These adjustments to the
multiples are based on projections provided by MovieFone management that
MovieFone's consolidated revenue will increase 46% in the year 2000. In the
segment valuation analyses, the Internet industry multiples were not
adjusted to reflect this growth because companies in the Internet industry
segments used to calculate those multiples reflected comparable growth to
that projected for MovieFone by MovieFone management. Salomon Smith Barney
advised the MovieFone board of directors that these growth-adjusted
analyses are not standard analyses
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and that these analyses produced implied equity values per share of
MovieFone common stock significantly higher than those values produced by
more customary analyses.
(a) Public Market Analysis. Salomon Smith Barney compared the
multiple of firm value to revenue of MovieFone with companies that
Salomon Smith Barney believed to be appropriate for comparison. These
companies derive their revenue from targeted advertising sales or
reservations and ticketing services. For these companies, Salomon Smith
Barney reviewed the multiples of firm value to 1999 estimated revenue.
Using this information and other factors considered relevant by Salomon
Smith Barney, Salomon Smith Barney determined a range of multiples of
firm value to 1999 estimated revenue and an adjusted mean multiple to
reflect MovieFone's greater projected growth. The following table
presents the companies considered, the mean multiples for those
companies and the growth-adjusted mean multiples:
<TABLE>
<CAPTION>
Mean Multiple of Growth-Adjusted
Targeted Advertising Sales Firm Value/1999 Revenue Mean Multiple
-------------------------- ----------------------- ---------------
<S> <C> <C>
TMP Worldwide, Petersen Companies,
Ziff Davis....................... 3.5x 11.4x
Reservations/Ticketing Services
-------------------------------
Galileo International Inc., Sabre
Group Holdings Inc., Ticketmaster
(prior to acquisition by USAI) .. 2.6x 11.1x
</TABLE>
These multiples resulted in implied equity values per share of
MovieFone common stock ranging from $7.39 to $9.95, and resulted in
growth-adjusted implied equity values per share of MovieFone common
stock ranging from $31.51 to $32.49.
(b) Public Market Segment Valuation Analysis. Salomon Smith Barney
arrived at a range of values for MovieFone by separately valuing its
Internet business from the rest of MovieFone's operations. Salomon
Smith Barney analyzed the Internet portion of MovieFone's operating
performance and outlook relative to three different groups of publicly
traded peer companies to determine an implied unaffected market trading
value. Salomon Smith Barney compared the multiple of firm value to 1999
estimated revenue for this portion of MovieFone's business with three
different types of companies which derive their business from the
Internet: e-commerce companies, category sites companies and
Ticketmaster Online-CitySearch. The following table presents the three
groups of peer companies considered in valuing MovieFone's Internet
business and the median multiple for those companies:
<TABLE>
<CAPTION>
Median of Firm
E-Commerce Companies Value/1999 Revenue
-------------------- ------------------
<S> <C>
Amazon.com, CDNow, Preview Travel
Category Sites Companies
------------------------
CNET, Inc., SportsLine USA, Inc. 15.8x
Other Companies
---------------
Ticketmaster Online-CitySearch
</TABLE>
When combined with the multiples for the rest of MovieFone's
operations--both unadjusted and growth-adjusted--calculated as
described above under the public market analysis for MovieFone as a
consolidated entity, after subtracting the Internet portion of
MovieFone's business, this segment valuation analysis resulted in
implied equity values per share of MovieFone common stock ranging from
$14.68 to $16.74, and resulted in growth-adjusted implied equity values
per share of MovieFone common stock ranging from $31.89 to $32.61.
(c) Private Market Valuation Analysis. Salomon Smith Barney reviewed
and analyzed certain financial, operating and stock market information
relating to selected merger transactions involving companies that
derive their revenue from targeted advertising sales or reservation and
ticketing services. Salomon Smith Barney reviewed, among other things,
the multiple of firm value to the last 12 months' revenues for these
transactions. Using this information and other factors deemed relevant
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by Salomon Smith Barney, Salomon Smith Barney determined a range of
multiples of firm value to the last 12 months' revenues and an adjusted
mean multiple to reflect MovieFone's greater projected growth. The
following table presents the merger transactions considered for these
companies, the mean multiples for those transactions and the growth-
adjusted mean multiples:
<TABLE>
<CAPTION>
Mean Multiple of
Firm Value/Last Growth-Adjusted
Targeted Advertising Sales 12 Months' Revenue Mean Multiple
-------------------------- ------------------ ---------------
<S> <C> <C>
EMAP purchase of Peterson, Penton
purchase of Mecklermedia.............. 4.1x 13.4x
<CAPTION>
Reservations/Ticketing Services
-------------------------------
<S> <C> <C>
USA Networks purchase of Ticketmaster.. 2.9x 12.4x
</TABLE>
These multiples resulted in implied equity values per share of
MovieFone common stock ranging from $5.50 to $7.77, and resulted in
growth-adjusted implied equity values per share of MovieFone common
stock ranging from $23.43 to $25.38.
(d) Private Market Segment Valuation Analysis. Salomon Smith Barney
reviewed and analyzed certain financial, operating and stock market
information relating to selected merger transactions involving Internet
related businesses to value MovieFone's Internet business. Salomon
Smith Barney reviewed, among other things, the multiples of firm value
to the last 12 months' revenues in these transactions. The following
table presents the merger transactions considered in valuing
MovieFone's Internet business and the median multiple for those
transactions:
<TABLE>
<CAPTION>
Median of
Firm Value/Last
Internet Revenue Company Mergers 12 Months' Revenue
-------------------------------- ------------------
<S> <C>
At Home Corp. purchase of Excite, Big E Entertainment
purchase of
Hollywood Online, Ticketmaster Online purchase of
CitySearch,
America Online purchase of Netscape, CDNow purchase
of N2K............................................... 13.8x
</TABLE>
When combined with the ranges of multiples for the rest of
MovieFone's operations--both unadjusted and growth-adjusted--calculated
as described above under the private market analysis for MovieFone as a
consolidated entity, after subtracting the Internet portion of
MovieFone's business, this segment valuation analysis resulted in
implied equity values per share of MovieFone common stock ranging from
$8.43 to $10.38, and resulted in growth-adjusted implied equity values
per share of MovieFone common stock ranging from $22.05 to $23.58.
(e) Discounted Cash Flow Analysis. Salomon Smith Barney performed a
discounted cash flow analysis to provide insight into the intrinsic
value of MovieFone based on projected earnings and capital requirements
and the subsequent cash flows generated by the assets of MovieFone.
Salomon Smith Barney calculated ranges of per share equity values of
MovieFone based upon the following:
. the present value as of December 31, 1998, of a range of five-
year streams of projected cash flow--based on estimates provided
by management of MovieFone
. the projected 2003 terminal values based upon a range of
multiples of projected 2003 earnings before interest, taxes,
depreciation and amortization of MovieFone if it were to continue
on a stand-alone basis without giving effect to the merger.
Salomon Smith Barney applied several discount rates reflecting a
weighted average cost of capital ranging from 12.5% to 17.5% and
terminal multiples of earnings before interest, taxes, depreciation and
amortization ranging from 13.0x to 15.0x. Based on these weighted
average costs of capital rates, multiples and certain adjustments, this
analysis resulted in implied equity values per share of MovieFone
common stock ranging from $17.47 to $42.55.
(f) Implied Premium Analysis. Based on information supplied by
Securities Data Corporation, Salomon Smith Barney analyzed the implied
premium for the following periods for the following
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types of merger transactions that Salomon Smith Barney determined were
relevant for purposes of calculating an implied premium to be paid for
MovieFone common stock:
<TABLE>
<CAPTION>
Median Premium
-------------------------------
30 days prior 1 day prior
Stock Transactions--1/1/1998 - 1/31/1999 to Announcement to Announcement
- ---------------------------------------- --------------- ---------------
<S> <C> <C>
All Domestic Transactions....................... 31.3% 21.3%
All Domestic Transactions < $500MM.............. 37.7 23.5
All E-Commerce Transactions..................... 32.0 21.3
All On-line Media Transactions.................. 59.7 37.0
Cash Transactions--1/1/1998 - 1/31/1999
- ---------------------------------------
All Domestic Transactions....................... 34.4% 24.0%
All Domestic Transactions < $500MM.............. 34.7 24.3
All E-Commerce Transactions..................... 22.2 15.7
All On-line Media Transactions.................. 35.4 28.0
---- ----
High.......................................... 59.7% 37.0%
Median........................................ 34.5 23.8
Mean.......................................... 35.9 24.4
Low........................................... 22.2 15.7
</TABLE>
Based on this range of implied premiums, this analysis resulted in
implied equity values per share of MovieFone common stock ranging from
$23.83 to $31.14.
(4) America Online Overview and Comparative Analysis. Salomon Smith
Barney also compared certain financial information of America Online with a
group of on-line media companies set forth below that Salomon Smith Barney
believed to be appropriate for comparison. Salomon Smith Barney compared
the mean and median multiples of firm values to 1999 estimated revenue for
these companies, which were 38.0x and 27.0x, respectively, with the
comparable multiple for America Online of 19.7x.
On-line Media Company On-line Media Company
. DoubleClick Inc.
. Yahoo! Inc. . 24/7 Media, Inc.
. Infoseek Corporation . Broadcast.com Inc.
. Lycos, Inc. . GeoCities
. Excite, Inc. . theglobe. com
. CNET, Inc. . EarthWeb
. Sportsline USA, Inc.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above is not
a complete description of the analyses underlying Salomon Smith Barney's
opinion or its presentation to the MovieFone board. Salomon Smith Barney
believes that its analyses and the summary set forth above must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all such analyses and factors, could
create an incomplete view of the processes underlying the analyses set forth in
its opinion.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
MovieFone or America Online. The analyses which Salomon Smith Barney performed
are not necessarily indicative of actual values or actual future results, which
may be significantly more or less favorable than suggested by the analyses. The
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the exchange ratio to the holders
of MovieFone common stock. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the
future.
Pursuant to an engagement letter dated January 13, 1999, MovieFone agreed to
pay to Salomon Smith Barney: (a) a fee of $400,000, which was payable on the
earlier of either the date that Salomon Smith Barney gave its fairness opinion
or the date of execution of an agreement in principle or definitive agreement
to sell
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MovieFone; and (b) an additional fee of 0.8% of the aggregate consideration to
be received in the merger, minus the $400,000 previously received. MovieFone
also agreed to reimburse Salomon Smith Barney for all reasonable fees and
disbursements of Salomon Smith Barney's counsel and all of Salomon Smith
Barney's reasonable travel and other expenses incurred in connection with the
merger, or otherwise from Salomon Smith Barney's engagement. MovieFone further
agreed to indemnify Salomon Smith Barney and certain related persons against
various liabilities, including liabilities under the federal securities laws,
relating to or arising out of its engagement.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the past, Salomon Smith Barney has rendered investment
banking and financial advisory services to MovieFone for which Salomon Smith
Barney received customary compensation. In addition, in the ordinary course of
its business, Salomon Smith Barney and its affiliates may actively trade the
securities of MovieFone and America Online for its own account and the accounts
of its customers and, accordingly, may at any time hold a long or short
position in their securities. Salomon Smith Barney and its affiliates may have
other business relationships with America Online, MovieFone and their
affiliates. The MovieFone board retained Salomon Smith Barney based on Salomon
Smith Barney's expertise in the valuation of companies as well as its
substantial experience in transactions like the merger.
Interests of Certain MovieFone Directors, Officers and Affiliates in the Merger
When considering the recommendation of MovieFone's board of directors, you
should be aware that the MovieFone directors and officers identified below have
interests in the merger that are different from, or are in addition to, yours.
In particular, eight officers of MovieFone have signed letters containing
offers of employment from America Online that will become effective upon the
completion of the merger. These are Andrew R. Jarecki, Adam H. Slutsky, J.
Russell Leatherman, Robert Gukeisen, Francesca Hauser, Marc Hollander, Thomas
Jarecki and Nada Stirratt. In addition, J. Russell Leatherman has also entered
into a voice recording contract with America Online that will become effective
upon the completion of the merger.
In addition, unvested stock options granted under MovieFone's 1994 Stock
Option Plan to Andrew Jarecki, Adam Slutsky, J. Russell Leatherman and all
other officers and directors of MovieFone will vest upon the completion of the
merger in accordance with the existing plan provisions. The number of shares of
MovieFone common stock subject to unvested options held by MovieFone's officers
and directors that will vest upon completion of the merger totaled 422,870 on
February 1, 1999.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement than if they did not have these interests.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the adoption of the merger agreement
by the stockholders of MovieFone. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of 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.
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Structure of the Merger and Conversion of MovieFone Common Stock
In accordance with the merger agreement and Delaware law, MF Acquisition
Corporation, a newly formed and wholly owned subsidiary of America Online, will
be merged with and into MovieFone. As a result of the merger, the separate
corporate existence of MF Acquisition Corporation will cease and MovieFone will
survive the merger as a wholly owned subsidiary of America Online.
Upon completion of the merger, each outstanding share of MovieFone common
stock, other than shares held by us and our subsidiaries, will be converted
into the right to receive a fraction between .3339 and .4518 of a share of
America Online common stock. Subject to the limitations below, the fraction
will be calculated by dividing $29.25 by the Average America Online Stock
Price. If, however, the Average America Online Stock Price is greater than
$87.595, each share of MovieFone common stock will be exchanged for .3339 of a
share of America Online common stock; and if the Average America Online Stock
Price is less than $64.745, each share of MovieFone common stock will be
exchanged for .4518 of a share of America Online common stock.
The number of shares of America Online common stock issuable in the merger
will be proportionately adjusted for any future stock split, stock dividend or
similar event with respect to MovieFone common stock or America Online common
stock effected between the date of the merger agreement and the completion of
the merger. The numbers set forth in the prior paragraph have been adjusted to
reflect America Online's two-for-one stock split which was effected on February
22, 1999.
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 MovieFone 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
MovieFone stock certificates in exchange for America Online stock certificates.
When you deliver your MovieFone stock certificates to the exchange agent along
with a properly executed letter of transmittal and any other required
documents, your MovieFone 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. 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 MovieFone 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 MovieFone 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 MovieFone stock certificates in exchange for America Online
stock certificates, you will receive such dividend or distribution 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 MovieFone stock certificates in exchange for
America Online stock certificates, you will receive such dividend or
distribution 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 MovieFone stock certificate is registered if you present
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<PAGE>
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 Orrick, Herrington & Sutcliffe LLP and Skadden, Arps,
Slate, Meagher & Flom LLP, the following are the material United States federal
income tax consequences of the merger, assuming that you hold your shares of
MovieFone common stock as capital assets. These opinions and the following
discussion are based on and subject to the Internal Revenue Code of 1986, its
legislative history, applicable Treasury regulations, administrative rulings
and court decisions currently in effect, all of which are subject to change at
any time, possibly with retroactive effect, and assumptions, limitations,
representations and covenants, including those contained in certificates of
officers of America Online, MF Acquisition Corporation and MovieFone expected
to be executed as of the date 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 MovieFone common stock by
exercising employee stock options or rights or otherwise as compensation
. stockholders who hold their shares of MovieFone common stock as part of a
hedge, straddle or conversion transaction
On the date that the merger is completed, each of Orrick, Herrington &
Sutcliffe LLP, counsel to America Online, and Skadden, Arps, Slate, Meagher &
Flom LLP, counsel to MovieFone, will, subject to the qualifications discussed
in the following paragraph, deliver to America Online and MovieFone,
respectively, its opinion, dated the date that the merger is completed, to the
effect that, for United States federal income tax purposes, the merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. Based on such closing tax opinions and the advice of our
respective counsel:
. No gain or loss will be recognized by America Online, MovieFone, and MF
Acquisition Corporation as a result of the merger.
. No gain or loss will be recognized by holders of America Online stock as
a result of the merger.
. No gain or loss will be recognized by you when you exchange all of your
MovieFone common stock solely for America Online common stock in the
merger, except that gain or loss may be recognized by you with respect to
cash received in lieu of a fractional share interest in America Online
common stock.
. The aggregate tax basis of the America Online common stock you receive in
the merger will be the same as your aggregate tax basis in the MovieFone
common stock you surrender in the merger, except that your aggregate tax
basis in America Online common stock will be reduced by the tax basis
allocable to any fractional share interest in America Online common stock
for which you receive cash.
. 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, measured by the
difference between the amount of cash you receive and the portion of the
tax basis of your shares of MovieFone common stock allocable to the
shares of MovieFone 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 MovieFone common stock
have been held for more than one year at the time the merger is
completed.
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. The tax holding period of the America Online common stock that you
receive in the merger (including any fractional share interest for which
you receive cash as described above) will include the period during which
you held the MovieFone common stock surrendered in the merger.
Our obligations to complete the merger are conditioned on, subject to waiver
by America Online and MovieFone, receipt of a closing tax opinion (1) by
America Online from Orrick, Herrington & Sutcliffe LLP and (2) by MovieFone
from Skadden, Arps, Slate, Meagher & Flom LLP, regarding material United States
federal income tax consequences of the merger in each case in form and
substance reasonably satisfactory to the party to whom such closing tax opinion
is addressed. The closing tax opinions (1) will be based on facts,
representations and assumptions set forth or referred to in the closing tax
opinions that are consistent with the facts existing at the time that the
merger occurs and (2) may rely on representations and covenants including those
contained in certificates of officers of America Online, MovieFone, MF
Acquisition Corporation and others, reasonably satisfactory in form and
substance to the counsel issuing such opinions. The closing tax opinions are
not binding on the IRS or the courts, and we do not intend to request a ruling
from the IRS with respect to the merger. Accordingly, there can be no assurance
that the IRS will not challenge the conclusions set forth in the closing tax
opinions or that a court will not sustain such a challenge. Neither of
MovieFone or America Online currently intends to waive the condition relating
to the receipt of a closing tax opinion. In the unlikely event that either of
us were to determine to waive such condition, we would mail additional
information to you describing any changes in the material United States federal
income tax consequences that would result from the merger and would resolicit
proxies from you if there were any material adverse changes in the United
States federal income tax consequences to you.
The 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 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 the 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 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 the operating results of MovieFone only for the quarter in which the
merger is completed.
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, as amended, which prevents certain 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 have filed the
required information and materials with the Department of Justice and the
Federal Trade Commission and requested early termination of the applicable
waiting period. The applicable waiting period expired on April 10, 1999. The
requirements of Hart-Scott-Rodino will be satisfied if the merger is completed
within one year from the termination of the waiting period.
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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 certain 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 the
applicable corporate law of Delaware.
Restrictions on Sales of Shares by Affiliates of MovieFone 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, as amended, 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 the 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 or
. 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 connection with the merger to be approved
for listing on the New York Stock Exchange, subject to official notice of
issuance, before the completion of the merger.
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 MovieFone Common Stock After the Merger
If the merger is completed, MovieFone common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934, as amended.
The Merger Agreement
Please note that the italicized terms Acquisition Proposal and Material
Adverse Effect used in this section are defined on pages 36 and 39,
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 conditions, structures and other facts pertinent to the
merger.
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The representations given by MovieFone cover the following topics, among
others, as they relate to MovieFone and its subsidiary:
. MovieFone's corporate organization and its qualification to do business
. MovieFone's certificate of incorporation and bylaws
. MovieFone's capitalization
. authorization of the merger agreement by MovieFone
. regulatory approvals required to complete the merger
. the effect of the merger on obligations of MovieFone and under applicable
laws
. MovieFone's filings and reports with the Securities and Exchange
Commission
. MovieFone's financial statements
. MovieFone's liabilities
. changes in MovieFone's business since September 30, 1998
. MovieFone's title to the properties it owns and leases
. MovieFone's material contracts
. MovieFone's insurance
. the possession of and compliance with permits required to conduct
MovieFone's business
. litigation involving MovieFone
. MovieFone's compliance with applicable laws
. information supplied by MovieFone in this proxy statement-prospectus and
the related registration statement filed by America Online
. MovieFone's employee benefit plans
. MovieFone's taxes
. environmental laws that apply to MovieFone
. intellectual property used by MovieFone
. the treatment of the merger as a pooling-of-interests and a tax-free
reorganization
. identification of MovieFone's affiliates
. MovieFone's business practices with respect to the absence of any
unlawful payments relating to political activity, the Foreign Corrupt
Practices Act of 1977, the Social Security Act or any other unlawful
payment
. MovieFone's financial advisors
. MovieFone's interest rate and foreign exchange contracts
. MovieFone's brokers
. transactions between MovieFone and interested parties
. MovieFone's labor matters
. restrictions on MovieFone's business practices
34
<PAGE>
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 MF
. regulatory approvals required to complete the merger
. the effect of the merger on obligations of America Online and under
applicable laws
. America Online's filings and reports with the Securities and Exchange
Commission
. 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
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 Parent and Merger Sub."
MovieFone's Conduct of Business Before Completion of the Merger
MovieFone agreed that until the completion of the merger or unless America
Online consents in writing, MovieFone and its subsidiaries will operate their
businesses in the ordinary course and in a manner consistent with past practice
with the goal of:
. preserving intact their business organizations
. keeping available the services of their current officers, employees and
consultants
. maintaining their material contracts and preserving their relationships
with:
-- theatres/exhibitors
-- movie studios
-- customers
-- suppliers
-- advertisers
-- sponsors
-- others having business relations with them
MovieFone also agreed that until the completion of the merger or unless
America Online consents in writing, MovieFone and its subsidiaries would
conduct their businesses 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 a merger involving MovieFone
. modification of MovieFone's certificate of incorporation and bylaws
. the incurrence of indebtedness
. the acquisition of assets or other entities
35
<PAGE>
. the disposition of MovieFone's assets
. capital expenditures
. entrance into or modification of contracts
. employees and employee benefits
. accounting policies and procedures
. liens
. settlement of litigation and claims
. tax elections and liabilities
The agreements related to the conduct of MovieFone'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 "Conduct of Business by the
Company Pending the Merger."
No Other Negotiations Involving MovieFone. Until the merger is completed or
the merger agreement is terminated, MovieFone has agreed not to take any of the
following actions:
. solicit, initiate or knowingly encourage any Acquisition Proposal, or
take any action to facilitate or encourage any inquiries or the making of
any proposal that constitutes an Acquisition Proposal
. participate or engage in discussions or negotiations with or provide any
information to any person concerning an Acquisition Proposal or which
might reasonably be expected to result in an Acquisition Proposal
MovieFone has also agreed to provide America Online with detailed information
about any Acquisition Proposal it receives.
However, MovieFone may engage in any of these acts otherwise prohibited,
other than solicitation, initiation or knowing encouragement of an Acquisition
Proposal, if all of the following occur:
. The Acquisition Proposal concerns a merger, consolidation or sale of all
or substantially all of the assets or capital stock of MovieFone
. MovieFone's board of directors believes in good faith based on such
matters it deems relevant, including the advice of MovieFone's financial
advisors, that the Acquisition Proposal will result in a transaction more
favorable to the MovieFone's stockholders than the merger and for which
financing, to the extent required, is then fully committed
. MovieFone's board of directors determines in good faith, based upon the
advice of reasonably competent outside counsel to the Company, that
taking such action is required to satisfy the fiduciary duties of the
board under applicable law
. a third party enters into a confidentiality agreement substantially
similar to that then in effect between MovieFone and America Online
An Acquisition Proposal is any inquiry, proposal or offer from any person
(other than America Online, MF Acquisition Corporation or any of their
affiliates) involving MovieFone and its subsidiaries other than the
transactions contemplated by the merger agreement for any of the following:
. a merger, consolidation, recapitalization, liquidation or other direct or
indirect business combination involving MovieFone or its subsidiaries
. the issuance or acquisition of 20% or more, by voting power, of the
outstanding capital stock or equity interests of MovieFone or its
subsidiaries
36
<PAGE>
. any tender offer or exchange offer, that, if completed, would result in
any person or its affiliates, other than America Online, beneficially
owning 20% or more, by voting power, of the outstanding capital stock or
other equity securities of MovieFone or its subsidiaries, except that the
issuance of common stock upon exercise of employee stock options or the
option granted to America Online under the option agreement shall not be
considered a tender offer or exchange offer for this purpose
. the acquisition, license, purchase or other disposition of a substantial
portion of the technology, business or assets of MovieFone or its
subsidiaries in a manner that is outside the ordinary course of business
or inconsistent with past practice
. any other transaction that could reasonably be expected to impede,
interfere with, prevent or materially delay the merger or would
reasonably be expected to dilute materially the benefits to America
Online or its affiliates of the transactions contemplated by the merger
agreement
MovieFone's Employee Benefit Plans. Individuals who are employed by
MovieFone, 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. After the effective time of the merger
and on a schedule determined by America Online in connection with the
integration of its business with that of MovieFone, the employees of MovieFone
shall be eligible to participate in the employee benefit plans of America
Online to the same extent as any similarly situated and geographically located
employees of America Online.
As of the effective time of the merger, America Online shall (or shall cause
the surviving corporation to) either continue the existing employee benefit
plans or provide (or cause the surviving corporation to provide) benefits to
employees and former employees of MovieFone that are no less favorable in the
aggregate to such employees than those provided under the America Online
benefit plans to similarly situated employees of America Online or its
subsidiaries.
Treatment of MovieFone Stock Options. Each stock option issued by MovieFone
will be assumed by America Online, including options under MovieFone's 1994
Stock Option Plan, as amended.
Upon completion of the merger, each outstanding option to purchase MovieFone
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 between
.3339 and .4518 multiplied by the number of shares of MovieFone 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 MovieFone common stock subject to the
option before conversion divided by between .3339 and .4518, rounded up to the
nearest whole cent.
The other terms of each MovieFone option referred to above will continue to
apply, including any provisions providing for acceleration. All unvested stock
options granted under MovieFone's stock option plan will vest upon completion
of the merger.
America Online will file a registration statement on Form S-8 for the shares
of America Online common stock issuable with respect to each MovieFone option
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 (by
voting power) of the outstanding shares of MovieFone common stock
37
<PAGE>
. 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 of governmental authorities
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'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:
. MovieFone's representations and warranties must be true and correct as of
February 1, 1999 and must be true and correct in all material respects on
the date the merger is to be completed as if made at and as of such time,
except for:
. representations and warranties that are qualified by materiality or
Material Adverse Effect, which must be true and correct in all
respects; and
. representations and warranties that address matters only as of a
particular date or only with respect to a specific period, which
must be true and correct in all material respects as of such date or
with respect to such period
. MovieFone must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement
. 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 principles and the criteria
of Accounting Principles Board Opinion No. 16 and the regulations of the
Securities and Exchange Commission
. any third party consents or waivers shall have been obtained with respect
to those contracts and agreements the failure of which to obtain could
either individually or in the aggregate reasonably be expected to have a
Material Adverse Effect on MovieFone or prevent the consummation of the
merger
. America Online must receive the opinion of its tax counsel, Orrick,
Herrington & Sutcliffe LLP, to the effect that the merger will qualify as
a reorganization within the meaning of Section 368 (a) of the Internal
Revenue Code
. related agreements specified in the merger agreement must be in full
force and effect on the date of the completion of the merger unless the
agreement cannot go into effect due to the death or disability of the
other party to the agreement
MovieFone'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 must be true and correct
as of February 1, 1999 and must be true and correct in all material
respects on the date the merger is to be completed as if made at and as
of such time, except for:
. representations and warranties that are qualified by materiality or
Material Adverse Effect, which must be true and correct in all
respects; and
38
<PAGE>
. representations and warranties that address matters only as of a
particular date or only with respect to a specific period, which
must be true and correct in all material respects as of such date or
with respect to such period
. America Online must perform or comply in all material respects with all
of its agreements and covenants required by the merger agreement
. any third party consents must be obtained if the failure to obtain them
would prevent the consummation of the merger
. MovieFone 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.
A Material Adverse Effect is any fact, event, change, circumstance or effect
that is materially adverse to the business, financial condition or results of
operations of (1) MovieFone and its subsidiaries, taken as a whole, when such
term is used in relation to MovieFone and/or its subsidiaries or (2) America
Online and its subsidiaries, taken as a whole, when such term is used in
relation to America Online.
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
MovieFone stockholders:
. by mutual consent of America Online and MovieFone
. by America Online, (1) upon a willful breach of any covenant or agreement
on the part of MovieFone set forth in the merger agreement, or (2) if any
of MovieFone's representations or warranties are or become untrue or
inaccurate, in each case so that the corresponding condition to
completion of the merger would not be met, and in each case where such
breach or inaccuracy (if curable) has not been cured within 30 days after
notice to MovieFone of the breach or inaccuracy
. by MovieFone, (1) upon a willful breach of any covenant or agreement on
the part of America Online set forth in the merger agreement, or (2) if
any of America Online's representations or warranties are or become
untrue or inaccurate, in each case so that the corresponding condition to
completion of the merger would not be met, and in each case where such
breach or inaccuracy (if curable) has not been cured within 30 days after
notice to America Online of the breach or inaccuracy
. by America Online or MovieFone, if there is any order, decree or ruling
of a court or governmental authority permanently prohibiting the
completion of the merger which is final and nonappealable
. by America Online or MovieFone, if the merger is not completed before
September 30, 1999 (unless the merger is not completed solely due to the
applicable waiting periods under antitrust laws not having expired or
been terminated, in which case such date shall be extended to December
31, 1999), except that the right to terminate the merger agreement is not
available to any party whose willful failure to fulfill any material
obligation under the merger agreement has been the cause of the failure
to complete the merger on or before such date
. by America Online or MovieFone, if the merger agreement fails to receive
the requisite vote for adoption by the stockholders of MovieFone at the
MovieFone special meeting
. by America Online:
--if MovieFone's board of directors fails to recommend approval and
adoption of the merger agreement by the stockholders of MovieFone or
withdraws or modifies, or proposes to withdraw or modify, in any manner
adverse to America Online, its approval or recommendation of the merger
or the merger agreement
39
<PAGE>
--if MovieFone's board of directors makes any recommendation with respect
to any Acquisition Proposal other than a recommendation to reject such
Acquisition Proposal (see the definition of Acquisition Proposal on page
36 of this proxy statement-prospectus)
--if MovieFone's board of directors engages in discussions with a third
party concerning an Acquisition Proposal
--if MovieFone's board of directors takes any action prohibited by the
merger agreement with respect to persons or entities who have made or
may make an Acquisition Proposal
--if MovieFone's board of directors fails, upon the request of America
Online, to reaffirm its recommendation or approval of the merger
--if MovieFone's board of directors enters into a definitive or binding
agreement regarding a transaction which the board of directors of
MovieFone has determined in good faith, based on such matters as it
deems relevant, including advice of MovieFone's financial advisor, is
more favorable to MovieFone's stockholders and for which financing, to
the extent required, has been fully committed, and receives the advice
of reasonably competent outside counsel to MovieFone, and determines in
good faith, that taking such action is required to satisfy its fiduciary
duties under applicable law
--if MovieFone's board of directors materially breaches the option
agreement
--if MovieFone's board of directors resolves to, or announces an
intention to, take any of the actions specified above
--if there is a material breach of the Stockholders Agreement by any
stockholder who is a party thereto that remains uncured and that denies
America Online the material benefits of the stockholders agreement
--if a third party acquires 33% or more of the outstanding shares of
capital stock or other equity interests of MovieFone or its subsidiaries
Payment of Termination Fee
MovieFone will pay to America Online a termination fee of $12 million not
later than two business days after the date the merger agreement is terminated,
in any of the following circumstances:
. the merger agreement is terminated by America Online:
--because MovieFone's board of directors fails to recommend approval and
adoption of the merger agreement by the stockholders of MovieFone or
withdraws or modifies, or proposes to withdraw or modify, in any manner
adverse to America Online, its approval or recommendation of the merger
--because MovieFone's board of directors makes any recommendation with
respect to any Acquisition Proposal other than a recommendation to
reject such Acquisition Proposal (see the definition of Acquisition
Proposal on page 36 of this proxy statement-prospectus)
--because MovieFone's board of directors takes any action prohibited by
the merger agreement with respect to persons or entities who have made
or may make an Acquisition Proposal
--because MovieFone's board of directors fails, upon the request of
America Online, to reaffirm its recommendation or approval of the merger
--because MovieFone's board of directors enters into a definitive or
binding agreement regarding a transaction which the board of directors
of MovieFone has determined in good faith, based on such matters as it
deems relevant, including advice of MovieFone's financial advisor, is
more favorable to MovieFone's stockholders and for which financing, to
the extent required, has been fully committed, and receives the advice
of reasonably competent outside counsel to MovieFone, and determines in
good faith, that taking such action is required to satisfy its fiduciary
duties under applicable law
40
<PAGE>
--because MovieFone's board of directors materially breached the option
agreement
--because MovieFone's board of directors resolves to, or announces an
intention to, take any of the actions specified above
--because a third party acquires 33% or more of the outstanding shares of
capital stock or other equity interests of MovieFone or any subsidiary
. the merger agreement is terminated by America Online or MovieFone,
because the merger agreement fails to receive the requisite vote for
adoption by the stockholders of MovieFone at the MovieFone special
meeting and either (1) at the time of such termination or prior to the
MovieFone special meeting there shall have been an Acquisition Proposal
or (2) MovieFone shall have entered into a binding agreement in
connection with an Acquisition Proposal within twelve (12) months
following the merger agreement
MovieFone has agreed to pay America Online up to $2.5 million of reasonable
and documented out-of-pocket fees and expenses actually incurred by America
Online in connection with the merger agreement and the merger,
. if the merger agreement is terminated in the circumstances identified
above (including if the board engages in discussions with a third party
concerning an Acquisition Proposal) or
. if MovieFone has materially breached the merger agreement and such breach
remains uncured.
America Online has agreed to purchase from MovieFone $5 million per year of
advertising over a three year period pursuant to a promotion agreement entered
into between the two if the merger is not consummated solely as a result of the
determination that the merger cannot be properly accounted for as a pooling of
interests due solely to any action or inaction by America Online that is within
the control of America Online and provided all other conditions to the closing
of the merger have been satisfied.
Extension, Waiver and Amendment of the Merger Agreement
We may amend the merger agreement before completion of the merger. However,
after the MovieFone stockholders adopt the merger agreement, no change will be
made that will reduce the amount of or change the type of consideration into
which each share of MovieFone common stock will be converted upon completion of
the merger.
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 MovieFone 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 6,186,762 shares of
MovieFone Class A common stock at an exercise price of $29.25 per share. 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 MovieFone common stock outstanding on February 1, 1999, the option
would be exercisable for approximately 49.8% of the outstanding shares of
MovieFone and approximately 15.2% of the voting power of the outstanding shares
because the MovieFone Class B common stock has five votes per share, or
approximately 33.3% of the shares after giving effect to the exercise of the
option and approximately 14.0% of the voting power of the outstanding Shares
after giving effect to the exercise of the option.
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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 be interested in acquiring all or a
significant interest in MovieFone 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. 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
MovieFone.
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
. eighteen (18) months after termination of the merger agreement if the
option has become exercisable by virtue of MovieFone entering into a
binding agreement in connection with an Acquisition Proposal within
twelve (12) months following termination of the merger agreement
If the merger agreement is terminated under circumstances that require
MovieFone to pay America Online a termination fee pursuant to the terms of the
merger agreement and MovieFone consummates a competing transaction of the
nature specified in the option agreement, then MovieFone must 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 MovieFone common stock represented by the option.
The Stockholders Agreement
America Online required MovieFone stockholders Andrew R. Jarecki, Thomas A.
Jarecki, Eugene D. Jarecki, Divonne Jarecki, Adam H. Slutsky, J. Russell
Leatherman, Robert Gukeisen and several trusts and limited partnerships
controlled by Henry G. Jarecki to enter into a stockholders agreement with
America Online. The stockholders agreement requires these MovieFone
stockholders to vote all of the shares of MovieFone common stock beneficially
owned by them in favor of the merger.
As of the record date, the MovieFone stockholders who entered into the
stockholders agreement collectively beneficially owned approximately 2,660,732
of the shares of MovieFone Class A common stock and 7,080,053 of the shares of
MovieFone Class B common stock which represented approximately 78.4% of the
outstanding shares of MovieFone common stock and approximately 93.4% of the
voting power of the outstanding shares of MovieFone common stock entitled to
vote at the special meeting.
Each MovieFone stockholder who is a party to the stockholders agreement
agreed not to sell the MovieFone stock and options owned, controlled or
acquired, either directly or indirectly, by that person until the termination
of the stockholders agreement without the prior written consent of America
Online, unless the person to whom the MovieFone stock is sold agrees in writing
to be bound by the stockholders agreement.
The stockholders 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, MovieFone will continue its operations as a wholly
owned subsidiary of America Online. The membership of the America Online board
of directors will remain unchanged as a result of the merger. Eight other
officers of MovieFone, have entered into letters for offers of employment from
America Online which become effective upon the closing of the merger. These
officers are Andrew R. Jarecki, Adam H. Slutsky, J. Russell Leatherman, Robert
Gukeisen, Francesca Hauser, Marc Hollander, Thomas Jarecki and Nada
42
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Stirratt. The employment of Andrew R. Jarecki, J. Russell Leatherman, Adam H.
Slutsky and Robert Gukeisen is required as a condition of the merger, except in
the event of an impossibility of performance by virtue of the death, disability
or incapacity of any of them. The stockholders of MovieFone 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 MovieFone Common
Stock and America Online Common Stock."
Comparative Per Share Market Price Data
MovieFone common stock is traded on the Nasdaq National Market under the
symbol "MOFN." 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 MovieFone 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 both
America Online's and MovieFone's stock splits, including America Online's most
recent two-for-one stock split which was effected on February 22, 1999.
<TABLE>
<CAPTION>
MovieFone America Online
common stock common stock
------------- ---------------
High Low High Low
------ ------ ------- -------
<S> <C> <C> <C> <C>
1996:
First Quarter..................................... $ 5.13 $ 3.69 $ 7.50 $ 4.10
Second Quarter.................................... 7.50 4.25 8.88 4.58
Third Quarter..................................... 5.38 3.63 5.82 3.07
Fourth Quarter.................................... 5.13 4.13 5.52 2.80
1997:
First Quarter..................................... 5.13 4.13 5.99 3.99
Second Quarter.................................... 8.13 4.13 7.77 5.22
Third Quarter..................................... 7.69 5.00 10.07 7.07
Fourth Quarter.................................... 7.25 5.25 11.41 8.00
1998:
First Quarter..................................... 9.13 6.31 17.47 10.32
Second Quarter.................................... 14.13 8.88 27.44 17.30
Third Quarter..................................... 12.00 6.13 35.13 17.25
Fourth Quarter.................................... 17.31 6.75 80.00 20.63
1999:
First Quarter..................................... 47.00 14.88 153.75 67.00
Second Quarter (through April 20, 1999)........... 55.69 32.50 175.00 112.31
</TABLE>
The following table sets forth the closing prices per share of MovieFone
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) January 29, 1999, the business day preceding public
announcement that America Online and MovieFone had entered into the merger
agreement and (2) April 20, 1999, the last full trading day for which closing
prices were available at the time of the printing of this proxy statement-
prospectus.
<TABLE>
<CAPTION>
America
MovieFone Online
Common Common
Stock Stock
--------- ---------
<S> <C> <C>
January 29, 1999......................................... $ 25.00 $87.937
April 20, 1999........................................... $ 42.50 $128.6875
</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.
43
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Comparison of Rights of Holders of MovieFone Common Stock
and America Online Common Stock
This section of the proxy statement-prospectus describes certain differences
between the rights of holders of MovieFone 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 MovieFone and being a
stockholder of America Online.
As a stockholder of MovieFone, your rights are governed by MovieFone's
certificate of incorporation, and MovieFone's 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, as amended, 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 MovieFone and America Online
America Online has only one class of common stock issued and outstanding.
All shares of America Online common stock are identical and entitle each holder
to identical rights and privileges.
MovieFone presently has outstanding two classes of common stock: MovieFone
Class A common stock and MovieFone Class B common stock. For any matter
requiring shareholder approval or consent, each holder of a share of MovieFone
Class B common stock is entitled to cast five votes and each holder of a share
of MovieFone Class A common stock is entitled to cast one vote.
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. America Online's board of
directors is divided into three classes, as nearly equal in size as possible,
with one class being elected annually. America Online directors are elected for
a term of three years and until their successors are elected and qualified.
America Online's classified board of directors may make it more difficult for a
third party to gain control of America Online.
MovieFone's board of directors is not divided into different classes.
Members of MovieFone's board of directors are elected by a plurality of the
votes cast at the annual meeting of the stockholders. MovieFone directors are
elected until the next annual meeting of the stockholders and until their
successors are elected and qualified.
Number of Directors
America Online's board of directors currently consists of ten 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.
MovieFone's board of directors currently consists of seven directors. The
number of directors on MovieFone's board shall not be less than one nor more
than ten, the exact number of which is fixed from time to time by the board of
directors.
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
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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.
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
Neither the certificate of incorporation or the bylaws of MovieFone contain
an explicit procedure for the removal of a member of the board of directors.
Delaware law provides that unless otherwise provided in the certificate of
incorporation or bylaws of a company, any director can be removed, with or
without cause, by the holders of a majority of the shares entitled to vote for
the election of directors of such company.
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 by a sole remaining director,
in the case of America Online subject to the rights of holders of any
outstanding series of preferred stock.
Newly created directorships or decreases in directorships in America
Online's board 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 America Online's board
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.
MovieFone stockholders may take action at annual or special meetings of
stockholders, or by the written consent of stockholders of outstanding stock
having not less than the minimum number of votes necessary to take such action
at a meeting at which all of the shares entitled to vote thereon were present
and voted.
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 MovieFone stockholders may be called by either:
. the chairman, if there is one,
. the chief executive officer,
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. the chief operating officer,
. the president,
. any vice president,
. the secretary, or
. any assistant secretary.
Such special meetings are to be called, by any of the above listed officers, at
the request in writing of a majority of the board of directors or a majority of
the aggregate voting power of the capital stock issued and outstanding and
entitled to vote.
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, as follows:
. at least 70 days before the first anniversary of the preceding year's
annual meeting, or,
. if the date of such increase 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,
then 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 re-election as a director, including that person's written
consent to being named in the proxy statement as a nominee and to serving
as a director if elected
. a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed
. 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
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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 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.
MovieFone does not have a provision in its certificate of incorporation or
by-laws requiring advance notice or a specific procedural process for
stockholder nominations of candidates for election to the board of directors or
for stockholder's proposals before MovieFone's annual stockholder meeting.
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
. certain 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
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MovieFone's certificate of incorporation does not contain a provision that
requires a vote greater than that required by Delaware law in order 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.
MovieFone's board of directors and stockholders have concurrent power to
make, alter, amend, change, add to or repeal MovieFone's bylaws. All such
modifications must be approved by either a majority of the entire board of
directors or the holders of a majority of the aggregate voting power of the
outstanding capital stock entitled to vote.
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. America Online's certificate of incorporation includes
such a provision to the maximum extent permitted by law.
MovieFone's certificate of incorporation provides that no director shall be
personally liable for the breach of their fiduciary duty except for liability:
. for any breach of such director's duty of loyalty,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. pursuant to Section 174 of the Delaware General Corporation Law, or
. for any transaction from which such director derived an improper personal
benefit.
While the provisions limiting the liability of our boards provide our
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.
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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 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 certain "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 certain price and procedural requirements, set forth in detail
in America Online's certificate of incorporation, are met.
The business combinations to which America Online's fair price provision
applies include:
. any merger or consolidation of America Online or any subsidiary with any
interested stockholder or any other corporation, whether or not itself an
interested stockholder, which is, or after the merger or consolidation,
would be, an affiliate of an interested stockholder who was an interested
stockholder before the transaction
. any sale, lease, exchange, mortgage, pledge transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate of any interested
stockholder, of any assets of America Online or any subsidiary having an
aggregate fair market value, as determined in accordance with America
Online's certificate of incorporation, equaling or exceeding 10% or more
of the assets of America Online
. the issuance or transfer by America Online or any subsidiary, in one
transaction or a series of transactions, of any securities of America
Online or any subsidiary, to any interested stockholder or any affiliate
of any interested stockholder in exchange for cash, securities or other
property having an aggregate fair market value equaling or exceeding 10%
of the combined fair market value of the outstanding shares of voting
stock of America Online, except for any issuance or transfer pursuant to
an employee benefit plan of America Online or any subsidiary
. the adoption of any plan or proposal for the liquidation or dissolution
of America Online proposed by or on behalf of an interested stockholder
or any affiliate of any interested stockholder
. 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
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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.
MovieFone's certificate of incorporation and bylaws do not contain a
provision similar to the fair price provision that is 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.
America Online has entered into a stockholder rights agreement. As with
most stockholder rights agreements, the terms of America Online's rights
agreement are complex and not easily summarized, particularly as they relate
to the acquisition of America Online's common stock and to exercisability.
This summary may not contain all of the information that is important to you.
Accordingly, you should carefully read America Online's rights agreement,
which is incorporated by reference into this proxy-statement prospectus, in
its entirety.
America Online's rights agreement provides that each share of common stock
outstanding will have the right to purchase one one-thousandth of a preferred
share of common stock attached to it. The purchase price per one one-
thousandth of an America Online preferred share under the America Online
stockholder rights agreement is $900, subject to adjustment. Each share of
America Online common stock to be issued in the merger will have one right
attached.
Initially, the rights under America Online's rights agreement are attached
to outstanding certificates representing America Online common stock, and no
separate certificates representing the rights will be distributed. The rights
will separate from America Online common stock 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.
After the rights separate from America Online's 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.
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All shares of America Online common stock 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.
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.
If, after an acquiror obtains 15% or more of America Online common stock and
. America Online merges into another entity,
. an acquiring entity merges into America Online, or
. America Online sells more than 50% of its assets or earning power,
then each right will entitle the holder thereof to purchase a number of shares
of common stock of the acquiror having a then current market value of twice the
purchase price.
Under America Online's rights agreement, any rights that are or were owned
by an acquiror of more than 15% of America Online's outstanding common stock
will be null and void.
America Online's rights agreement contains exchange provisions which provide
that if an acquiror obtains anywhere from 15% to 49.9% of America Online's
outstanding common stock, America Online's board of directors may, at its
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.
America Online's board of directors may, at its option, redeem all of the
outstanding rights under its 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 America Online's rights agreement is $.00l per right, subject to
adjustment. The right to exercise the rights will terminate upon the action of
America Online's board 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,
including the right to vote or receive dividends, simply by virtue of holding
the rights.
America Online's rights agreement provides that the provisions of the rights
agreement may be amended by the board of directors prior to the date any person
acquires at least 15% of America Online's common stock without the approval of
the holders of the rights. However, after the date any person acquires at least
15% of America Online's common stock, the rights agreement 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.
America Online's rights agreement contains rights that have anti-takeover
effects because the rights may cause substantial dilution to a person or group
that attempts to acquire America Online without conditioning the offer on a
substantial number of rights being acquired. Accordingly, the existence of the
rights may deter certain 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 America Online's board to negotiate with
an acquiror on behalf of all the stockholders. In addition, the rights should
not interfere with a proxy contest.
MovieFone has not entered into a stockholder's rights agreement.
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Share Ownership by Principal Stockholders,
Management and Directors of MovieFone
The following table sets forth information concerning the beneficial
ownership of common stock of MovieFone as of April 20, 1999 for the following:
. each person or entity who is known by MovieFone to own beneficially more
than 5% of the outstanding shares of MovieFone common stock;
. each of MovieFone's current directors;
. the chief executive officer and the four other most highly compensated
officers of MovieFone; and
. all directors and executive officers of MovieFone 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 23, 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.
The calculation of percentages in the "Percentage of Outstanding Shares"
column in the table below is based upon the number of shares of MovieFone Class
A common stock issued and outstanding on February 23, 1999, plus shares of
MovieFone Class A common stock subject to options held by the respective
persons on February 23, 1999 and exercisable within 60 days thereafter.
Those stockholders of MovieFone identified in the table below with an
asterisk have entered into a stockholders agreement with America Online
agreeing to vote their shares of MovieFone common stock in favor of the
proposed merger.
In addition to the ownership of MovieFone common stock by the Jarecki
entities set forth in the following table, other Jarecki entities own an
aggregate of 360,817 shares of Class A common stock, representing approximately
6.8 percent of the outstanding Class A common stock.
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Unless otherwise indicated below, the address for each person or entity
listed below is 335 Madison Avenue, 27th Floor, New York, New York 10017.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Owned Outstanding Shares(1)
--------------------------- -------------------------
Class A Class B Class A Class B
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Dr. Henry G. Jarecki*... 75,000(a)** 7,080,053(b)(f)** 1.4 % 100.0%
(Chairman of the Board)
Eugene Eliasoph......... 1,497,770(a)(c)** 6,914,010(b)** 28.1 97.6
400 Prospect Street New
Haven, Connecticut
06511
Andrew R. Jarecki*...... 1,454,649(c)** -- 27.1 --
(Chief Executive
Officer)
Adam H. Slutsky*........ 284,452(d) -- 5.2 --
(COO and CFO)
J. Russell Leatherman*.. 239,534 -- 4.4 --
(President)
1875 Century Park East,
Suite 2230
Los Angeles, California
90067
Thomas A. Jarecki*...... 195,696 -- 3.6 --
(Senior VP, Operations)
John Ventura............ 22,675 -- 0.4 --
(Sr. VP, Theater
Management Systems)
Nada Stirrat ........... 5,000 -- 0.1 --
(Sr. VP, Sales)
Matthew Blumberg........ 28,850 -- 0.5 --
(VP, Marketing and
Product Management)
Robert Gukeisen*........ 389,789 -- 7.3 --
(VP, Data Services)
Marc S. Hollander....... 25,023 -- 0.5 --
(VP, Computer Systems)
Francesca Hauser........ -- -- -- --
(Sr. VP, Finance and
Administration)
Brendan Gow ............ -- -- -- --
(VP, Exhibitor
Relations)
Philip Talamas.......... 16,580 -- 0.3 --
(VP, Operations)
Mark N. Kaplan.......... 19,000 -- 0.4 --
(Director)
c/o Skadden, Arps,
Slate, Meagher & Flom
LLP
919 Third Avenue New
York, New York 10022
George H. McLaughlin.... 17,260(e) -- 0.3 --
(Director)
263 Mercer Street
Princeton, New Jersey
08540
Strauss Zelnick......... 29,500 -- 0.6 --
(Director) BMG
Entertainment 1540
Broadway, 39th Floor
New York, New York
10036
All directors and
executive officers as a
group.................. 2,803,008 7,080,053(b)(f)** 48.4 100.0
FMR Corp. .............. 324,300(g) -- 6.1 --
82 Devonshire St.
Boston, Massachusetts
02109
Royce & Associates,
Inc. .................. 542,400(h) -- 10.2 --
1414 Avenue of the
Americas
New York, New York
10019
PAR Capital Management,
Inc. .................. 220,000(i) -- 4.1 --
One Financial Center,
Suite 1600
Boston, Massachusetts
02111
America Online, Inc. ... 8,847,494(j)(k) 7,080,053(k) 76.8 100.0
22000 AOL Way
Dulles, Virginia 20166
</TABLE>
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<PAGE>
- --------
** Includes shares set forth elsewhere in this table.
(a) Includes 75,000 shares held by The Timber Falls Trust. Dr. Jarecki and Mr.
Eliasoph, as co-trustees of this trust (the beneficiaries of which are
various members of Dr. Jarecki's family and their lineal descendants),
share investment and voting control with respect to these shares.
(b) Includes an aggregate of 6,914,010 shares held by: The Timber Acres Trust
(956,840 shares); The Timber Top Trust (1,156,620 shares); The Timber Edge
Trust (1,226,410 shares); The Timber Falls Trust (3,434,280 shares); and
The Timber Nation Trust (139,860 shares). Dr. Jarecki and Mr. Eliasoph, as
co-trustees of each of these trusts (the beneficiaries of which are various
members of Dr. Jarecki's family and their lineal descendants), share
investment and voting control with respect to these shares.
(c) Includes 1,422,770 shares held by The Timber Acres Trust II. Mr. Jarecki
and Mr. Eliasoph, as co-trustees of this trust (the beneficiaries of which
are Mr. Jarecki and his lineal descendants), share investment and voting
control with respect to these shares.
(d) Includes 3,000 shares held in trust for Mr. Slutsky's children.
(e) Excludes 36,000 shares held in trust for Mr. McLaughin's grandchildren.
(f) Includes 166,043 shares held by the JEF Limited Partnership, of which The
Rapmil Corporation, of which Dr. Jarecki has 100% ownership, is the general
partner.
(g) Pursuant to FMR Corp.'s Amendment No. 1 to Schedule 13D, filed February 19,
1999.
(h) Pursuant to Royce & Associates, Inc.'s Schedule 13G, filed February 9,
1998.
(i) Pursuant to PAR Capital Management, Inc.'s Amendment No. 1 to Schedule 13G,
filed April 22, 1998.
(j) Pursuant to the option agreement, America Online has a contingent right to
acquire up to 6,186,762 shares of Class A common stock which may or may not
be exercisable within sixty days.
(k) Pursuant to the stockholders agreement, America Online has shared voting
power with respect to 2,660,732 shares of MovieFone Class A common stock
and has shared voting power with respect to 7,080,053 shares of MovieFone
Class B common stock.
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 Orrick,
Herrington & Sutcliffe LLP.
Experts
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of America Online, Inc. included in its Annual Report on
Form 10-K for the year ended June 30, 1998, and supplemented in its Current
Reports on Form 8-K filed on February 17, 1999 and April 21, 1999, as set forth
in their reports, which are incorporated in this proxy statement-prospectus and
elsewhere in the registration statement. These consolidated financial
statements are incorporated by reference in reliance on Ernst & Young's
reports, given on their authority as experts in accounting and auditing.
The financial statements incorporated by reference from MovieFone's Annual
Report on Form 10-K for the year ended December 31, 1998 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which
is also incorporated herein by reference, and has been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
54
<PAGE>
Stockholder Proposals for the 1999 Annual Meeting
of MovieFone Stockholders if the Merger is Not Completed
If the merger is not completed, MovieFone will set a date for its 1999
annual meeting of stockholders. MovieFone welcomes stockholder proposals on
matters appropriate for stockholder action at an annual meeting in accordance
with regulations adopted by the SEC and the provisions of MovieFone's bylaws.
However, for proposals by stockholders to have been included in the Proxy
statement for the 1999 annual meeting of MovieFone stockholders, MovieFone
would have had to receive such proposals on or before December 31, 1998.
Proposals for any future annual meeting of MovieFone stockholders should be
directed to MovieFone, Attention: Secretary, MovieFone, Inc., 335 Madison
Avenue, 27th Floor, New York, NY 10017.
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 Exchange Act after the date of this proxy statement-prospectus and before
the date of the special meeting are incorporated by reference into and are
deemed 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
which we have referred you to. We have not authorized anyone to provide you
with any additional information.
The following documents, which were filed by MovieFone with the Securities
and Exchange Commission, are incorporated by reference into this proxy
statement-prospectus:
. MovieFone's Report on Form 10-K for the fiscal year ended December 31,
1998 (SEC file number 000-23600 and filing date March 31, 1999)
. MovieFone's Current Report on Form 8-K dated February 1, 1999 (SEC file
number 000-23600 and filing date February 9, 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 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
February 10, 1999)
. America Online's Proxy Statement on Schedule 14A (SEC file number 001-
12143 and filing date 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)
55
<PAGE>
. 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)
. America Online's Current Report on Form 8-K dated March 17, 1999 (SEC
file number 001-12143 and filing date of March 26, 1999)
. America Online's Current Report on Form 8-K/A dated March 17, 1999 (SEC
File number 001-12143 and filing date of April 21, 1999)
. America Online's Current Report on Form 8-K dated April 21, 1999 (SEC
File number 001-12143 and filing date of April 21, 1999)
. The description of America Online common stock set forth in America
Online's Registration Statement on Form S-3 (Registration number 333-
57153 and effective date of June 26, 1998) filed pursuant to Section 12
of the 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 to any person, without charge, upon written or oral
request. If exhibits to the documents incorporated by reference in this proxy
statement-prospectus are not themselves specifically incorporated by reference
in this proxy statement-prospectus, then such exhibits will not be provided.
Any request for documents should be made by May 14, 1999 to ensure timely
delivery of the documents.
Requests for documents relating to MovieFone should be directed to:
MovieFone, Inc.
335 Madison Avenue
27th Floor
New York, New York 10017
1-(212)-450-8020
Requests for documents relating to America Online should be directed to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-2741
[email protected]
We file reports, proxy statements and other information with the SEC.
Copies of our reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center Seven World Trade
Room 1024 500 West Madison StreetCenter
450 Fifth Street, N.W. Suite 1400 13th Floor
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York
10048
56
<PAGE>
Reports, proxy statements and other Reports, proxy statements and other
information concerning MovieFone may information regarding America Online
be inspected at: 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
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 l-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
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 MovieFone 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 the secretary of
MovieFone at 1-212-450-8020. You may also call America Online Investor
Relations at 1-703-265-2741.
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 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
MovieFone and its subsidiary was provided by MovieFone 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 conditions, 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 certain 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 13 of
this proxy statement-prospectus.
57
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICA ONLINE, INC.,
MF ACQUISITION CORPORATION
AND
MOVIEFONE, INC.
Dated as of February 1, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I THE MERGER.................................................... 1
1.1 The Merger.................................................... 1
1.2 Effective Time................................................ 1
1.3 Effect of the Merger.......................................... 2
1.4 Certificate of Incorporation; By-Laws......................... 2
1.5 Directors and Officers........................................ 2
1.6 Conversion of Company Common Stock; Etc....................... 2
1.7 Cancellation of Treasury Stock and Parent-Owned Stock......... 3
1.8 Stock Options................................................. 3
1.9 Capital Stock of Merger Sub................................... 3
1.10 Adjustments to Exchange Ratio................................. 3
1.11 Fractional Shares............................................. 3
1.12 Surrender of Certificates..................................... 3
(a)Exchange Agent............................................. 3
(b)Parent to Provide Common Stock............................. 4
(c)Exchange Procedures........................................ 4
(d)Distributions With Respect to Unexchanged Shares........... 4
(e)Transfers of Ownership..................................... 4
(f)No Liability............................................... 5
(g)Withholding of Tax......................................... 5
1.13 Further Ownership Rights in Company Common Stock.............. 5
1.14 Closing....................................................... 5
1.15 Lost, Stolen or Destroyed Certificates........................ 5
1.16 Tax Consequences.............................................. 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 6
2.1 Organization and Qualification; Subsidiaries.................. 6
2.2 Certificate of Incorporation and By-Laws...................... 6
2.3 Capitalization................................................ 6
2.4 Authority Relative to this Agreement.......................... 8
2.5 No Conflict; Required Filings and Consents.................... 8
2.6 Material Agreements; Compliance; Permits...................... 9
2.7 SEC Filings; Financial Statements............................. 10
2.8 Absence of Certain Changes or Events.......................... 10
2.9 No Undisclosed Liabilities.................................... 10
2.10 Absence of Litigation......................................... 11
2.11 Employee Benefit Plans........................................ 11
2.12 Labor Matters................................................. 12
2.13 Registration Statement; Proxy Statement/Prospectus............ 13
2.14 Restrictions on Business Activities........................... 13
2.15 Title to Property............................................. 13
2.16 Taxes......................................................... 14
2.17 Environmental Matters......................................... 15
2.18 Brokers....................................................... 15
2.19 Intellectual Property......................................... 15
2.20 Insurance..................................................... 17
2.21 No Restrictions on the Merger................................. 17
2.22 Pooling; Tax Matters.......................................... 18
2.23 Affiliates.................................................... 18
2.24 Certain Business Practices.................................... 18
</TABLE>
A-II
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<C> <S> <C>
2.25 Interested Party Transactions............................... 18
2.26 Interest Rate and Foreign Exchange Contracts................ 18
2.27 Opinion of Financial Advisor................................ 18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 19
3.1 Organization and Qualification, Subsidiaries................ 19
3.2 Capitalization.............................................. 19
3.3 Authorization of Agreement.................................. 19
3.4 Approvals................................................... 19
3.5 No Violation................................................ 20
3.6 Reports..................................................... 20
3.7 Absence of Certain Changes or Events........................ 20
3.8 Registration Statement; Proxy Statement/Prospectus.......... 20
3.9 Pooling; Tax Matters........................................ 21
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER...................... 21
4.1 Conduct of Business by the Company Pending the Merger....... 21
4.2 Solicitation of Other Proposals............................. 23
4.3 Insurance................................................... 24
4.4 Y2K Compliance.............................................. 24
ARTICLE V ADDITIONAL AGREEMENTS....................................... 25
5.1 Proxy Statement/Prospectus; Registration Statement.......... 25
5.2 Meeting of Company Stockholders............................. 25
5.3 Access to Information; Confidentiality...................... 26
5.4 Reasonable Efforts.......................................... 26
5.5 Stock Options............................................... 27
5.6 Employee Benefits........................................... 28
(a)Participation in Employee Benefits of Parent............. 28
(b)Benefit Plans............................................ 28
(c)Service Credit........................................... 28
(d)Compensation Contracts................................... 28
(e)Falconwood Plan.......................................... 28
(f)Certain Notices.......................................... 28
5.7 Pooling; Tax-Free Reorganization............................ 29
5.8 Notification of Certain Matters............................. 29
5.9 Listing on the New York Stock Exchange...................... 30
5.10 Public Announcements........................................ 30
5.11 Takeover Laws............................................... 30
5.12 Accountant's Letters........................................ 30
5.13 Stop Transfer............................................... 30
5.14 Indemnification of Directors and Officers................... 30
5.15 Plan Funding Status......................................... 31
5.16 Software Documentation...................................... 31
5.17 Subsidiary Investments...................................... 31
5.18 Legends, Instructions to Transfer Agent..................... 31
5.19 Maintenance of Designation.................................. 31
5.20 Amendment of Registration Rights Agreement.................. 31
5.21 Company Release............................................. 31
</TABLE>
A-III
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<C> <S> <C>
5.22 Waiver of Bonus........................................... 31
5.23 All Reasonable Efforts and Further Assurances............. 31
ARTICLE VI CONDITIONS OF MERGER...................................... 31
Conditions to Obligation of Each Party to Effect the
6.1 Merger.................................................... 31
(a)Effectiveness of the Registration Statement............ 32
(b)Stockholder Approval................................... 32
(c)New York Stock Exchange Listing........................ 32
(d)No Injunctions or Restraints; Illegality............... 32
(e)Regulatory Approvals................................... 32
Additional Conditions to Obligations of Parent and Merger
6.2 Sub....................................................... 32
(a)Representations and Warranties......................... 32
(b)Agreements and Covenants............................... 32
(c)Consents Obtained...................................... 32
(d)Pooling of Interests................................... 32
(e)Related Agreements..................................... 32
(f)Falconwood Termination Agreement....................... 33
(g)Tax Opinion............................................ 33
(h)Jarecki/Falconwood Release............................. 33
6.3 Additional Conditions to Obligations of the Company....... 33
(a)Representations and Warranties......................... 33
(b)Agreements and Covenants............................... 33
(c)Consents Obtained...................................... 33
(d)Tax Opinion............................................ 33
ARTICLE VII RELATED AGREEMENTS........................................ 34
7.1 Related Agreements........................................ 34
(a)Affiliate Agreements................................... 34
(b)Employee Offer Letters................................. 34
(c)Release Agreements..................................... 34
(d)Assignment Agreements.................................. 34
(e)Stockholders Agreement................................. 34
(f)Option Agreement....................................... 34
(g)Falconwood Agreement................................... 34
(h)Non-Competition Agreements............................. 34
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................... 34
8.1 Termination............................................... 34
8.2 Effect of Termination..................................... 36
8.3 Fees and Expenses......................................... 36
8.4 Amendment................................................. 37
8.5 Waiver.................................................... 37
ARTICLE IX GENERAL PROVISIONS........................................ 37
9.1 Survival of Representations and Warranties................ 37
9.2 Notices................................................... 37
9.3 Disclosure Schedules...................................... 38
9.4 Certain Definitions....................................... 38
9.5 Interpretation............................................ 40
9.6 Severability.............................................. 40
</TABLE>
A-IV
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<C> <S> <C>
9.7 Entire Agreement.................................................... 40
9.8 Assignment.......................................................... 41
9.9 Parties in Interest................................................. 41
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative............... 41
9.11 Governing Law....................................................... 41
9.12 Counterparts........................................................ 41
</TABLE>
A-V
<PAGE>
GLOSSARY OF TERMS
Acquisition Proposal......................................................4.2(a)
Affiliate Agreement.......................................................7.1(a)
Affiliates.................................................................10.4a
Agreement................................................................Caption
Assignment Agreement........................................................7.1d
Average Parent Trading Price................................................1.6d
Award......................................................................2.10b
Balance Sheet..............................................................10.4b
beneficial owner...........................................................10.4c
Blue Sky Laws...............................................................2.5b
Business Day................................................................1.14
Certificate of Merger........................................................1.2
Certificates...............................................................1.12c
Class A Company Common Stock................................................1.6a
Class B Company Common Stock................................................1.6a
Closing.....................................................................1.14
Closing Date................................................................1.14
COBRA.......................................................................5.6c
Code..........................................................................50
Company..................................................................Caption
Company Approvals...........................................................2.1a
Company Common Stock........................................................1.6a
Company Disclosure Schedule.............................................Preamble
Company Option..............................................................5.5a
Company Preferred Stock...................................................2.3(a)
Company SEC Reports.........................................................2.7a
Company Stipulated Expenses.........................................8.3(d). 9.3c
Company Stockholders' Meeting...............................................2.13
Compensation Contracts....................................................5.6(d)
Confidentiality Agreement...................................................5.3b
control....................................................................10.4c
Court......................................................................10.4d
Delaware Law............................................................Preamble
Effective Time...............................................................1.2
Employee Plans.............................................................2.11a
Employment Agreements.......................................................7.1b
ERISA......................................................................2.11a
ERISA Affiliate..........................................................2.11(a)
Exchange Act................................................................2.5b
Exchange Agent.............................................................1.12a
Exchange Ratio..............................................................1.6a
Falconwood Agreement......................................................7.1(h)
Falconwood Plan...........................................................5.6(d)
Falconwood Termination Agreement..........................................5.6(e)
GAAP........................................................................2.7b
Governmental Authority.....................................................10.4e
HSR Act.....................................................................2.5b
Intellectual Property......................................................10.4f
IRS........................................................................2.11b
Jarecki/Falconwood Release................................................6.2(h)
A-VI
<PAGE>
GLOSSARY OF TERMS
(continued)
Knowledge..........................................................9.4(i). 10.4g
Lien..................................................................51. 9.4(k)
Litigation.................................................................10.4i
Material Adverse Effect....................................................10.4j
Material Agreements.........................................................2.6a
Material Subsidiary.........................................................4.2c
Merger..................................................................Preamble
Merger Shares..............................................................10.4k
Merger Sub...............................................................Caption
Non-Competition Agreement.................................................7.1(i)
OHS.........................................................................1.14
Option Agreement........................................................Preamble
Order......................................................................10.41
Other Matters............................................................2.19(i)
Parent...................................................................Caption
Parent Approvals.............................................................3.1
Parent Benefit Plan.......................................................5.6(b)
Parent Benefit Plans......................................................5.6(b)
Parent Common Stock.........................................................1.6a
Parent Rights...............................................................1.6b
Parent Rights Agreement.....................................................1.6b
Parent SEC Reports..........................................................3.6a
Parent Series A-1 Preferred Stock...........................................1.6b
Person.....................................................................10.4m
Plan........................................................................1.8a
Pooling.....................................................................2.22
Proxy Statement.............................................................2.13
Registerable Securities...................................................2.3(e)
Registration Rights Agreement.............................................2.3(e)
Registration Statement......................................................5.1b
Related Agreements...........................................................7.1
Release Agreements..........................................................7.1c
Representation Letters....................................................5.7(c)
Rollover Notice.............................................................5.6c
SEC.........................................................................2.7a
Securities Act..............................................................2.5b
Software...................................................................2.19e
Stockholders Agreement..................................................Preamble
Subsidiaries...............................................................10.4n
Subsidiary.................................................................10.4n
Superior Proposal.........................................................4.2(c)
Surviving Corporation........................................................1.1
Tax.........................................................................2.16
Tax Returns.................................................................2.16
Taxes.......................................................................2.16
Termination Fee........................................................9.3b(iii)
Trade Secrets.............................................................9.4(h)
Trademarks................................................................9.4(h)
WARN Act..............................................................5.6c. 2.12
Y2K compliance...............................................................4.4
A-VII
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1999 (the "Agreement")
among AMERICA ONLINE, INC., a Delaware corporation ("Parent"), MF ACQUISITION
CORPORATION, a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and MOVIEFONE, INC., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is in the best interests of their respective
stockholders for Parent to acquire the Company upon the terms and subject to
the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the Merger (the "Merger")
of Merger Sub with and into the Company, in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") and upon the terms
and subject to the conditions set forth herein, which Merger will result in,
among other things, the Company becoming a wholly owned subsidiary of Parent;
WHEREAS, as a condition to the willingness of, and an inducement to, Parent
and Merger Sub to enter into this Agreement, contemporaneously with the
execution and delivery of this Agreement certain stockholders of the Company
are entering into an agreement dated as of the date hereof (the "Stockholders
Agreement") in the form of Exhibit A attached hereto, providing for certain
actions relating to the transactions contemplated by this Agreement;
WHEREAS, as a condition to the willingness of, and an inducement to, Parent
and Merger Sub to enter into this Agreement, contemporaneously with the
execution and delivery of this Agreement the Company is entering into a Stock
Option Agreement dated as of the date hereof (the "Option Agreement") in the
form of Exhibit B attached hereto, granting Parent an irrevocable option to
purchase 6,186,762 shares of the Class A Company Common Stock, on the terms and
subject to the conditions set forth therein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Code; and
WHEREAS, for accounting purposes, it is intended that the Merger qualify for
"pooling-of-interests" treatment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Parent, Merger Sub and the Company hereby
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and Delaware
Law, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger
substantially in the form of Exhibit C (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, executed in accordance with the
relevant provisions of Delaware Law (the date and time of such filing, or such
later date and time as may be specified in the Certificate of Merger by mutual
agreement of Parent, Merger Sub and the Company, being the "Effective Time").
A-1
<PAGE>
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; By-Laws. Unless otherwise determined by
Parent prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Certificate of
Incorporation; except that Article First of the Certificate of Incorporation of
Merger Sub shall be amended to read as follows: "The name of the Corporation is
MovieFone, Inc." The By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and such By-laws.
1.5 Directors and Officers. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial 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 Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-Laws. Prior to the Effective Time, the Company shall
deliver to Parent evidence satisfactory to Parent of the resignations of all
directors of the Company to be effective as of such Effective Time.
1.6 Conversion of Company Common Stock; Etc. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:
(a) Subject to the provisions of this Article I, each share of Class A
common stock, par value $.01 per share, of the Company ("Class A Company
Common Stock") and each share of Class B common stock, par value $.01 per
share, of the Company ("Class B Company Common Stock", and together with
the Class A Company Common Stock, the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares
of Company Common Stock to be cancelled pursuant to Section 1.7) will be
converted into the right to receive that fraction (expressed as a decimal)
of a share of common stock, par value $0.01 per share, of Parent ("Parent
Common Stock") (and related fraction of a Parent Right in accordance with
Section 1.6(b) hereof), that is equal to the "Exchange Ratio," which shall
be determined in the manner provided below. As of the Effective Time, all
such shares of Company Common Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall cease to have any rights with respect thereto, except the right
to receive the Merger Shares and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.12, without
interest.
(b) Each share of Parent Common Stock to be issued upon conversion of
shares of Company Common Stock in accordance with Section 1.6(a) shall
include the corresponding percentage of a right (the "Parent Rights") to
purchase shares of Series A-1 Junior Participating Preferred Stock, $.01
par value (the "Parent Series A-1 Preferred Stock"), of Parent pursuant to
the Rights Agreement dated as of May 12, 1998, as amended (the "Parent
Rights Agreement"), between Parent and Bank Boston, N.A., as Rights Agent.
Prior to the Distribution Date (as defined in the Parent Rights Agreement),
all references in this Agreement to the Merger Shares shall be deemed to
include the Parent Rights.
(c) For purposes of this Agreement, the "Exchange Ratio" shall be
calculated as follows:
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(i) if the Average Parent Trading Price (as defined below) is at
least equal to $129.49 but not greater than $175.19, then the Exchange
Ratio shall equal the quotient of (A) $29.25 divided by (B) the Average
Parent Trading Price, calculated to the nearest ten thousandth (i.e.,
four decimal places (.xxxx)); or
(ii) if the Average Parent Trading Price is less than $129.49 or
greater than $175.19, then the Exchange Ratio shall equal the quotient
of (A) $29.25 divided by (B) (x) $129.49 if the Average Parent Trading
Price is less than $129.49 or (y) $175.19, if the Average Parent
Trading Price is greater than $175.19, calculated to the nearest ten
thousandth (i.e., four decimal places (.xxxx)).
(d) As used in this Agreement, the term "Average Parent Trading Price"
shall mean the average closing price per share of Parent Common Stock on
the New York Stock Exchange (as reported in The Wall Street Journal, or, if
not reported therein, any other authoritative source) for the twenty (20)
consecutive trading days ending two (2) trading days preceding the
Effective Time.
1.7 Cancellation of Treasury Stock and Parent-Owned Stock. Each share of
Company Common Stock held in the treasury of the Company and each share of
Company Common Stock owned by Merger Sub, Parent or any direct or indirect
wholly owned subsidiary of Parent or the Company immediately prior to the
Effective Time shall be cancelled and extinguished without any conversion
thereof.
1.8 Stock Options.
(a) At the Effective Time, all options to purchase Company Common Stock
then outstanding under the MovieFone, Inc. 1994 Stock Option Plan (the
"Plan"), by virtue of the Merger and without any action on the part of the
holder thereof, shall be assumed by Parent in accordance with Section 5.5.
(b) The Company shall promptly take all actions necessary to ensure that
following the Effective Time no holder of any options or rights pursuant
to, nor any participant in, the Plan or any other plan, program or
arrangement providing for the issuance or grant of any interest in respect
of the capital stock of the Company or any Subsidiary of the Company will
have any right thereunder to acquire equity securities of the Company, any
such Subsidiary or the Surviving Corporation.
1.9 Capital Stock of Merger Sub. Each share of common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $0.01 per share,
of the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
1.10 Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Common Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
1.11 Fractional Shares. No fraction of a share of Parent Common Stock will
be issued, but in lieu thereof each holder of shares of Company Common Stock
who would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be received
by such holder) shall receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of such fraction multiplied by the
Average Trading Price.
1.12 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate
a bank or trust company (which shall be reasonably acceptable to the
Company) to act as exchange agent (the "Exchange Agent") in the Merger.
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(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with
this Article I, through such reasonable procedures as Parent and the
Exchange Agent may adopt, certificates representing the shares of Parent
Common Stock issuable pursuant to Section 1.6 in exchange for outstanding
shares of Company Common Stock, together with cash in an amount sufficient
to pay any dividends or distributions with respect thereto with a record
date after the Effective Time, and any cash payable in lieu of any
fractional Parent Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of
a certificate or certificates (the "Certificates") which immediately prior
to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into the right to receive shares of
Parent Common Stock pursuant to Section 1.6, a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions
as Parent may reasonably specify) and instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate representing the number of whole shares of
Parent Common Stock, (ii) payment in cash in lieu of fractional shares
which such holder has the right to receive pursuant to Section 1.11 and
(iii) the amount of any dividends or other distributions which such holder
has the right to receive pursuant to Section 1.12(d), and the Certificate
so surrendered shall forthwith be cancelled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented
shares of Company Common Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Common Stock shall have been so converted
and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.11. Any portion of the
shares of Parent Common Stock or cash deposited with the Exchange Agent
pursuant to Section 1.12(b) which remains undistributed to the holders of
the Certificates representing shares of Company Common Stock for six (6)
months after the Effective Time shall be delivered to Parent, upon demand,
and any holders of shares of Company Common Stock who have not theretofore
complied with this Article I shall thereafter look only to Parent and only
as general creditors thereof for payment of their claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock to which
such holders may be entitled.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Parent Common Stock with a record date after the Effective Time will be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable Law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
Person requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the
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certificate surrendered, or established to the satisfaction of Parent or
any agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.12(f), none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to a holder of shares of Company Common
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Withholding of Tax. Parent 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
Parent (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 Parent or the Exchange Agent, such withheld
amounts will be treated from all purposes of this Agreement as having been
paid to the former holder of the Company Common Stock in respect of whom
such deduction and withholding were made by Parent or the Exchange Agent.
1.13 Further Ownership Rights in Company Common Stock. All shares of Parent
Common Stock issued upon the surrender for exchange of shares of Company Common
Stock in accordance with the terms of this Article I (including any cash paid
in respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Company Common Stock, and there shall
be no further registration of transfers on the records of the Surviving
Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Article I.
1.14 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the
provisions of Article VIII, and subject to the provisions of Article VI, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. (New York
time) on a date (the "Closing Date") to be mutually agreed upon by the parties
hereto, which date shall be not later than the third Business Day after all the
conditions set forth in Article VI shall have been satisfied (or waived in
accordance with Section 8.5, to the extent the same may be waived), unless
another time and/or date is agreed to in writing by the parties. The Closing
shall take place at the offices of Orrick, Herrington & Sutcliffe LLP ("OHS"),
666 Fifth Avenue, New York, New York 10103, unless another place is agreed to
in writing by the parties. As used herein, the term "Business Day" shall mean
any day other than a Saturday, Sunday or day on which banks are permitted to
close in the State of New York or in the State of Delaware.
1.15 Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.11; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.16 Tax Consequences. For federal income tax purposes, the parties intend
that the Merger be treated as a reorganization within the meaning of Section
368(a) of 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. The parties
shall not take a position on any Tax Return inconsistent with this Section
1.16.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub, except
as disclosed in the disclosure schedule dated the date hereof, certified by the
Chief Executive Officer of the Company and delivered by the Company to Parent
and Merger Sub simultaneously herewith (which disclosure schedule shall contain
specific references to the representations and warranties to which the
disclosures contained therein relate) (the "Company Disclosure Schedule") as
follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization and has all the
requisite corporate power and authority, and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Company Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such
power, authority and Company Approvals would not, either individually or in
the aggregate, have a Material Adverse Effect. Each of the Company and each
of its Subsidiaries is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature
of its activities makes such qualification or licensing necessary, except
for such failures to be so duly qualified or licensed and in good standing
that would not, either individually or in the aggregate, have a Material
Adverse Effect.
(b) A true and complete list of all of the Company's Subsidiaries,
together with the jurisdiction of incorporation of each Subsidiary, is set
forth in Section 2.1(b) of the Company Disclosure Schedule. Except as set
forth in Section 2.1(b) of the Company Disclosure Schedule, neither the
Company nor any Subsidiary directly or indirectly owns any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, directly or indirectly, any equity or similar interest in,
any Person.
2.2 Certificate of Incorporation and By-Laws. The Company has heretofore
furnished to Parent a complete and correct copy of the Certificate of
Incorporation and By-laws, or equivalent organizational documents, as amended
or restated to the date hereof, of the Company and each of its Subsidiaries.
Such Certificate of Incorporation, By-laws and equivalent organizational
documents of the Company and each of its Subsidiaries are in full force and
effect.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Class A Company Common Stock, 10,000,000 shares of Class B
Company Common Stock and 5,000,000 shares of preferred stock, par value
$0.01 per share (the "Company Preferred Stock"). As of the date hereof, (i)
5,333,185 shares of Class A Company Common Stock and (ii) 7,080,053 shares
of Class B Company Common Stock were issued and outstanding, all of which
are validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights of any Person, and (iii) no
shares of Company Preferred Stock were issued or outstanding; (iv) 421,900
shares of Company Common Stock were held in the treasury of the Company;
(v) no shares of Company Common Stock were held by Subsidiaries of the
Company; (vi) 1,400,000 shares of Class A Company Common Stock were duly
reserved for future issuance pursuant to employee stock options granted
pursuant to the Plan; and (vii) 7,080,053 shares of Class A Company Common
Stock were duly reserved for future issuance upon conversion of shares of
Class B Company Common Stock pursuant to the Certificate of Incorporation
of the Company. Except as set forth in the immediately preceding sentence,
the Company has no shares of capital stock issued and
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outstanding or reserved for issuance. The rights and privileges of the
Class B Company Common Stock are set forth in the Certificate of
Incorporation of the Company, except such rights and privileges, if any, as
may be conferred under Delaware Law. As of the date hereof, the Class A
Company Common Stock is a designated security of the Nasdaq National
Market, and the Company and the Class A Company Common Stock satisfy the
criteria required to be satisfied in order to maintain the Class A Company
Common Stock as such a designated security and the Company has no Knowledge
of any basis for the termination of such designation or the taking of any
action by another Person for the purpose of terminating such designation.
(b) Except as described in Section 2.3(a) of the Company Disclosure
Schedule, there are no options, warrants or other rights, calls,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries
or obligating the Company or any of its Subsidiaries or which any thereof
is bound to issue or sell any shares of capital stock of or other equity
interests in, or any securities convertible into or exercisable or
exchangeable for, or representing the right to purchase or otherwise
receive, directly or indirectly, any such capital stock or other equity
interest, or other arrangement to acquire, at any time or under any
circumstance, capital stock of or other equity interest in the Company or
any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant any lien on any shares of capital stock of, or other
equity interests in, the Company or any its subsidiaries. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any such Subsidiary or any
other entity. Except as described in Section 2.3(a) of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of each
of the Company's direct and indirect Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights of any Person or entity and
all such shares are owned by the Company free and clear of all security
interests, liens, claims, pledges, restrictions, agreements, limitations in
the Company's voting rights, charges or other encumbrances of any nature
whatsoever. Except as disclosed in Section 2.3 of the Company Disclosure
Schedule, no holder of Company securities has any contractual right to
include any such securities in any registration statement proposed to be
filed by Parent under the Securities Act. Each of the Stockholders (as
defined in the Stockholders Agreement) is the record owner of the number of
shares of Company Common Stock set forth opposite its name on Schedule A of
the Stockholders Agreement. The Company has no Knowledge that any of such
Stockholders has appointed or granted any proxy with respect to any of the
shares of Company Common Stock owned by it, which appointment or grant
remains effective.
(c) There are no voting trusts, proxies or other agreements, commitments
or understandings of any character 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.
(d) As promptly as practicable after the execution and delivery of this
Agreement and the Related Agreements, the Company shall deliver
instructions to the transfer agent for the Company Common Stock for the
purposes of effectuating the restrictions on transfer contemplated by the
Related Agreements and ensuring that the legends contemplated thereunder
are placed on certificates for Company Common Stock contemplated by the
Related Agreements.
(e) Reference is made to the Registration Rights Agreement dated as of
May 20, 1994 (the "Registration Rights Agreement"), among the Company and
the parties thereto. No shares of capital stock or other securities that
would constitute "Registerable Securities" (as defined in the Registration
Rights
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Agreement) have been issued by the Company in a private placement or other
transaction exempt from the registration requirements of the Securities Act
to any of the other parties to the Registration Rights Agreement (other
than the Company) since the date of the Registration Rights Agreement.
(f) The Company's Form S-8 on file with the SEC with respect to the Plan
and all Company Options thereunder is currently and through the Effective
Time will remain, effective.
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Option Agreement and 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 and the Option Agreement, the
performance of its obligations hereunder and thereunder, and the consummation
by the Company of the transactions contemplated hereby, have been duly and
validly authorized by all corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a
majority (by voting power) of the outstanding shares of Company Common Stock in
accordance with Delaware Law and the Company's Certificate of Incorporation and
By-laws). This Agreement and the Option Agreement have been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery thereof by Parent and Merger Sub, constitutes a legal,
valid and binding obligation of the Company.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery by the Company of this Agreement and the
Option Agreement do not, and the performance of this Agreement and the
Option Agreement will not, conflict with or violate the Certificate of
Incorporation or By-laws or equivalent organizational documents of the
Company or any of its Subsidiaries or subject to Section 2.5(b), conflict
with or violate any Law in each case applicable to the Company or any of
its Subsidiaries or by which its or any of their respective properties is
bound or affected, or result in any breach or violation of or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, or give rise to any loss of any material right or benefit
under, or increase any obligation of the Company 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 properties or
assets of the Company or any of its Subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or its or any of their respective properties is bound or
affected, except (i) as contemplated by Section 2.6 hereof or (ii) for any
such conflicts, breaches, violations, defaults or other occurrences that
would not (A) in the aggregate, have a Material Adverse Effect or (B)
prevent or materially impair or delay the consummation of the Merger. The
Board of Directors of the Company has directed that this Agreement be
submitted to the stockholders of the Company for their approval and
adoption. The affirmative approval and adoption, by vote or written
consent, of the holders of Company Common Stock representing a majority of
the votes that may be cast by the holders of all outstanding Company Common
Stock (voting as a single class) is the only vote of the holders of any
class or series of capital stock of the Company necessary to adopt this
Agreement and approve the Merger. Prior to the execution and delivery of
this Agreement, the Board of Directors of the Company has taken all
requisite action to cause this Agreement and the transactions contemplated
hereby to be exempt from the provisions of Section 203 of Delaware Law.
(b) The execution and delivery by the Company of this Agreement and the
Option Agreement does not, and the performance by the Company of this
Agreement and the Option Agreement by the Company shall not, require the
Company or any of its Subsidiaries to (i) except as set forth in Section
2.5 of the Company Disclosure Schedule, obtain any consent or waiver of any
Person or the consent, approval, authorization, license, waiver,
qualification, order or permit of any Court or Governmental Authority
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required under any Law, Regulation or Order applicable to the Company or
any of its Subsidiaries, (ii) observe any waiting period imposed by, or
(iii) make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except for (A) compliance with
applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), state securities laws ("Blue Sky Laws") or the pre-
Merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (B) the filing and
recordation of appropriate Merger or other documents as required by
Delaware Law, (C) the filing of appropriate Merger or other documents as
required by the National Association of Securities Dealers, Inc. and the
Nasdaq National Market or (D) where the failure to obtain such consents,
approvals, authorizations, licenses, waivers, qualifications, orders or
permits, or to make such filings or notifications, would not (1) have, in
the aggregate, a Material Adverse Effect or (2) prevent or materially
impair or delay the consummation of the Merger.
2.6 Material Agreements; Compliance; Permits.
(a) Section 2.6(a) of the Company Disclosure Schedule sets forth a true
and complete list, as of the date hereof, of all contracts, agreements and
instruments to which the Company or any of its Subsidiaries is a party or
by which any of them or any of their properties or assets may be bound
which is material to the Company and/or its Subsidiaries and all agreements
pursuant to which the Company or any subsidiary has granted exclusive
rights or have terms of one year or longer (collectively, the "Material
Agreements"). Each such Material Agreement is in full force and effect, is
a valid and binding obligation of the Company or such Subsidiary and, to
the Knowledge of the Company, of each other party thereto, and is
enforceable against the Company or such Subsidiary in accordance with its
terms and, to the Knowledge of the Company, enforceable against each other
party thereto, in each case except that the enforcement thereof may be
limited by (A) bankruptcy, insolvency, reorganization, moratorium or other
similar law now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law), and
there has not occurred any default by the Company, or to the Knowledge of
the Company, by any party thereto which remains unremedied as of the date
hereof, in each case except as would not reasonably be expected to have a
Material Adverse Effect. 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 any of its Subsidiaries or, to the Knowledge of the Company, any other
party thereto under, or result in a right of termination of, any Material
Contract, except as would not reasonably be expected to have a Material
Adverse Effect.
(b) As of the date hereof, Section 2.6(b) of the Company Disclosure
Schedule sets forth a list, true and correct in all material respects, of
the number of theatre screens in respect of the teleticketing agreements
listed in Section 2.6(a) of the Company Disclosure Schedule.
(c) Section 2.6(a) of the Company Disclosure Schedule sets forth a list,
complete in all material respects, of all teleticketing, sponsorship,
three-digit code and online agreements as of the date hereof.
(d) Neither the Company nor any of its Subsidiaries is in conflict with,
or in default or violation of, any law, rule, regulation, order, judgment
or decree applicable to the Company or any of its Subsidiaries or by which
its or any of their respective properties is bound or affected, or any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would
not, individually and in the aggregate, have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or By-laws or equivalent
organizational documents.
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(e) The Company and its Subsidiaries are in compliance with the terms of
the Company Approvals, except where the failure to so comply would not,
individually and in the aggregate, have a Material Adverse Effect.
2.7 SEC Filings; Financial Statements.
(a) Except as set forth in Section 2.7(a) of the Company Disclosure
Schedule, the Company has timely filed all forms, reports and documents
required to be filed with the Securities and Exchange Commission ("SEC")
since December 31, 1995 (collectively, the "Company SEC Reports") required
to be filed by it pursuant to the federal securities Laws and the SEC rules
and Regulations promulgated thereunder. The Company SEC Reports were
prepared in accordance, and complied as of their respective filing dates in
all material respects, with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder and did not at the time they
were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (i)
complied in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
(ii) were prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis throughout
the periods involved (except as may be expressly described in the notes
thereto) and (iii) fairly present the consolidated financial position of
the Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements included
in the Company's Form 10-Q reports were or are subject to normal and
recurring year-end adjustments that are neither individually or in the
aggregate material.
2.8 Absence of Certain Changes or Events.
(a) Except as set forth in Section 2.8(a) of the Company Disclosure
Schedule, since September 30, 1998, the Company and its Subsidiaries have
conducted their businesses only in the ordinary and usual course and in a
manner consistent with past practice and, since such date, there has not
been any change, event, development or circumstance affecting the Company
or any of its Subsidiaries which, individually or in the aggregate, has or
is reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Section 2.8(b) of the Company Disclosure
Schedule, during the period from September 30, 1998 to the date of this
Agreement, except as disclosed in Section 2.8(b) of the Company Disclosure
Schedule or as may have been disclosed in the Company's SEC Reports, there
has not been any change by the Company in its accounting methods,
principles or practices, any revaluation by the Company of any of its
assets, including, writing down the value of inventory or writing off notes
or accounts receivable other than in the ordinary course of business, and
there has not been any other action or event, and neither the Company nor
any of its Subsidiaries has agreed in writing or otherwise to take any
other action, that would have required the consent of Parent pursuant to
Section 4.1 had such action or event occurred after the date of this
Agreement and prior to the Effective Time, or any condition, event or
occurrence which could reasonably be expected to prevent or materially
impair or delay the ability of the Company to consummate the transactions
contemplated by this Agreement.
2.9 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (absolute,
accrued, fixed, contingent or otherwise), and to the Knowledge of the Company
there is no existing fact, condition or circumstance which could reasonably be
expected to result in such liabilities or obligations, which, in each case,
could reasonably be expected to have a Material Adverse
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Effect, except liabilities or obligations (i) reflected in the Company SEC
Reports or (ii) incurred in the ordinary course of business consistent with
past practice since September 30, 1998 and not required under GAAP to be
reflected on a consolidated balance sheet of the Company.
2.10 Absence of Litigation.
(a) Except as described in Section 2.10 of the Company Disclosure
Schedule, there are no claims, actions, suits, or proceedings or, to the
Knowledge of the Company, investigations, pending on the date hereof on
behalf of or pending against or, and to the Knowledge of the Company, no
claims, actions, suits, proceedings or investigations, threatened against
the Company or any of its Subsidiaries, or any properties or rights of the
Company or any of its Subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, except for such claims, actions, suits, proceedings or
investigations that would not, if adversely determined, have or be
reasonably expected to have, individually and in the aggregate, a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is subject
to any outstanding order, writ, injunction or decree which, individually or
in the aggregate has, or which, insofar as reasonably can be foreseen, in
the future would have a Material Adverse Effect or would prevent the
Company from consummating the transactions contemplated by this Agreement.
(b) The arbitration award in favor of the Company in the action entitled
Promofone, Inc. et. al. v. Pacer/CATS Corporation (the "Award"), providing
for monetary damages and certain injunctive relief in favor of the Company,
(a true and correct description of which action and the status thereof is
set forth in the Company's Form 10-Q for the quarter ended September 30,
1998), is the subject of a valid, binding and enforceable judgment of the
Supreme Court of the State of New York confirming the Award, and the
Company has taken no action or failed to take any action and, to the
Knowledge of the Company, there is no other fact or circumstance, that
could reasonably be expected to impair or otherwise prejudice its ability
to collect the full amount of the monetary damages or enforce to the full
extent thereof the injunctive relief, in each case provided for by the
Award.
2.11 Employee Benefit Plans.
(a) Section 2.11(a) of the Company Disclosure Schedule contains a list
of all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar fringe or employee
benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company,
or a Subsidiary thereof maintained, contributed to or participated in by
the Company or any trade or business (whether or not incorporated) which is
a member of a controlled group or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code, or any Subsidiary of the Company (together, the "Employee Plans").
The Company has delivered or made available to Parent correct and complete
copies of (a) the plan documents and summary plan descriptions, (b) the
most recent determination letter received from the IRS, (c) the most recent
Form 5500 Annual Report, (d) the most recent accounting statement and
actuarial valuation, and (e) all related agreements, insurance contracts
and other agreements which implement each such Employee Plan.
(b) Except as set forth in Section 2.11(b) of the Company Disclosure
Schedule, none of the Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any Person; there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA
and Section 4975 of the Code, with respect to any Employee Plan, which
could result in any material liability of the Company or any of its
Subsidiaries; all Employee Plans are in compliance in all material respects
with the requirements prescribed by any and all statutes (including ERISA
and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification,
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reporting and disclosure to participants or the Department of Labor,
Internal Revenue Service or Secretary of the Treasury), and the Company and
each of its Subsidiaries and ERISA Affiliates have performed all material
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no Knowledge of any
default or violation by any other party to, any of the Employee Plans; each
Employee Plan intended to qualify under Section 401(a) of the Code and each
corresponding trust exempt under Section 501 of the Code has received a
favorable determination letter from the Internal Revenue Service (the
"IRS"), and nothing has occurred which may reasonably be expected to cause
the loss of such qualification or exemption; all contributions required to
be made to any Employee Plan pursuant to Section 412 of the Code, the terms
of the Employee Plan or any collective bargaining agreement, have been made
on or before their due dates and a reasonable amount has been accrued for
contributions to each Employee Plan for the current plan years; no Employee
Plan is a "multiemployer plan" (within the meaning of Section 3(37) of
ERISA) and neither the Company nor any Subsidiary or ERISA Affiliate has
contributed to or had an obligation to contribute to any multiemployer plan
during the five year period ending on the date hereof; and no Employee Plan
is a "single-employer plan under multiple controlled groups" as described
in Section 4063 of ERISA.
(c) With respect to each Employee Plan that is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) and subject to
Title IV of ERISA, other than a multiemployer plan or a "single employer
plan" under multiple controlled groups, (i) no notice of intent to
terminate any such plan has been filed and no amendment to treat any such
plan as terminated has been adopted; (ii) the PBGC has not instituted
proceedings to terminate any such plan; (iii) no other event or condition
has occurred which could reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination, or the appointment of a trustee
to administer, any such plan; (iv) no accumulated funding deficiency,
whether or not waived, exists with respect to any such plan, and no
condition has occurred or exists which by the passage of time would be
expected to result in an accumulated funding deficiency as of the last day
of the current plan year of any such plan; (v) all required premium
payments to the PBGC have been paid when due; (vi) no reportable event (as
described in Section 4043 of ERISA) has occurred with respect to any such
plan (excluding events for which the 30-day notice has been waived); (vii)
no amendment with respect to which security is required under Section 307
of ERISA has been made or is reasonably expected to be made; and (viii) all
costs of any such plan have been provided for on the basis of consistent
methods in accordance with sound actuarial assumptions and practices. Since
the last valuation date of each such plan, there has been no amendment or
change to such plan that would materially increase the amount of benefits
thereunder and, to the Knowledge of the Company, there has been no event or
occurrence that would cause the excess of assets over benefit liabilities
as listed to be reduced or the amount by which benefit liabilities exceed
assets as listed to be increased.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a list
of each current or former employee, officer, director or investor of the
Company or any of its Subsidiaries who holds, as of the date of this
Agreement, any option, warrant or other right to purchase Company Common
Stock or Company Preferred Stock, if any, together with the number of
shares of Company Common Stock or Company Preferred Stock, if any, subject
to such option, warrant or right, the date of grant or issuance of such
option, warrant or right, the extent to which such option, warrant or right
is vested and/or exercisable, the exercise price of such option, warrant or
right, whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code, and the expiration
date of each such option, warrant and right. Section 2.11(e) of the Company
Disclosure Schedule also sets forth the total number of such options,
warrants and rights. True and complete copies of each agreement (including
all amendments and modifications thereto) between the Company and each
holder of such options, warrants and rights relating to the same have been
furnished to Parent and are listed on Section 2.11(e) of the Company
Disclosure Schedule.
2.12 Labor Matters. Except as set forth in Section 2.12 of the Company
Disclosure Schedule, there are no controversies pending or, to the Knowledge of
the Company, threatened, between the Company or any of its
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Subsidiaries and any of their respective employees, which controversies have or
could reasonably be expected to have a Material Adverse Effect; neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or its Subsidiaries nor to the Knowledge of the Company are there any
activities or proceedings of any labor union to organize any such employees;
and, the Company has no Knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the
Company or any of its Subsidiaries which have had a Material Adverse Effect.
The Company does not have nor at the Effective Time will the Company have any
obligation under the Worker Adjustment and Retraining Notification Act (the
"WARN Act").
2.13 Registration Statement; Proxy Statement/Prospectus. The information
supplied by the Company for inclusion in the Registration Statement will not at
the time the Registration Statement (including any amendments or supplements
thereto) is declared effective, 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
for inclusion in the proxy statement/prospectus 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") will not, on the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to Company stockholders, at the
time of the Company Stockholders' Meeting and at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statements
made therein not false or misleading in light of the circumstances under which
they were made, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
the Company or any of its respective Affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or an amendment or supplement to the Proxy Statement,
the Company shall promptly inform Parent and Merger Sub. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents. The Proxy Statement shall comply in all material respects
as to form and substance with the requirements of the Exchange Act and the
Regulations promulgated thereunder.
2.14 Restrictions on Business Activities. Except as set forth in Section
2.14 of the Company Disclosure Schedule, there is no Material Agreement,
judgment, injunction, order or decree binding upon the Company or any of its
Subsidiaries or any of their properties which has had or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of the Company or any of its Subsidiaries or the conduct of business
by the Company or any of its Subsidiaries as currently conducted or as proposed
to be conducted by the Company.
2.15 Title to Property. Except as described in Section 2.15 of the Company
Disclosure Schedule, the Company owns no real property. Section 2.15 of the
Company Disclosure Statement sets forth a true and complete list of all real
property leased by the Company or any of its Subsidiaries, and the aggregate
monthly rental or other fee payable under such lease as of the date hereof.
Except as described in Section 2.15 of the Company Disclosure Schedule, the
Company and each of its Subsidiaries have good and valid title to, or a valid
leasehold interest in all of their properties and assets necessary to conduct
the business as presently conducted, including properties and assets reflected
on the September 30, 1998 balance sheet of the Company included in the
Company's Form 10-Q for the quarter ended September 30, 1998, free and clear of
all liens, charges and encumbrances, except liens for Taxes not yet due and
payable or are being contested in good faith by appropriate proceedings (and
such amount is adequately provided for in accordance with GAAP) and such liens
or other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a
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Material Adverse Effect; and all leases pursuant to which the Company or any of
its Subsidiaries lease from others real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default and in respect of which the Company or such subsidiary has
not taken adequate steps to prevent such a default from occurring), except
where the lack of such good standing, validity and effectiveness or the
existence of such default or event of default would not have a Material Adverse
Effect.
2.16 Taxes. For purposes of this Agreement, "Tax" or "Taxes" shall mean
taxes and governmental impositions of any kind in the nature of (or similar to)
taxes, payable to any federal, state, local or foreign taxing authority,
including income, franchise, profits, gross receipts, ad valorem, custom
duties, alternative or add-on minimum taxes, estimated, environmental,
disability, registration, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and interest, penalties and additions to tax imposed with respect
thereto; and "Tax Returns" shall mean returns, reports and information
statements, including any schedule or attachment thereto, with respect to Taxes
required to be filed with the Internal Revenue Service or any other
governmental or taxing authority or agency, domestic or foreign, including
consolidated, combined and unitary tax returns. Except as set forth in Section
2.16 of the Company Disclosure Schedule and, for all subsections of this
Section 2.16 except for subsections (d), (f) and (h), except as would not,
individually or in the aggregate, have a Material Adverse Effect:
(a) 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 been a
member have been timely filed, and all such Tax Returns are true, complete
and correct.
(b) All Taxes payable by or with respect to the Company and each of its
Subsidiaries have been timely paid, or are adequately reserved for (rather
than reserves for deferred Taxes established to reflect timing differences
between book and Tax treatment) in accordance with GAAP on the respective
company's Balance Sheet. Neither the Company nor any of its Subsidiaries
has incurred a Tax liability from the date of the latest Balance Sheet
other than a Tax liability in the ordinary course of business.
(c) Neither the Company nor any of its Subsidiaries has granted in
writing any waiver of any federal, state, local or foreign statute of
limitations with respect to, or any extension of a period for the
assessment of, any Tax. No deficiencies for any Taxes have been asserted or
assessed in writing (or to the Knowledge of the Company, orally) against
the Company or any of its Subsidiaries that are not adequately reserved for
in accordance with GAAP on the respective company's Balance Sheet.
(d) Neither the Company nor any of its Subsidiaries has made an election
under Section 341(f) of the Code.
(e) The Company and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreements that
under any circumstances could obligate any of them to make any payments
that will not be deductible under Section 280G of the Code.
(f) All stockholders who beneficially own Class B Company Common Stock
with a fair market value greater than the fair market value of 5% of the
outstanding Class A Company Common Stock are United States persons (within
the meaning of Section 7701 (a)(30) of the Code).
(g) Other than with respect to its Subsidiaries, the Company is not and
has never been a member of an affiliated, consolidated, combined or unitary
group, and neither the Company nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement (other than any agreement between
or among the
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Company and its Subsidiaries) or has a liability for Taxes with respect to
the acquisition of assets, however effected, of PromoFone, Inc.
Teleticketing Services, Inc. and Teleticketing Company, L.P.
(h) Section 2.16 of the Company Disclosure Schedule sets forth the tax
years and any Tax Returns currently under examination by any Governmental
Authority with respect to the Company or any of its Subsidiaries. The U.S.
federal income Tax Returns of the Company and each of its Subsidiaries
consolidated in such Tax Returns through December 31, 1994 have closed by
virtue of the applicable statute of limitations.
(i) The Company and each of its Subsidiaries have complied with all
applicable Laws relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections
1441, 1442 and 3406 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 amounts required to be so withheld and paid over under all applicable
Laws.
2.17 Environmental Matters. The Company currently is and, to its Knowledge,
always has been in material compliance with all Federal, state and local laws,
ordinances, regulations and orders relating to the protection of the
environment applicable to its properties, facilities or operations.
2.18 Brokers. Except as set forth in Section 2.18 of the Company Disclosure
Schedule, no, broker, finder or investment banker 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. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and investment bankers set
forth in Section 2.18 of the Company Disclosure Schedule pursuant to which such
firm would be entitled to any payment relating to the transactions contemplated
hereunder.
2.19 Intellectual Property.
(a) Section 2.19(a) of the Company 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 Internet domain
registrations) and applications and material unregistered Trademarks; (c)
copyright registrations and applications, and material unregistered
copyrights, indicating for each, the applicable jurisdiction, registration
number (or application number), and date issued (or date filed).
(b) Section 2.19(b) of the Company Disclosure Schedule sets forth a
complete and accurate list of all written and material oral license
agreements granting any right to use or practice any rights under any
Intellectual Property, whether the Company or any of its Subsidiaries is
the licensee or licensor thereunder, and any assignments, consents,
forbearances to sue, judgments, Orders, settlements or similar obligations
relating to any Intellectual Property to which the Company or any of its
Subsidiaries is a party or otherwise bound (other than off-the-shelf
software applications programs having an acquisition price of less than
$5,000) (collectively, the "License Agreements"), indicating for each the
title, the parties, date executed, whether or not it is exclusive and the
Intellectual Property covered thereby. The License Agreements are valid and
binding obligations of Company or its Subsidiaries, enforceable in
accordance with their terms, and there exists no event or condition which
will result in a material violation or breach of, or constitute (with or
without due notice or lapse of time or both) a material default by the
Company or its Subsidiaries under any such License Agreement.
(c) No royalties, honoraria or other fees are payable to any third
parties for the use of or right to use any Intellectual Property except
pursuant to the License Agreements set forth in Section 2.19(c) of the
Company Disclosure Schedule.
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(d) Except as has not had, nor is not reasonably likely to have, a
Material Adverse Effect, and except as set forth in Section 2.19(d) of the
Company Disclosure Schedule:
(i) the Company or its Subsidiaries exclusively own, free and clear
of all Liens, all owned Intellectual Property, and have a valid,
enforceable right to use all of the licensed Intellectual Property;
(ii) the Company has taken reasonable steps to protect the
Intellectual Property;
(iii) the conduct of the Company's and its Subsidiaries' businesses
as currently conducted or planned to be conducted does not infringe
upon any Intellectual Property rights (other than patents) of or
controlled by any third party nor, to the Knowledge of the Company,
infringe any patent owned by or controlled by any third party;
(iv) except as set forth on Section 2.19(d)(iv) of the Company
Disclosure Schedule, there is no Litigation pending, or to the
Company's Knowledge, threatened (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
Intellectual Property;
(v) to the Knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual
Property owned by the Company or any of its Subsidiaries and, except as
set forth on Section 2.19(d)(v) of the Company Disclosure Schedule, no
such claims have been brought against any third party by the Company or
any of its Subsidiaries; and
(vi) the consummation of the transactions contemplated hereby will
not result in the loss or impairment of the Company's or any of its
Subsidiaries' right to own or use any of the Intellectual Property, nor
will they require the consent of any Governmental Authority or third
party in respect of any such Intellectual Property.
(e) Section 2.19(e)(i) of the Company Disclosure Schedule lists all
Software material (either singly or in the aggregate) to the business of
the Company (other than off-the-shelf software applications programs having
an acquisition price of less than $5,000) which are owned, licensed to or
by the Company or any of its Subsidiaries, leased to or by the Company or
any of its Subsidiaries, or otherwise used by the Company or any of its
Subsidiaries, and identifies which Software is owned, licensed, leased or
otherwise used, as the case may be. Section 2.19(e)(ii) of the Company
Disclosure Schedule lists all Software sold, licensed, leased or otherwise
distributed by the Company or any of its Subsidiaries to any third party,
and identifies which Software is sold, licensed, leased, or otherwise
distributed as the case may be. The Software set forth in Section
2.19(e)(i)-(ii) of the Company Disclosure Schedule which the Company or any
of its Subsidiaries purports to own that is or could reasonably be expected
to be, either individually or in the aggregate, material to the conduct of
the business of the Company, was either developed (i) by employees of
Company or any of its Subsidiaries within the scope of their employment;
(ii) by independent contractors who have assigned their rights to Company
or any of its Subsidiaries pursuant to enforceable written agreements; or
(iii) has otherwise been rightfully assigned. Neither Pacer/Cats,
Falconwood nor any Subsidiaries or Affiliates thereof have a right or
license to use the Software other than as listed in Section 2.19(e)(ii) of
the Company Disclosure Schedule. For purposes of this Section 2.19(e),
"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
Company or any of its Subsidiaries, and (v) all documentation, including
user manuals and training materials, relating to any of the foregoing.
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(f) All Trademarks material to the conduct of the business of the
Company 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; and the registered
Trademarks have been continuously used in the form appearing in, and in
connection with the goods and services listed in, their respective
registration certificates or identified in their respective pending
applications.
(g) The Company has taken reasonable steps in accordance with normal
industry practice to protect the Company's rights in Trade Secrets of the
Company. Without limiting the foregoing, the Company has and enforces a
policy of requiring each employee, consultant and contractor to execute
proprietary information, confidentiality and assignment agreements
substantially consistent with the Company's standard forms thereof
(complete and current copies of which have been delivered to the Parent).
Except under confidentiality obligations, there has been no material
disclosure of any Company or Subsidiary confidential information or Trade
Secrets.
(h) All Software owned by the Company or any of its Subsidiaries, and
all Software licensed from third parties by the Company or any of its
Subsidiaries, is free from any significant software defect or programming
or documentation error, operates and runs in a reasonable and efficient
business manner, to the Knowledge of the Company conforms to the
specifications thereof, if applicable and, with respect to the Software
owned by the Company or any of its Subsidiaries, the applications can be
compiled from their associated source code without undue burden, if the
failure to be able to do or the existence of which could reasonably be
expected to have a Material Adverse Effect. The Company has or at the
Effective Time will have all material documentation relating to use,
maintenance and operation of the Software used in the conduct of business
of the Company.
(i) Except as set forth in Section 2.19(i) of the Company Disclosure
Schedule, the disclosure under the heading "Other Matters" contained in the
Company's Quarterly Report on Form 10-Q for the period ending September 30,
1998 is accurate and in compliance with applicable Law in all material
respects.
(j) For purposes of this Section 2.19, Material Adverse Effect shall
include a material adverse effect on the proprietary software and system of
the Company known as MARS.
2.20 Insurance. Section 2.20 of the Company Disclosure Schedule sets forth a
true and complete list of all material insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company and its Subsidiaries. There is no claim
by the Company or any of its Subsidiaries pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds, other than any claim which will not
have a Material Adverse Effect. All premiums currently due and payable under
all such policies and bonds have been paid and the Company and its Subsidiaries
are otherwise in full compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
Except as set forth in Section 2.20 of the Company Disclosure Schedule, to the
Knowledge of the Company, such policies of insurance and bonds are of the type
and in amounts customarily carried by Persons conducting businesses similar to
those of the Company and its Subsidiaries and amounts reasonable in light of
the assets of the Company and its Subsidiaries. To the Knowledge of the Company
as of the date hereof, there is not any threatened termination of or material
premium increase with respect to any of such policies or bonds.
2.21 No Restrictions on the Merger. The Board of Directors of the Company
has, prior to the date hereof, approved the execution and delivery by the
Company of this Agreement and the Option Agreement and the entry by certain
stockholders of the Company into the Stockholders Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement, the Option Agreement and the Stockholders Agreement. Together with
the corporate proceedings referred to in Section 2.4, such approval is
sufficient to render inapplicable to this Agreement, the Option Agreement and
the Stockholders Agreement and the transactions contemplated hereby and
thereby, including the Merger, the provisions of Section 203 of the
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Delaware Law. No provision of the Certificate of Incorporation, By-laws or
other governing instruments of the Company or any of its Subsidiaries (i)
restricts or impairs the ability of Parent to vote or otherwise exercise the
rights of a stockholder with respect to securities of the Company or the
Surviving Corporation that may be acquired or controlled by Parent or (ii)
except for the Plan, entitles any Person to acquire securities of the Company
or the Surviving Corporation on a basis which will not be available to Parent
after the Effective Time, as a result of the consummation of the transactions
contemplated by this Agreement, the Stockholders Agreement or the Option
Agreement or the acquisition of securities of the Company or the Surviving
Corporation by Parent or Merger Sub.
2.22 Pooling; Tax Matters. 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 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 (a "Pooling"). To the
Knowledge of the Company, neither the Company nor any of its Affiliates has
taken or agreed to take any action, failed to take any action or knows of any
fact, agreement, plan or other agreement that is reasonably likely to prevent
the Merger from constituting a reorganization within the meaning of Section
368(a) of the Code.
2.23 Affiliates. Section 2.23 of the Company Disclosure Schedule contains a
true and complete list of all Persons who, 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.
2.24 Certain Business Practices. As of the date of this Agreement, neither
the Company nor any of its Subsidiaries nor any director, officer, employee or
agent of the Company or any of its Subsidiaries has in any material respect (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.
2.25 Interested Party Transactions. Except as disclosed in the Company SEC
Reports and Section 2.25 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is indebted to any director, officer,
employee or agent of the Company or any of its Subsidiaries (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary expenses),
and no such Person is indebted to the Company or any of its Subsidiaries (other
than in respect of loans or advances in the ordinary course of business to
employees in excess of $5,000 per employee or $100,000 in the aggregate), and
there have been no other transactions of the type required to be disclosed
pursuant to Items 402 and 404 of Regulation S-K under the Securities Act and
the Exchange Act since January 1, 1996.
2.26 Interest Rate and Foreign Exchange Contracts. Neither the Company nor
its Subsidiary is currently a party to or currently engaged in, or is party to
a current agreement or has agreed to enter into, any interest rate swaps, caps,
floors or option agreements or any other interest rate risk management
arrangement or foreign exchange contracts.
2.27 Opinion of Financial Advisor. The Company has been advised by its
financial advisor, SalomonSmithBarney, substantially to the effect that, in its
opinion, as of the date hereof, the consideration to be received by the
stockholders of the Company in the Merger is fair to such stockholders of the
Company from a financial point of view, a copy of which has been provided to
Parent.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
3.1 Organization and Qualification, Subsidiaries.
(a) Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization and has all the requisite
corporate power and authority, and is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Parent Approvals") necessary to own,
lease and operate its respective properties and to carry on its business as
it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and Parent
Approvals would not, individually or in the aggregate, have a Material
Adverse Effect. Each of Parent and Merger Sub is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect.
(b) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated hereby and has engaged in no other business other
than incident to its creation and this Agreement and the transactions
contemplated hereby.
3.2 Capitalization. As of the date hereof, the authorized capital stock of
Parent consists of (i) 1,800,000,000 shares of Parent Common Stock of which, as
of November 17, 1998, 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 or outstanding. All of the outstanding shares of Parent 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.
3.3 Authorization of Agreement. Each of Parent and Merger Sub has all
requisite corporate power and authority to execute and deliver this 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
each of Parent and Merger Sub of this Agreement and each instrument required
hereby to be executed and delivered by the Parent and Merger Sub 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
Parent and Merger Sub and by Parent as the sole stockholder of Merger Sub.
Except for filing of the Certificate of Merger, no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of Parent and Merger Sub and, assuming due authorization,
execution and delivery hereof by the Company, constitutes a legal, valid and
binding obligation of each of Parent and Merger Sub, enforceable against each
of Parent and Merger Sub in accordance with its terms.
3.4 Approvals. Except as required under Parent's Senior Secured Revolving
Line of Credit facility effective November 25, 1997 with Chase Manhattan Bank
N.A. and Dai-Ichi Kangyo as co-agent, the execution and delivery by Parent and
Merger Sub of this Agreement do not, and the performance by Parent and Merger
Sub of this Agreement shall not, require Parent or Merger Sub to (i) obtain any
consent, approval, authorization, license, waiver, qualification, order or
permit of, (ii) observe any waiting period imposed by or (iii) require the
Company to make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except (A) for compliance with
applicable requirements, if any, of the Securities Act, the
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Exchange Act, Blue Sky Laws or the pre-Merger notification requirements of the
HSR Act, (B) for the filing and recordation of appropriate Merger or other
documents as required by Delaware Law, (C) for the filing of appropriate Merger
or other documents as required by the New York Stock Exchange, or (D) where the
failure to obtain such consents, approvals, authorizations, licenses, waivers,
qualifications, orders or permits, or to make such filings or notifications,
would not (1) have, in the aggregate, a Material Adverse Effect or (2) prevent
or materially impair or delay the consummation of the Merger.
3.5 No Violation. Parent and Merger Sub are not in, and the execution and
delivery by Parent and Merger Sub of this Agreement does not, and the
performance of this Agreement by Parent or Merger Sub will not, conflict with
or violate the Certificate of Incorporation or By-laws of Parent or Merger Sub,
conflict with or violate any Law, in each case applicable to Parent or Merger
Sub or by which its or any of their respective properties is bound or affected,
or result in any breach or violation of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Parent or Merger Sub
is a party or by which Parent or Merger Sub or any of their respective
properties is bound or affected, except, for any such conflicts, breaches,
violations, defaults or other occurrences that would not (1) have, in the
aggregate, a Material Adverse Effect or (2) prevent or materially impair or
delay the ability of the Parent or Merger Sub to perform their respective
obligations hereunder.
3.6 Reports.
(a) Parent has timely filed all forms, reports and documents required to
be filed with the SEC since January 1, 1997 (collectively, the "Parent SEC
Reports") required to be filed by it pursuant to the federal securities
laws and the SEC rules and regulations promulgated thereunder. The Parent
SEC Reports were prepared in accordance, and complied as of their
respective filing dates in all material respects, with the requirements of
the Exchange Act and the rules and Regulations promulgated thereunder and
did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (i)
complied in all material respects with applicable accounting requirements
and the published rules and Regulations of the SEC with respect thereto,
(ii) were prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis throughout the periods involved (except as may be
expressly described in the notes thereto) and (iii) fairly presents the
consolidated financial position of the Parent as at the respective dates
thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements included in the Company's Form 10-Q reports were or are subject
to normal and recurring year-end adjustments that have not been and are not
expected to be material in amount to the Parent.
3.7 Absence of Certain Changes or Events. Since September 30, 1998, there
has not occurred any event, development or change which, individually or in the
aggregate, has resulted in or could reasonably be expected to result in a
Material Adverse Effect.
3.8 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Parent for inclusion in 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 Parent 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 Company Stockholders' Meeting and at the Effective
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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 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, Parent makes no representation, warranty or
covenant with respect to any information supplied by the Company which is
contained in any of the foregoing documents.
3.9 Pooling; Tax Matters. To the Knowledge of Parent, neither Parent nor any
of its Affiliates has taken or agreed to take any action or failed to take any
action that would prevent the Merger from being treated as a Pooling. To the
Knowledge of Parent, neither Parent nor any of its Affiliates has taken or
agreed to take any action, failed to take any action, or knows of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent the
Merger from constituting a reorganization within the meaning of Section 368(a)
of the Code.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, between the date of this Agreement and the Effective
Time, except as expressly required or permitted by this Agreement or unless
Parent shall otherwise agree in writing, the Company shall conduct and shall
cause the businesses of its Subsidiaries to be conducted, only in, and the
Company and its Subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice; and the
Company shall use its commercially reasonable efforts to preserve intact the
business organization of the Company and its Subsidiaries, to keep available
the services of the present officers, employees and consultants of the Company
and its Subsidiaries, to maintain in effect Material Agreements and to preserve
the present relationships of the Company and its Subsidiaries with
theaters/exhibitors, movie studios, advertisers, sponsors, customers, suppliers
and other Persons with which the Company or any of its Subsidiaries has
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
shall, between the date of this Agreement and the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or By-
laws or equivalent organizational document of the Company or any of its
Subsidiaries or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership
of the Company or any of its Subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest of the Company, any of its
Subsidiaries or Affiliates (except for the issuance of shares of Company
Common Stock issuable pursuant to employee stock options granted prior to
the date hereof under the Plan, which options are outstanding on the date
hereof), or any assets of the Company or any of its Subsidiaries (except
for sales, transfers or other disposition of assets in the ordinary course
of business and in a manner consistent with past practice);
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock (except that a wholly owned Subsidiary of the
Company may declare and pay a dividend to its parent) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
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substitution for shares of its capital stock or amend the terms of,
repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its Subsidiaries;
(d) sell, transfer, license, sublicense or otherwise dispose of any
Intellectual Property rights, or amend or modify in any material way any
existing agreements with respect to any Intellectual Property rights
(except in the ordinary course of business in a manner consistent with past
practice);
(e) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, limited liability company, partnership, joint
venture or other business organization or division thereof; incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee (other than guarantees of bank debt of the Company's Subsidiaries
entered into in the ordinary course of business) or endorse or otherwise as
an accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except in the ordinary course of business
consistent with past practice and as otherwise permitted under any loan or
credit agreement to which the Company is a party; authorize any capital
expenditures which are, in the aggregate, in excess of $1,500,000 for the
Company and its Subsidiaries taken as a whole; or enter into or amend in
any material respect any contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this Section 4.1(e);
(f) (i) except as set forth in Section 4.1(f) of the Company Disclosure
Schedule, increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or its Subsidiaries who are not officers of the Company in
accordance with past practices, or grant any severance or termination pay
or stock options to, or enter into any employment or severance agreement
with any director, officer or other employee of the Company or any of its
Subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus (except for such bonuses expected to be awarded to
employees of the Company in respect of 1998 performance as identified in
Section 4.1(f) of the Company Disclosure Schedule), profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees unless required by Law; or (ii) pay to any
officer or director any special performance bonus payable as a result of
any action taken by such officer or director in connection with any
Litigation.
(g) change, other than in the ordinary course of business and in a
manner consistent with past practice or GAAP (none of which changes shall
be unreasonable or unusual), any accounting policies or procedures
(including procedures with respect to reserves, revenue recognition,
payments of accounts payable and collection of accounts receivable) unless
required by Law;
(h) create, incur, suffer to exist or assume any material Lien on any of
their material assets;
(i) other than in the ordinary course of business consistent with past
practice or as set forth in Section 4.1(i) of the Company Disclosure
Schedule, (A) enter into any Material Agreement, (B) modify, amend or
transfer in any material respect or terminate any Material Agreement to
which the Company or any of its Subsidiaries is a party or waive, release
or assign any material rights or claims thereunder or (C) enter into or
extend any lease with respect to real property with any third party
requiring annual payments in excess of $50,000;
(j) make any material tax election not consistent with past practice or
settle or compromise any material federal, state, local or foreign income
tax liability or agree to an extension of a statute of limitations with
respect to a material amount of Taxes;
(k) (i) settle any Litigation for an amount in excess of $100,000 or
settle any Litigation disclosed on Section 2.10 of the Company Disclosure
Schedule or (ii) waive, assign or release any material rights or claims
except in the ordinary course of business consistent with past practice; or
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(l) 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.
4.2 Solicitation of Other Proposals.
(a) From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement in accordance with its terms, the
Company shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any of its or their respective officers,
directors, employees, representatives agents or Affiliates, directly or
indirectly, to (i) solicit, initiate or knowingly encourage or take any
action to facilitate or encourage any inquiries or the making of any
proposal that constitutes, an Acquisition Proposal or (ii) participate or
engage in discussions or negotiations with, or provide any information to,
any Person (including any "person" as defined in Section 13(d)(3) of the
Exchange Act) concerning an Acquisition Proposal or which might reasonably
be expected to result in an Acquisition Proposal. For purposes of this
Agreement, the term "Acquisition Proposal" shall mean any inquiry, proposal
or offer from any person (other than Parent, Merger Sub or any of their
Affiliates) relating to any merger, consolidation, recapitalization,
liquidation or other direct or indirect business combination, involving the
Company or any Material Subsidiary or the issuance or acquisition of shares
of capital stock or other equity securities of the Company or any Material
Subsidiary representing 20% or more (by voting power) of the outstanding
capital stock of the Company or such Material Subsidiary (except for the
issuance of shares of Company Common Stock pursuant to employee stock
options granted under the Plan and outstanding on the date of this
Agreement or the issuance of the Option to Parent) or any tender or
exchange offer that if consummated would result in any Person, together
with all Affiliates thereof, beneficially owning shares of capital stock or
other equity securities of the Company or any Material Subsidiary
representing 20% or more (by voting power) of the outstanding capital stock
of the Company or such Material Subsidiary, or the acquisition, license,
purchase or other disposition of a substantial portion of the technology,
business or assets of the Company or any Material Subsidiary outside the
ordinary course of business or inconsistent with past practice, or any
other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the consummation of the
transactions contemplated hereby or which would reasonably be expected to
dilute materially the benefits to Parent or its Affiliates of the
transactions contemplated hereby. The Company shall immediately cease and
cause to be terminated and shall cause its Affiliates and Subsidiaries and
its or their respective officers, directors, employees, representatives or
agents, to terminate all existing discussions or negotiations with any
Persons conducted heretofore with respect to, or that could reasonably be
expected to lead to, an Acquisition Proposal.
(b) Notwithstanding the foregoing, the Company may participate in
discussions or negotiations with, or furnish information with respect to
the Company pursuant to a confidentiality agreement substantially similar
to that then in effect between the Company and Parent, to any Person if and
only if such Person has submitted an unsolicited written Acquisition
Proposal (under circumstances in which the Company has complied with its
obligations under Section 4.2(a)) to the Board of Directors of the Company
and such Board of Directors (i) 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 Superior Proposal
and (ii) receives the advice of outside counsel to the Company that is
reasonably competent to render such advice, to the effect that taking such
action is required to satisfy the fiduciary duties of such Board under
applicable Law and (iii) determines in good faith that taking such action
is required to satisfy the fiduciary duties of the Board under applicable
Law.
(c) Except as set forth in the following sentence, neither the Board of
Directors of the Company nor any committee thereof shall (i) (1) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal
other than the Merger, (2) withdraw or modify or propose to withdraw or
modify in a manner adverse to Parent or Merger Sub its approval or
recommendation of the Merger, this Agreement or the transactions
contemplated hereby, (3) fail to mail the Proxy Statement to the Company's
stockholders when the Proxy Statement shall be available for mailing or
fail to include therein such
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approval and recommendation, (4) upon a request by Parent (which request is
reasonable under the facts and circumstances) to reaffirm the approval or
recommendation of this Agreement or the Merger, fail to do so as promptly
as practicable but in no event later than five (5) calendar days after such
request is made or (5) resolve or announce its intention to do any of the
foregoing; or (ii) resolve to authorize the Company to, and (regardless of
whether such authorization is given) the Company shall not, enter into an
agreement or contract or an agreement in principle, letter of intent or
similar document or understanding with any person (other than Parent,
Merger Sub or any of their Affiliates) relating to an Acquisition Proposal
other than the Merger. The immediately preceding sentence notwithstanding,
in the event that prior to the Effective Time the Board of Directors of the
Company receives a Superior Proposal, the Board of Directors of the Company
may take, and the Company may take upon the express authorization of such
Board, any action referred to in such sentence (x) if such Board of
Directors receives the advice of outside counsel to the Company that is
reasonably competent to render such advice to the effect that, and after
receipt of and having taken into account such advice, such Board determines
in its good faith judgment that, taking such action is required to satisfy
the fiduciary duties of such Board under applicable Law; (y) if such Board
furnishes Parent two (2) business days' prior written notice of the taking
of such action (which notice shall include a description of the material
terms and conditions of the Superior Proposal, identify the person making
the same and specify the date and time for the expiration of the two (2)
day period required by this provision); and (z) simultaneously with the
taking of such action the Company pays to Parent the Termination Fee
referred to in Section 8.3. For purposes of this Agreement, (A) "Material
Subsidiary" means any Subsidiary of the Company whose consolidated,
revenues, net income or assets constitute 10% or more of the revenues, net
income or assets of the Company and its Subsidiaries taken as a whole and
(B) the term "Superior Proposal" means any bona fide Acquisition Proposal
to effect a merger, consolidation or sale of all or substantially all of
the assets or capital stock of the Company which is on terms which the
Board of Directors of the Company determines by a majority vote of its
directors in its good faith judgment (based on the written opinion, with
only customary qualifications, of a financial advisor of nationally
recognized reputation that the consideration provided in such Acquisition
Proposal likely exceeds the value of the consideration provided for in the
Merger (or words to such effect), after taking into account all relevant
factors, including, any conditions to such Acquisition Proposal, the timing
of the closing thereof, the risk of nonconsummation, the ability of the
person making the Acquisition Proposal to finance the transaction
contemplated thereby and any required governmental or other consents,
filings and approvals) to be more favorable to the Company's stockholders
than the Merger (or any revised proposal made by Parent) and for which
financing, to the extent required, is then fully committed to the Person
making such Acquisition Proposal.
(d) In addition to the obligations of the Company set forth in this
Section 4.2, the Company shall immediately advise Parent orally and in
writing of any request for information with respect to any Acquisition
Proposal, or any inquiry with respect to or which could result in an
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person making the
same. The Company shall inform Parent on a prompt and current basis of the
status and content of any discussions regarding any Acquisition Proposal
with a third party and as promptly as practicable of any change in the
price, structure or form of the consideration or material terms of and
conditions regarding the Acquisition Proposal or of any other developments
or circumstances which could reasonably be expected to culminate in the
taking of any of the actions referred to in Section 4.2(c). Nothing
contained in this Section 4.2(d) shall prevent the Board of Directors of
the Company from complying with Rule 14d-9 and Rule 14e-2 promulgated under
the Exchange Act with regard to a tender or exchange offer by a third party
or from making such disclosure as may be required by applicable Law.
4.3 Insurance. During the period beginning on the date of this Agreement and
ending at the Effective Time, 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.
4.4 Y2K Compliance. During the period beginning on the date of this
Agreement and ending at the Effective Time, the Company shall use commercially
reasonable efforts to take or cause to be taken such
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actions in respect of "Y2K compliance" as are necessary to prevent a
significant disruption in the Company's business or services.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration 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 (i)
obtain and furnish the information required to be included by the SEC in
the Proxy Statement and, after consultation with Parent, 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 Parent and its counsel and (ii) use its
reasonable best efforts to obtain the necessary approvals of the Merger and
this Agreement by its stockholders.
(b) Parent shall prepare and file with the SEC a Registration Statement
on Form S-4 (the "Registration Statement"), in which the Proxy Statement
shall be included as a prospectus, and shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC as promptly
as practicable. Parent 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. Parent shall also
take any action required to be taken under Blue Sky or other securities
laws or New York Stock Exchange rules and regulations in connection with
the issuance of Parent Common Stock in the Merger.
(c) The Proxy Statement shall include the recommendation of the Board of
Directors of the Company in favor of approval and adoption of this
Agreement and the Merger except to the extent that the Company shall have
withdrawn or modified its approval or recommendation of the Agreement or
the Merger as permitted by Section 4.2(c). The Company shall not amend or
supplement the Proxy Statement without the consent of Parent and its
counsel unless required to do so by applicable Law.
(d) Parent and the Company shall make all necessary filings with respect
to the Merger under the Securities Act and the Exchange Act and the rules
and regulations thereunder and under applicable Blue Sky or similar
securities laws, rules and regulations, and shall use all reasonable
efforts to obtain required approvals and clearances with respect thereto.
5.2 Meeting of Company Stockholders. The Company shall promptly after the
date hereof take all action necessary in accordance with Delaware Law and its
Certificate of Incorporation and By-laws to convene the Company Stockholders'
Meeting as soon as practicable following the date upon which the Registration
Statement becomes effective. Once the Company Stockholders Meeting has been
called and noticed, the Company shall not postpone or adjourn (other than for
the absence of a quorum) the Company Stockholders' Meeting without the consent
of Parent. Except as may be otherwise required for the Board of Directors of
the Company to comply with its fiduciary duties to stockholders imposed by Law
as advised by outside legal counsel, 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 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
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stockholders whether or not the Board of Directors of the Company determines at
any time subsequent to declaring its advisability that this Agreement is no
longer advisable and 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 with Section 4.2(c), the Company shall use its
best efforts to solicit from stockholders of the Company proxies in favor of
the Merger and shall take all other action necessary or advisable to secure the
vote or consent of stockholders required by Delaware Law to effect the Merger.
5.3 Access to Information; Confidentiality.
(a) Upon reasonable notice the Company and Parent shall each (and shall
cause each of their respective Subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of the other,
reasonable access, during the period prior to the Effective Time, to all
its properties, books, contracts, commitments and records and, during such
period, each of the Company and Parent shall (and shall cause each of their
respective Subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as such other party may
reasonably request, and each party shall make available to the other party
the appropriate individuals for discussion of such party's business,
properties and personnel as the other party may reasonably request. No
investigation pursuant to this Section 5.3(a) shall affect any
representations or warranties of the parties herein or the conditions to
the obligations of the parties hereto.
(b) Each party shall keep all information obtained pursuant to Section
5.3(a) confidential in accordance with the terms of the confidentiality
agreement, dated January 7, 1999 (collectively, the "Confidentiality
Agreement"), between Parent and the Company. Anything contained in the
Confidentiality Agreement to the contrary notwithstanding, the Company and
Parent hereby agree that each such party may issue press release(s) or make
other public announcements in accordance with Section 5.10.
5.4 Reasonable Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each party hereto shall use its reasonable efforts to take, or
cause to be taken, all actions, and do, or cause to be done, and to assist
and cooperate with the other party or parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated hereby and by the Stockholders Agreement. The Company and
Parent shall use their reasonable efforts to (i) obtain all licenses,
permits, consents, waivers, approvals, authorizations, qualifications or
orders (including all United States and foreign governmental and regulatory
rulings and approvals), and the Company and Parent shall make all filings
(including, without limitation, all filings with United States and foreign
governmental or regulatory agencies) under applicable Law required in
connection with the authorization, execution and delivery of this Agreement
by the Company and Parent and the consummation by them of the transactions
contemplated hereby, including the Merger (in connection with which Parent
and the Company will cooperate with each other in connection with the
making 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 (ii) 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 Parent nor
any of its Affiliates shall be under any obligation to (x) 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 assets or categories of assets of Parent, any of
its Affiliates, the Company or the holding separate of the shares of
Company Common Stock or imposing or seeking to impose any limitation on the
ability of Parent 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
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Company Common Stock or (y) otherwise take any step to avoid or eliminate
any impediment which may be asserted under any Law governing competition,
monopolies or restrictive trade practices which, in the reasonable judgment
of Parent, might result in a limitation of the benefit expected to be
derived by Parent as a result of the transactions contemplated hereby or
might adversely affect the Company or Parent or any of Parent's Affiliates.
Neither party hereto will take any action which to its Knowledge will
result in any of the representations or warranties made by such party
pursuant to Articles II or III, as the case may be, becoming untrue or
inaccurate in any material respect.
(b) The Company and Parent shall cooperate with one another:
(i) in connection with the preparation of the Registration Statement
and the Proxy Statement;
(ii) in connection with the preparation of any filing required by the
HSR Act;
(iii) in determining whether any action by or in respect of, or
filing with, any governmental authority, agency or official, or other
third party, is required, or any actions, licenses, permits, consents,
waivers, approvals, authorizations, qualifications or orders are
required to be obtained from parties in connection with the consummation
of the transactions contemplated hereby; and
(iv) in seeking any actions, licenses, permits, consents, waivers,
approvals, authorizations, qualifications or orders, or making any
filings, furnishing information required in connection therewith or with
the Registration Statement or the Proxy Statement and seeking timely to
obtain any such actions, licenses, permits, consents, waivers,
approvals, authorizations, qualifications or orders, or making any
filings; and
(v) in order to facilitate the achievement of the benefits reasonably
anticipated from the Merger.
(c) The Company shall use all reasonable efforts to cause its Affiliates
and other Persons to transfer and assign all rights necessary for the
Company to continue to conduct its business consistent with historical
operations and as currently conducted pursuant to documentation and in a
manner reasonably acceptable to Parent.
5.5 Stock Options.
(a) At the Effective Time, each outstanding stock option to purchase
shares of Company Common Stock (each a "Company Option") under the Plan,
whether vested or unvested, will be assumed by Parent. Each Company Option
so assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Plan immediately
prior to the Effective Time (and after giving effect to the transactions
contemplated hereby), except that such Company Option will be exercisable
for that number of whole shares of Parent Common Stock equal to the product
of the number of shares of Company Common Stock that were purchasable under
such Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Option
will be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, and rounding
the resulting exercise price up to the nearest whole cent.
(b) Parent shall reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of Company Options assumed
by Parent under this Agreement. Parent will file as soon as practicable
after the Effective Date a registration statement on Form S-8 under the
Securities Act covering the shares of Parent Common Stock issuable upon the
exercise of the Company Options assumed by Parent pursuant to Section
5.5(a), and will use its reasonable efforts to cause such registration
statement
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to become effective on or about the Effective Time or soon as thereafter as
practicable and to maintain such registration in effect until the exercise
or expiration of such assumed Company Options.
5.6 Employee Benefits.
(a) Participation in Employee Benefits of Parent. After the Effective
Time and on a schedule determined by Parent in connection with its
integration of its business with that of the Company, the employees of the
Company shall be eligible to participate in the employee benefit plans of
Parent to the same extent as any similarly situated and geographically
located employees of Parent.
(b) Benefit Plans. As of the Effective time, Parent shall (or shall
cause the Surviving Corporation to) either continue the existing Employee
Plans or provide (or cause the Surviving Corporation to provide) benefits
to employees and former employees of the Company and its Subsidiaries that
are no less favorable in the aggregate to such employees than those
provided under the "Parent Benefit Plans" (as defined below) (as they may
be amended from time to time) to similarly situated employees of Parent and
its Subsidiaries. "Parent Benefit Plan" means any employee benefit plan,
arrangement, practice, contract or agreement of any type (including but not
limited to a plan described in Section 3(3) of ERISA), maintained by Parent
or its Subsidiaries.
(c) Service Credit. With respect to any Employee Plan which is an
"employee benefit plan" as defined in Section 3(3) of ERISA, for purposes
of determining eligibility to participate, vesting, entitlement to
benefits, including for severance benefits, vacation entitlement and
service awards, service with the Company or any Subsidiary shall be treated
as service with Parent or its Subsidiaries; provided, however, that such
service shall not be recognized to the extent that such recognition would
result in a duplication of benefits. Such service also shall apply for
purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations.
Company employees shall be given credit for amounts paid under a
corresponding benefit plan during the same period for purposes of applying
deductibles, copayments and out-of-pocket maximums as though such amounts
had been paid in accordance with the terms and conditions of the Parent
Benefit Plan.
(d) Compensation Contracts. Parent shall, or shall cause the Surviving
Corporation to, assume and honor the obligations of the Company and its
Subsidiaries under all employment, severance, consulting and other
compensation contracts, arrangements, commitments or understandings
("Compensation Contracts"), in accordance with their terms, as disclosed in
Section 5.6 of the Company Disclosure Schedule, each as amended to the date
hereof or as contemplated hereby. Parent hereby acknowledges that the
Merger will constitute a "Change in Control" for purposes of all
Compensation Contracts and Employee Plans, if applicable. The provisions of
this Section 5.6(d) are intended to be for the benefit of, and shall be
enforceable by, each person who is a party to, a participant in or a
beneficiary of any Employee Plan, contract, arrangement, commitment or
understanding referred to in Section 5.6(d).
(e) Falconwood Plan. As of Closing, the Company shall (i) cause all
employees of the Company to be one-hundred percent (100%) vested in their
accrued benefit under The Falconwood Group Defined Benefit Pension Plan
(the "Falconwood Plan"), (ii) enter into an agreement in the form set forth
in Exhibit D attached hereto (the "Falconwood Termination Agreement"), and
cause the other parties to enter into such agreement, and take or cause to
be taken such actions as are necessary to effectuate its withdrawal from
the Falconwood Plan as a participating employer, and (iii) take or cause to
be taken such actions as are necessary, including amending the Falconwood
Plan if needed, to insure that the consummation of the transactions
contemplated by this Agreement will result, for purposes of the Plan, in a
termination of employment by the employees of the Company, thereby
entitling employees of the Company to an immediate distribution of their
accrued benefits under the Falconwood Plan as of Closing.
(f) Certain Notices. For notices and payments related to events
occurring prior to the Closing Date, the Company shall cause Falconwood to
be responsible for any notices required to be given to employees
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of the Company pursuant to the WARN Act, Section 4980B of the Code
("COBRA") and/or Section 402(f) of the Code ("Rollover Notice"), and for
any payments or benefits required pursuant to such laws or on account of
violation of any requirement of such laws.
5.7 Pooling; Tax-Free Reorganization.
(a) The Company will not Knowingly take, or Knowingly permit any
controlled Affiliate of the Company to take, any actions that could prevent
the Merger from being treated as a Pooling, it being understood and agreed
that if Deloitte & Touche 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 5.7.
(b) None of Parent, Merger Sub and the Company shall take or agree to
take any action or fail to take any action, except as expressly provided in
this Agreement, that is likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that any such actions, or any such failures to take any action,
with respect to or in connection with the Parent Rights Agreement (other
than an amendment to such agreement) shall not constitute a breach of this
covenant.
(c) Parent and the Company shall cooperate and use their best efforts in
obtaining the tax opinions of SASM&F, counsel to the Company, and OHS,
counsel to Parent. In connection therewith, the Company, Parent and Merger
Sub shall deliver to SASM&F and OHS representation letters (the
"Representation Letters"), dated as of the Closing Date, in form and
substance substantially identical to those agreed upon concurrently
herewith by the Company, Parent and Merger Sub, on which SASM&F and OHS
shall be entitled to rely in rendering their respective opinions pursuant
to Sections 6.2(g) and 6.3(d); provided, however, that the failure of the
Company, Parent or Merger Sub to make any statement in a Representation
Letter because of an event, or a change in facts or law, in either case
outside of such party's control, shall not constitute a breach of this
covenant. Parent and the Company shall, and shall cause their respective
subsidiaries to, take the position for all tax and accounting purposes that
the Merger qualifies as a reorganization within the meaning of Section
368(a) of the Code.
5.8 Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent, and Parent shall
give prompt notice to the Company, of the occurrence, or non-occurrence, of
any event the occurrence, or non-occurrence, of which results in any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect (or, in the case of any representation
or warranty qualified by its terms by materiality or Material Adverse
Effect, then untrue or inaccurate in any respect) and any failure of the
Company, Parent or Merger Sub, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving
such notice.
(b) Between the date hereof and the Effective Time, each of the Company
and Parent 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, Parent or their Subsidiaries that relates to the
consummation of the Merger, (iv) the occurrence of a default or event that,
with notice or lapse of time or both, will become a default under any
contract which is material to Parent or any Material Contract of the
Company, and (v) any change that is reasonably likely to have a Material
Adverse Effect on the Company or Parent or is likely to delay or impede the
ability of either Parent or the Company to consummate the transactions
contemplated by this Agreement or to fulfill their respective obligations
set forth herein.
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(c) Each of the Company and Parent will give (or will cause their
respective Subsidiaries to give) any notices to third Persons, and use, and
cause their respective Subsidiaries to use, all reasonable efforts to
obtain any consents from third Persons (i) necessary, proper or advisable
to consummate the transactions contemplated by this Agreement, (ii)
otherwise required under any contracts, licenses, leases or other
agreements in connection with the consummation of the transactions
contemplated hereby or (iii) required to prevent a Material Adverse Effect
on the Company or Parent from occurring prior to or after the Effective
Time. If any party shall fail to obtain any such consent from a third
Person, such party will use all reasonable efforts, and will take any such
actions reasonably requested by the other parties, to limit the adverse
effect upon the Company and Parent, their respective Subsidiaries, and
their respective businesses resulting, or which would result after the
Effective Time, from the failure to obtain such consent.
5.9 Listing on the New York Stock Exchange. Parent shall use its reasonable
efforts to cause the Parent 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, prior to the Effective Time.
5.10 Public Announcements. Parent and the Company shall consult with each
other before issuing any press release or other public announcement with
respect to the Merger or this Agreement and shall not issue any such press
release prior to such consultation, except as may be required by law or any
listing agreement related to the trading of the shares of either party on 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.
5.11 Takeover Laws. If any "fair price," "moratorium," "control share
acquisition," "shareholder protection" or other form of antitakeover statute,
regulation or charter provision or contract is or shall become applicable to
the Merger or the transactions contemplated hereby or by the Stockholders
Agreement, the Company and the Board of Directors of the Company shall grant
such approvals and take such actions as are necessary under such laws and
provisions so that the transactions contemplated hereby and thereby may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby and otherwise act to eliminate or minimize the effects of such statute,
regulation, provision or contract on the transactions contemplated hereby or
thereby. The Company shall not take, and shall not permit any of its controlled
Affiliates to take, any action which would require or permit, or could
reasonably be expected to require or permit, the Company or any other Person or
entity to treat Parent or Merger Sub, acting pursuant to and as permitted by
this Agreement or the Stockholders Agreement, as an "interested stockholder" or
"related person" with whom the Company is prevented for any period of time
pursuant to Section 203 of the Delaware Law from engaging in any "business
combination" or taking any action (including any charter or by-law amendment)
that has the effect of rendering any such statutes applicable to Parent or any
of its Subsidiaries.
5.12 Accountant's Letters. Upon reasonable notice from the other, the
Company or Parent shall cause their respective independent public accountants
to deliver to Parent or the Company, as the case may be, a letter covering such
matters as are requested by Parent or the Company, as the case may be, and as
are customarily addressed in accountant's "comfort" letters in connection with
registration statements similar to Form S-4.
5.13 Stop Transfer. The Company acknowledges and agrees to be bound by and
comply with the provisions of Section 2.1 of the Stockholders Agreement as if a
party thereto with respect to transfers of record of ownership of shares of the
Company Common Stock, and agrees to notify the transfer agent for any shares of
Company Common Stock and provide such documentation and do such other things as
may be necessary to effectuate the provisions of such Stockholders Agreement.
5.14 Indemnification of Directors and Officers. Parent and Mergers Sub agree
that all rights to indemnification, (if any) for acts or omissions occurring
prior to the Effective time now existing in favor of the current or former
directors or officers of the Company and its Subsidiaries as provided in their
respective
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certificates of incorporation or by-laws (or comparable charter or
organizational documents) shall survive the Merger and shall continue in full
force and effect in accordance with their terms for a period of not less than
six years from the Effective Time.
5.15 Plan Funding Status. The Company shall deliver to Parent's actuary such
information prior to the Closing Date as the actuary deems necessary to
accurately evaluate the funding status of Falconwood Plan.
5.16 Software Documentation. The Company shall deliver to Parent at or prior
to the Effective Time copies of all material documentation relating to the use,
maintenance and operation of the Software.
5.17 Subsidiary Investments. MF Investments, Corp. shall not make any
investments in or purchase, directly or indirectly, any equity or debt (other
than U.S. governmental obligations) or similar interest in or any interest
convertible into or exercisable or exchangeable for, directly or indirectly,
any equity or debt (other than U.S. governmental obligations) or similar
interest in any Person.
5.18 Legends, Instructions to Transfer Agent. The Company will (i) issue or
implement all the stop transfer instructions contemplated by the Related
Agreements and (ii) ensure that the legends contemplated thereby are placed on
certificates for Company Common Stock as contemplated by the Related
Agreements, subject to the holders of such certificates complying with their
obligations thereunder.
5.19 Maintenance of Designation. The Company will use reasonable efforts to
maintain the Class A Company Common Stock as a designated security of the
Nasdaq National Market, and will notify Parent promptly if it determines that
the Class A Company Common Stock no longer satisfies the criteria required to
be satisfied in order to maintain the Class A Common Stock as such a designated
security or if it receives any written notice that a proceeding for termination
of such designation is contemplated.
5.20 Amendment of Registration Rights Agreement. The Company will, and will
use its best efforts to cause the holders of a majority-in-interest of the
holders of Registrable Shares (as defined in the Registration Rights Agreement)
to enter into an Amendment to the Registration Rights Agreement in
substantially the form of Exhibit E attached hereto.
5.21 Company Release. Contingent upon the execution and delivery to Parent
and Merger Sub of the Jarecki/Falconwood Release, immediately prior to the
Effective Time, the Company shall execute and deliver to Dr. Henry G. Jarecki
and the Falconwood Corporation a release in the form of Exhibit F attached
hereto.
5.22 Waiver of Bonus. The Company shall use its best efforts to obtain a
waiver from any officer or director of the Company with respect to any special
performance bonus authorized but not paid by the Company prior to the date
hereof which bonus arises in connection with action taken in respect of
Litigation.
5.23 All Reasonable Efforts and Further Assurances. Each of the parties to
this Agreement shall use all reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
Closing under this Agreement. 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 VI
CONDITIONS OF MERGER
6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
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(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act; no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC; and no
proceedings for that purpose; and no similar proceeding in respect of the
Proxy Statement shall have been initiated or, to the Knowledge of Parent or
the Company, 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;
(c) New York Stock Exchange Listing. The shares of Parent Common Stock
issuable to the Company's stockholders pursuant to this Agreement shall
have been authorized for listing on the New York Stock Exchange upon
official notice of issuance.
(d) No Injunctions or Restraints; Illegality. No Court or Governmental
Authority having jurisdiction over the Company, Acquiror or Merger Sub
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.
(e) Regulatory Approvals. All approvals and consents of applicable
Governmental Authorities required to consummate the Merger shall have been
received the failure to obtain which would prevent the consummation of the
Merger or have a Material Adverse Effect on the Company or the Parent, and
the waiting period under the HSR Act and Foreign Competition Laws shall
have expired or been terminated
6.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the following conditions:
(a) Representations and Warranties. (a) The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time, except
for changes contemplated by this Agreement (together with the Company
Disclosure Schedule) (except for those (x) representations and warranties
that are qualified by materiality or Material Adverse Effect, in which case
such representations and warranties shall be true and correct in all
respects and (y) representations and warranties which address matters only
as of a particular date or only with respect to a specific period (which
shall be true and correct in all material respects as of such date or with
respect to such period)), with the same force and effect as if made on and
as of the Effective Time, and the Parent and Merger Sub shall have received
a certificate to such effect signed by the Chief Executive Officer and
Chief Financial Officer of the Company and of each of the Subsidiaries.
(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 on or
prior to the Effective Time. Parent and Merger Sub shall have received a
certificate to such effect signed by the President and Chief Executive
Officer of the Company.
(c) Consents Obtained. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that consents or waivers with
respect to those contracts and agreements have been obtained the failure to
obtain which either individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect on the Company or prevent the
consummation of the Merger.
(d) Pooling of Interests. Parent shall have received a written opinion
from Ernst & Young, Parent's independent public accountants, in form and
substance reasonably satisfactory to Parent, dated as of the Closing Date,
that the Merger, can properly be accounted for as a Pooling.
(e) Related Agreements. Each of the Related Agreements shall be in full
force and effect as of the Effective Time and become effective in
accordance with the respective terms thereof and the actions
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required to be taken thereunder by the parties thereto immediately prior to
the Effective Time shall have been taken, except (i) in the event of an
impossibility of performance under any such Related Agreements by virtue of
the death, disability or incapacity of any natural person who is a party to
any Related Agreement prior to the Effective Time unless, when taken
together, all such impossibilities of performance shall have a Material
Adverse Effect, (ii) the failure of Employment Agreements with respect to
any individuals other than Messrs. Jarecki, Leatherman, Slutsky and
Gukeisen to be in full force and effect at the Effective Time as aforesaid
shall not, in and of itself, be deemed to constitute non-satisfaction of
the condition contained in this Section 6.2(e)
(f) Falconwood Termination Agreement. The Falconwood Termination
Agreement shall have been executed and delivered by the parties thereto and
be in full force and effect as of the Effective Time.
(g) Tax Opinion. Parent shall have received an opinion from OHS, tax
counsel to Parent, in form and substance reasonably satisfactory to Parent,
dated as of the Closing Date, on the basis of facts, representations and
assumptions set forth in such opinion and the Representation Letters, all
of which are consistent with the state of facts existing as of the
Effective Time, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code.
(h) Jarecki/Falconwood Release. Contingent upon the execution and
delivery by the Company of the release described in Section 5.21, each of
Dr. Henry G. Jarecki and The Falconwood Corporation shall have executed and
delivered a release in the form of Exhibit G attached hereto (the
"Jarecki/Falconwood Release").
6.3 Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time, except
for changes contemplated by this Agreement, (except for those (x)
representations and warranties that are qualified by materiality or
Material Adverse Effect, in which case such representations and warranties
shall be true and correct in all respects and (y) representations and
warranties which address matters only as of a particular date or only with
respect to a specific period (which shall be true and correct in all
material respects as of such date or with respect to such period)), with
the same force and effect as if made on and as of the Effective Time, and
the Company shall have received a certificate to such effect signed by the
Chief Financial Officer of Parent, with respect to Parent and the President
of Merger Sub, with respect to the Merger Sub.
(b) Agreements and Covenants. Parent and Merger Sub 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 on or
prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by Chief Financial Officer of Parent,
with respect to Parent and the President of Merger Sub, with respect to the
Merger Sub.
(c) Consents Obtained. The Company shall have received evidence, in form
and substance reasonably satisfactory to it, that consents or waivers to
those contracts or agreements have been obtained, the failure to obtain
which would prevent the consummation of the Merger.
(d) Tax Opinion. The Company shall have received an opinion from SASM&F,
tax counsel to the Company, in form and substance reasonably satisfactory
to the Company, dated as of the Closing Date, on the basis of facts,
representations and assumptions set forth in such opinion and the
Representation Letters, all of which are consistent with the state of facts
existing as of the Effective Time, to the effect that (i) the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the
Code and (ii) no gain or loss will be recognized by the stockholders of the
Company upon the exchange of their shares of
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Company Common Stock pursuant to the Merger, except with respect to cash,
if any, received in lieu of fractional shares of Parent Common Stock.
ARTICLE VII
RELATED AGREEMENTS
7.1 Related Agreements. Simultaneously with the execution and delivery of
this Agreement, the following parties are executing and delivering the
following agreements, being hereinafter referred to as the "Related
Agreements"), each dated as of the date hereof:
(a) Affiliate Agreements. Each of the Persons identified on Schedule
7.1(a) attached hereto is entering into an Affiliate Agreement with Parent,
effective as of the Effective Time (the "Affiliate Agreement"), in the form
of Exhibit H attached hereto.
(b) Employee Offer Letters. (i) Each of the Persons identified on
Schedule 7.1(b) attached hereto is entering into an employment agreement
with Parent, effective as of the Effective Time, in substantially the form
of Exhibit I attached hereto (the "Employment Agreements") and (ii) J.
Russell Leatherman is executing a personal services agreement with Parent,
effective as of the Effective Time, in the form of Exhibit J attached
hereto.
(c) Release Agreements. Each of the Persons identified on Schedule
7.1(c) is entering into a Release Agreement, in the form of Exhibit K
attached hereto (the "Release Agreements").
(d) Assignment Agreements. Each of the Persons identified on Schedule
7.1(d) is entering into an Assignment Agreement, in the form of Exhibit L
attached hereto (the "Assignment Agreements").
(e) Stockholders Agreement. Each of the stockholders of the Company
identified on Schedule 7.1(e) is entering into the Stockholders Agreement
with Parent.
(f) Option Agreement. The Company is entering into the Option Agreement
with Parent.
(g) Falconwood Agreement. Parent and the Falconwood Plan Trustees (as
defined in the Falconwood Agreement) are entering into an agreement, in the
form of Exhibit M attached hereto (the "Falconwood Agreement").
(h) Non-Competition Agreements. The Company, the Parent and each
stockholder of the Company identified on Schedule 7.1(h) is entering into a
Non-Competition Agreement, in the form of Exhibit N attached hereto (the
"Non-Competition Agreement").
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) By either Parent or the Company if the Merger shall not have been
consummated by September 30, 1999; provided, however, that if the Merger
shall not have been consummated solely due to the
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waiting period (or any extension thereof) under the HSR Act not having
expired or been terminated, then such date shall be extended to December
31, 1999; and provided, further, that the right to terminate this Agreement
under this Section shall not be available to any party whose willful
failure to fulfill any material obligation under this Agreement has been
the cause of, or resulted in, the failure of the Merger to have been
consummated on or before such date; or
(c) By either Parent or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an Order, decree or ruling or taken any other
action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger and such Order, decree or
ruling has become final and nonappealable; or
(d) By either Parent or the Company, if, at the Company Stockholders'
Meeting (including any adjournment or postponement thereof), the requisite
vote of the stockholders of the Company shall not have been obtained; or
(e) By Parent, if the Board of Directors of the Company or any committee
thereof shall have (i) failed to recommend approval and adoption of this
Agreement and the Merger by the Stockholders of the Company, or withdrawn
or modified, or proposed to withdraw or modify, in a manner adverse to
Parent or Merger Sub, its approval or recommendation of the Merger, this
Agreement or the transactions contemplated hereby, (ii) engaged in
discussions with a third party concerning an Acquisition Proposal, (iii)
failed to mail the Proxy Statement to its stockholders within a reasonable
period of time after the Proxy Statement shall be available for mailing or
failed to include therein such approval and recommendation (including the
recommendation that the stockholders of the Company vote in favor of the
Merger), (iv) made any recommendation with respect to any Acquisition
Proposal other than a recommendation to reject such Acquisition Proposal,
(v) upon a request by Parent, failed, as required by Section 4.2(c)(i)(4),
to reaffirm any such approval or recommendation, (vi) taken any action
prohibited by Section 4.2, (vii) entered into a definitive or binding
agreement with respect to a Superior Proposal, (viii) breached the Option
Agreement in any material respect or (ix) resolved to or announced its
intention to do any of the foregoing; or
(f) By Parent, if a third party acquires 33% or more of outstanding
shares of capital stock or other equity interests of the Company or any
Material Subsidiary; or
(g) By Parent, if neither Parent nor Merger Sub is in material breach of
its obligations under this Agreement, and (1) there has been a breach by
the Company of any of its representations and warranties hereunder such
that Section 6.2(a) will not be satisfied or (2) there has been the willful
breach on the part of the Company of any of its covenants or agreements
contained in this Agreement such that Section 6.2(a) will not be satisfied,
and, in both case (1) and case (2), such breach (if curable) has not been
cured within thirty (30) days after notice to the Company from Parent; or
(h) By the Company, if it is not in material breach of its obligations
under this Agreement, and (1) if there has been a breach by Parent or
Merger Sub of any of their respective representations and warranties
hereunder such that Section 6.3(a) will not be satisfied or (2) there has
been the willful breach on the part of Parent or Merger Sub of any of their
respective covenants or agreements contained in this Agreement such that
Section 6.3(a) will not be satisfied, and, in both case (1) and case (2),
such breach (if curable) has not been cured within thirty (30) days after
notice to Parent and Merger Sub from the Company; or
(i) By Parent, if any of the stockholders who are parties to the
Stockholders Agreement shall have breached in any material respect any
representation, warranty, covenant or agreement thereof and such breach has
not been promptly cured after notice to any such stockholder; provided,
however, that such breach shall be of the kind that denies Parent the
material benefits contemplated by the Stockholders Agreement.
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8.2 Effect of Termination. Except as provided in this Section 8.2, in the
event of the termination of this Agreement pursuant to Section 8.1, this
Agreement (other than the first sentence of Section 5.3(b), this Section 8.2
and Section 8.3 and Article IX, which shall survive such termination) will
forthwith become void, and there will be no liability on the part of the
Parent, the Merger Sub or the Company or any of their respective officers or
directors to the other and all rights and obligations of any party 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.
8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; provided, however, that Parent
and the Company shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of the
Proxy Statement (including any preliminary materials related thereto), the
Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto and all filing fees payable in
connection with filings made under the HSR Act.
(b) In the event that:
(i) Parent terminates this Agreement pursuant to Section 8.1(e)
(other than 8.1(e)(ii)) or Section 8.1(f); or
(ii) Parent or the Company terminates this Agreement pursuant to
Section 8.1(d) hereof because of the failure to obtain the required
approval from the Company stockholders and either (x) at the time of
such termination or prior to the Company Stockholders' Meeting there
shall have been an Acquisition Proposal (whether or not such
Acquisition Proposal or any inquiry, announcement or agreement relating
to such Acquisition Proposal shall have been rejected or shall have
been withdrawn prior to the time of such termination or of the Company
Stockholders' Meeting) or (y) the Company shall have entered into a
binding agreement in connection with an Acquisition Proposal within
twelve (12) months following termination of this Agreement, the Company
shall pay to Parent, simultaneously with such termination of this
Agreement referred to in clauses (i) or (ii)(x) of this Section 8.3(b)
or at the time a binding agreement is entered into in connection with
an Acquisition Proposal as contemplated in clause (ii)(y) of this
Section 8.3(b), a fee in cash equal to $12,000,000, plus the amount of
Parent Stipulated Expenses paid to Parent pursuant to Section 8.3(c)
(the "Termination Fee"), which amount shall be payable by wire transfer
of immediately available funds not later than two business days after
the date of such termination.
(c) If this Agreement is terminated pursuant to Sections 8.1(e), 8.1(f)
or 8.1(g) and provided that (i) Parent is not then in breach of its
representations and warranties under this Agreement such that Section
6.3(a) of this Agreement would not be satisfied or (ii) Parent is not
otherwise in material breach of its obligations under this Agreement such
that Section 6.3(b) will not be satisfied, then the Company shall reimburse
Parent, within three (3) business days of Parent's request therefor, for
all Parent Stipulated Expenses. As used in this Agreement, the term "Parent
Stipulated Expenses" shall mean those reasonable and documented out-of-
pocket fees and expenses actually incurred by Parent in connection with
this Agreement, the Stockholder Agreement and the transactions contemplated
hereby and thereby which do not exceed $2,500,000 in the aggregate.
(d) If this Agreement is terminated pursuant to Section 8.1(h) and
provided that (i) the Company is not then in breach of its representations
and warranties under this Agreement such that Section 6.2(a) of this
Agreement would not be satisfied or (ii) the Company is not otherwise in
material breach of its obligations under this Agreement such that Section
6.2(b) will not be satisfied, then Parent shall reimburse the Company,
within three (3) business days of the Company's request therefor, for all
Company
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Stipulated Expenses. As used in this Agreement, the term "Company
Stipulated Expenses" shall mean those reasonable and documented out-of-
pocket fees and expenses actually incurred by the Company in connection
with this Agreement and the transactions contemplated hereby which do not
exceed $2,500,000 in the aggregate.
8.4 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 shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
8.5 Waiver. At any time prior to the Effective Time, any party hereto may
extend the time for the performance of any of the obligations or other acts
required hereunder, waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations and Warranties.
(a) Except as set forth in Section 9.1 (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 or upon the termination of this Agreement pursuant to
Article VIII; provided, however, this Section 9.1(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 VIII.
9.2 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally recognized overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, or by telecopier,
with confirmation as provided above addressed as follows:
(a) If to Parent or Merger Sub:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Telecopier: (703) 265-0006
Attention: Donn M. Davis
Senior Vice President, Business Development
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With copies to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Telecopier: (703) 265-2208
Attention: General Counsel
and
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Telecopier: (212) 506-5151
Attention: Martin H. Levenglick, Esq.
(b) If to the Company:
MovieFone, Inc.
355 Madison Avenue
New York, New York 10017
Telecopier: (212) 450-8025
Attention: Adam Slutsky
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier: (212) 735-2000
Attention: Morris J. Kramer, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such
notices or communications shall be deemed to be received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of nationally
recognized overnight courier, on the next business day after the date when sent
(c) in the case of facsimile transmission or telecopier, upon confirmed
receipt, and (d) in the case of mailing, on the third business day following
the date on which the piece of mail containing such communication was posted.
9.3 Disclosure Schedules. The Company Disclosure Schedule and the Parent
Disclosure Schedule each shall be divided into sections corresponding to the
sections and subsections of this Agreement. Disclosure of any fact or item in
any Section of a party's Disclosure Schedule shall not, should the existence of
the fact or item or its contents be relevant to any other Section of the
Disclosure Schedule, be deemed to be disclosed with respect to such sections.
9.4 Certain Definitions. For purposes of this Agreement, the term:
(a) "Affiliates" means Persons that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned Person; including, without limitation,
any partnership or joint venture in which the Company (either alone, or
through or together with any other Subsidiary) has, directly or indirectly,
an interest of 5% or more;
(b) "Balance Sheet" means the balance sheet of the Company contained in
the Company's Form 10-Q for the quarter ended September 30, 1998.
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(c) "beneficial owner" with respect to any shares of Company Common
Stock, means a Person who shall be deemed to be the beneficial owner of
such shares which such Person or any of its Affiliates or associates
beneficially owns, directly or indirectly, which such Person or any of its
Affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) has, directly or indirectly, the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or the right to vote pursuant to any agreement, arrangement or
understanding or which are beneficially owned, directly or indirectly, by
any other Persons with whom such Person or any of its Affiliates or Person
with whom such Person or any of its Affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares;
(d) "Code" means the U.S. Internal Revenue Code of 1986, as amended.
(e) "control" (including the terms "controlled by" and "under common
control with") means 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,
as trustee or executor, by contract or credit arrangement or otherwise;
(f) "Court" means any court or arbitration tribunal of the United
States, any domestic state, or any foreign country, and any political
subdivision thereof.
(g) "Governmental Authority" means 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
includes any authority having governmental or quasi-governmental powers.
(h) "Intellectual Property" means trademarks, service marks, trade
names, URLs and Internet domain names and applications therefor (and all
interest therein), designs, slogans and general intangibles of like nature,
together with all goodwill related to the foregoing (including any
registrations and applications for any of 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 for any of the
foregoing); computer programs and other computer software; databases;
technology, trade secrets and other confidential information, know-how,
proprietary technology, processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, source codes and object codes and
methodologies, architecture, structure, display screens, layouts,
development tools, instructions, templates, marketing materials,
inventions, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing (collectively, "Trade
Secrets"), used in or necessary for the conduct of Company's and each of
its Subsidiaries' business as currently conducted or contemplated to be
conducted.
(i) "Knowledge" means (i) in the case an individual, knowledge of a
particular fact or other matter if such individual is actually aware of
such fact or other matter, or (b) a prudent individual in such individual's
position could be expected to discover or otherwise become aware of such
fact or other matter in the course of conducting a reasonable (for an
individual in such individual's position to undertake) investigation
concerning the existence of such fact or other matter and (ii) in the case
of an entity (other than an individual) such entity will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at
any time had, Knowledge of such fact or other matter.
(j) "Law" means all laws, statutes, ordinances and Regulations of any
Governmental Authority;
(k) "Lien" means 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"
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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 laws 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 (v) restrictions on transfer of securities imposed by
applicable state and federal securities Laws.
(l) "Litigation" means any suit, action, arbitration, cause of action,
claim, complaint, criminal prosecution, investigation, governmental or
other administrative proceeding, whether at law or at equity, before or by
any Court or Governmental Authority or before any arbitrator;
(m) "Material Adverse Effect" means any fact, event, change,
circumstance or effect that is materially adverse to the business,
financial condition or results of operations of the (1) Company and its
Subsidiaries, taken as a whole when such term is used in relation to the
Company and/or the Subsidiaries or (2) the Parent and its Subsidiaries,
taken as a whole, when such term is used in relation to the Parent.
(n) "Merger Shares" means shares of Parent Common Stock issued in
exchange for shares of Company Common Stock pursuant to the Merger in
accordance with Article I of this Agreement.
(o) "Order" will mean any judgment, order or decree of any Court or
Governmental Authority.
(p) "Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, limited liability company, other entity
or group (as defined in Section 13(d)(3) of the Exchange Act); and
(q) "Subsidiary" or "Subsidiaries" of the Company, the Surviving
Corporation, Parent or any other Person means any corporation, partnership,
joint venture, limited liability company or other legal entity of which the
Company, the Surviving Corporation, Parent or such other Person, as the
case may be, (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity 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.
9.5 Interpretation. When a reference is made in this Agreement to Sections,
subsections, Schedules or Exhibits, such reference shall be to a Section,
subsection, Schedule or Exhibit to this Agreement unless otherwise indicated.
The words "include," "includes" and "including" when used herein shall be
deemed in each case to be followed by the words "without limitation." The word
"herein" and similar references mean, except where a specific Section or
Article reference is expressly indicated, the entire Agreement rather than any
specific Section or Article. The table of contents and the headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.6 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 so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
9.7 Entire Agreement. This Agreement (including all exhibits and schedules
hereto) constitutes the entire agreement and supersedes all prior agreements
and undertakings (other than the Confidentiality Agreement), both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof
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and, except as otherwise expressly provided herein, are not intended to confer
upon any other Person any rights or remedies hereunder.
9.8 Assignment. This Agreement shall not be assigned by operation of law or
otherwise, except that Parent and Merger Sub may assign all or any of their
rights hereunder to any Affiliate provided that no such assignment shall
relieve the assigning party of its obligations hereunder.
9.9 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section (which is intended to be for the benefit of the
Indemnified Parties and may be enforced by such Indemnified Parties).
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
9.11 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, provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this Section 9.11 and
shall not be deemed to be a general submission to the jurisdiction of such
Courts or in the State of Delaware other than for such purpose. 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 (i) that such party is
not personally subject to the jurisdiction of such Courts, (ii) that such party
and such party's property is immune from any legal process issued by such
Courts or (iii) for forum non conveniens.
9.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have 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/ Donn M. Davis
-----------------------------
Name: Donn M. Davis
Title: Senior Vice President,
Business
Development
MF ACQUISITION CORPORATION
By /s/ Donn M. Davis
-----------------------------
Name: Donn M. Davis
Title: President
MOVIEFONE, INC.
By /s/ Andrew Jarecki
-----------------------------
Name: Andrew Jarecki
Title: Chief Executive Officer
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ANNEX B
STOCK OPTION AGREEMENT (this "Agreement"), dated as of February 1, 1999,
between MOVIEFONE, INC., a Delaware corporation (the "Company"), and AMERICA
ONLINE, INC., a Delaware corporation ("Grantee").
WHEREAS, the Company, Grantee and MF Acquisition Corporation, 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 February 1, 1999 (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);
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
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 6,186,762
shares (such shares being referred to herein as the "Option Shares") of fully
paid and nonassessable Class A Common Stock, par value $0.01 per share, of the
Company ("Class A Company Common Stock"), which number of shares the Company
hereby represents and warrants is the number of shares of Class A Common Stock
that has voting power equal to approximately fifteen percent (15%) of the
voting power of the shares of Class A Company Common Stock and Class B Common
Stock, par value $0.01 per share, of the Company ("Class B Company Common
Stock" and, together with Class A Company Common Stock, "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 $29.25 per share, as adjusted in
accordance with the provisions of Section 8 of this Agreement (such price, as
adjusted if applicable, the "Option Price"). In addition, Grantee may elect to
purchase Option Shares issuable and pay some or all of the total Option Price
payable upon an exercise of this Option by surrendering a portion of the Option
with respect to such number of Option Shares as is determined by dividing the
(i) total Option Price payable in respect of the number of Option Shares being
purchased in such manner by (ii) the excess of the Fair Market Value, as
determined below, per share of Class A Company Common Stock as of the Option
Closing Date (as defined below) over the per share Option Price. The Fair
Market Value per share of Class A Company Common Stock shall be (i) if the
Class A Company Common Stock is listed on the Nasdaq National Market, national
securities exchange or other nationally recognized exchange or trading system
as of the Option Closing Date, the last reported sale price per share of Class
A Company Common Stock thereon on the Option Closing Date, or if no such price
is reported on such date, such price on the next preceding business day for
which such price is reported, or (ii) if the Class A Company Common Stock is
not listed on the Nasdaq National Market, national securities exchange or other
nationally recognized exchange or trading system as of the Option Closing Date,
the amount determined in good faith by the Board of Directors of the Company to
represent the value per share the Class A Common Stock would have if publicly
traded on a nationally recognized exchange or trading system (assuming the
absence of unusual market conditions and no premium for control or discount for
minority interests, illiquidity or restrictions on transfer).
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
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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 earliest date, if any, upon or after termination of the
Merger Agreement on which Grantee shall have the unconditional right to
receive the Termination Fee pursuant to Section 8.3(b) of the Merger
Agreement.
(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 condition
to payment of the Termination Fee set forth in Section 8.3(b)(ii)(y) of
the Merger Agreement would constitute) a Triggering Event under this
Agreement; or
(iii) the occurrence of the date which is eighteen (18) months
after termination of the Merger Agreement under circumstances which, if
the condition to payment of the Termination Fee set forth Section
8.3(b)(ii)(y) of the Merger Agreement were satisfied, would constitute
a Triggering Event under this Agreement unless such a Triggering Event
resulting from the satisfaction of such conditions has occurred prior
to such date.
Notwithstanding the termination of the Option, Grantee shall be entitled to
purchase those Option Shares with respect to which it may have exercised
the Option in accordance with the terms hereof prior to the termination of
the Option, and the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or at
such termination.
(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 8.1(e)(viii) 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") indicating that Grantor is exercising the
Option and specifying (i) the total number of Option Shares that it will
purchase pursuant to such exercise, (ii) whether the Option Price will be
paid in cash or by surrender of a portion of the Option and (iii) a place
and date not earlier than three (3) Business Days and not later than ten
(10) 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.
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(f) Purchase Price. At the Option Closing, if the Option Price will be
paid in cash, 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 the failure by Grantee to effect
such a wire transfer because of a failure or refusal of the Company to
designate such a bank account shall not relieve the Company of its
obligations under Section 2(g) at the Option Closing.
(g) Issuance of Option Shares. At the Option Closing, simultaneously
with the delivery of immediately available funds as provided in Section
2(f) hereof if the Option Price will be paid in cash and surrender of this
Agreement to the Company, the Company shall deliver to Grantee a
certificate or certificates representing the number of Option Shares
purchased by Grantee and, if the Option shall have been exercised in part
only and the entire remaining portion of the Option shall not have been
surrendered to pay the Option Price, a new agreement in the form of this
Agreement evidencing the rights of Grantee to purchase the balance of the
Option Shares 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 Class A 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
stockholder rights agreement or similar agreement of the Company then in
effect.
(h) Legend. Certificates for Option Shares delivered at an Option
Closing 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, 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 or the requisite portion of the
Option, Grantee shall be deemed to be the holder of record of the Option
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of the Company may then be closed, that certificates representing
such Option Shares may not then have been actually delivered to Grantee or
the Company may 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. 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 and any filing fees and
other expenses arising from compliance by Grantee pursuant to the HSR Act.
(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, each party will use its reasonable
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
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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.
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 pursuant to this Agreement (collectively the "Option
Securities"). The Company, 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 any Grantee Common Stock.
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 1998 annual meeting of the
Company's stockholders;
(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. The Company
represents that, if it obtains any securities of Grantee pursuant to this
Agreement, it will acquire them for its own account and not with a view to
resale or distribution of any such securities.
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 Class A Company Common Stock (or Other Option Securities)
issuable pursuant to this Agreement so that the Option may be exercised without
additional authorization of Class A Company Common Stock (or Other Option
Securities) after giving effect to all other options, warrants, convertible
securities and other rights to purchase Class A Company Common Stock (or 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 Class A 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
Option Shares (or Other Option Securities) 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 Option Shares
purchasable upon the exercise of the Option shall be subject to adjustment from
time to time as provided in this Section 8.
(a) Additional Shares Adjustment. Excluding issuances contemplated by
Section 8(b), in the event that any additional shares of Company Common
Stock are issued, the number of shares of Class A Company Common Stock
subject to the Option will be adjusted so that, immediately after such
issuance and giving effect thereto, such number constitutes the same
percentage of the number of shares of
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Company Common Stock issued and outstanding as the number of shares of
Class A Common Stock subject to the Option immediately prior to such
issuance constitutes as a percentage of the number of shares of Company
Common Stock issued and outstanding immediately prior to such issuance.
(b) Transaction Adjustment. In the event of any change in Class A
Company Common Stock by reason of stock dividends, splits, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or other similar transactions, then the Option Shares 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 (any
such shares or other securities referred to herein as "Other Option
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.
(c) Option Price Adjustment. Whenever the number of shares of Option
Shares subject to this Option are adjusted pursuant to Section 8(a) or (b),
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 Option Shares purchasable under the Option
prior to the adjustment and the denominator of which shall be equal to the
aggregate number of Option Shares purchasable under the Option immediately
after the adjustment.
(d) Substitute Option. In the event that the Company enters into an
agreement (i) to consolidate with or merge into any Person, other than
Grantee or one of its subsidiaries, and the Company will not be the
continuing or surviving corporation in such consolidation or merger, (ii)
to permit any Person, other than Grantee or one of its subsidiaries, to
merge into the Company and the Company will be the continuing or surviving
corporation, but in connection with such merger, the shares of Company
Common Stock outstanding immediately prior to the consummation of such
merger will be changed into or exchanged for stock or other securities of
the Company or any other Person or cash or any other property, or the
shares of Company Common Stock outstanding immediately prior to the
consummation of such merger will, after such merger, represent less than
50% of the outstanding voting securities of the merged company, or (iii) to
sell or otherwise transfer all or substantially all of its assets to any
Person, other than Grantee or one of its subsidiaries, then, and in each
such case, the agreement governing such transaction will make proper
provision so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Class
A Company Common Stock if the Option had been exercised immediately prior
to such consolidation, merger, sale, or transfer, or the record date
therefor, as applicable, otherwise be adjusted as appropriate.
9. Registration Rights. The Company will, if requested by Grantee at any
time and from time to time within three (3) years after a Triggering Event (the
"Registration Period"), as expeditiously as possible prepare and file up to two
(2) registration statements under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of Option Shares
that have been acquired by or are issuable to Grantee upon exercise of the
Option ("Registrable Securities") in accordance with the method of sale or
other disposition contemplated by Grantee, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and the Company will use its best efforts to qualify such Option Shares under
any applicable Blue Sky Law. The Company will use its best 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 nine (9)
months from the day such registration statement first becomes effective as may
be reasonably necessary to allow Grantee 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
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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 would be in any way prohibited by law. 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 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 Option Shares to be sold by Grantee
and the fees and disbursements of Grantee's counsel. 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 commitment
underwriting, it will, in addition to the Company's other obligations under
this Section 9, allow Grantee the right to participate in such registration
provided that Grantee participates in the underwriting; provided, further,
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 (or
other securities) 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 Class A
Company Common Stock to be sold by the Company, include the shares of Class A
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 reduction. 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 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 Grantee acknowledges the registration rights granted under this Section 9
shall be construed subject to any such limitations.
10. Repurchase of Option and Option Shares.
(a) Repurchase Offer. Upon the occurrence of any 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 Option Shares for which the Option may
then be exercised by 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 Competing
Transaction Price multiplied by the number of Option Shares then held by
Grantee, each of which offers shall not be revoked, and may be accepted by
Grantee upon delivery of a written notice to the Company, at any time prior
to the first to occur of the Option Expiration Date and the Option
Termination Date. Any such notice shall specify a date on which the
repurchase of the Option and/or Option Shares shall occur not earlier than
three (3) Business Days and not later than ten (10) Business Days after the
date on which such notice is delivered. The term "Competing Transaction
Price" shall mean, as of any date for the determination thereof, the price
per share of Class A Company Common Stock paid to the holders thereof upon
the consummation of a Competing Transaction or, in the event of a Competing
Transaction by way of a sale of assets of the Company, the Fair Market
Value of a share of Class A Company Common Stock determined as of 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 Merger): (i) any merger, consolidation, recapitalization,
liquidation or other direct or indirect business combination, involving the
Company or any Material Subsidiary or the issuance or acquisition of shares
of capital stock or other equity securities of the
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Company or any Material Subsidiary representing 50% or more (by voting
power) of the outstanding capital stock of the Company or such Material
Subsidiary (except for the issuance of shares of Company Common Stock
pursuant to employee stock options granted under the Plan and outstanding
on the date of this Agreement or the issuance of the Option to Parent) or
(ii) any tender or exchange offer after consummation of which, any Person,
together with all Affiliates thereof, beneficially owns shares of capital
stock or other equity securities of the Company or any Material Subsidiary
representing 50% or more (by voting power) of the outstanding capital stock
of the Company or such Material Subsidiary, or (iii) the acquisition,
license, purchase or other disposition of a substantial portion of the
technology, business or assets of the Company or any Material Subsidiary.
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 10(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 Grantee as Grantee shall designate at the Option
Share Repurchase Price.
(c) Repurchase Procedures. Grantee may (i) accept the Company's Option
Repurchase Offer or Option Share Repurchase Offer under Section 10(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 10(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 10. 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
10(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
reasonable 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 10. 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 10(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 Class A Company
Common Stock equal to the number of shares of Class A Company Common Stock
purchasable immediately prior to the delivery of the notice of repurchase
less the number of shares of Class A 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
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10(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 the occurrence
of any Triggering Event followed by the consummation of a Competing
Transaction.
(f) Representations. In connection with any purchase and sale of the
Option or the Option Shares pursuant to this Section 10, Grantee will be
required to represent and warrant to the Company that such Person is the
owner of the Option and/or Option Shares being purchased, free and clear of
all adverse claims and that such Person will deliver good title to such
Option and/or Option Shares to the Company, free and clear of all adverse
claims, upon consummation of any purchase and sale pursuant to this
Section 10.
11. 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.
12. Representations and Warranties of the Company. The Company hereby
represents and warrants to Grantee as follows:
(a) Authority, etc. 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
and constitutes the legal valid and binding obligation of the Company,
enforceable against the Company in accordance with the terms hereof.
(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 Class A Company Common Stock equal
to the maximum number of shares of Class A Company Common Stock at any such
time and from time to time issuable hereunder, and all such shares of Class
A 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 by the Company of this
Agreement do not, and the consummation of the transactions contemplated
hereby and the performance by the Company of its obligations hereunder 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
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applicable state takeover law and from any applicable charter provision
containing change of control or anti-takeover provisions.
13. Assignment. The Company may not assign any of its rights or obligations
under this Agreement to any other Person, without the express written consent
of Grantee. Grantee may not assign any of its rights or obligations under this
Agreement to any other Person, except that Grantee may assign its rights
hereunder to any Affiliate of Grantee and may assign its rights hereunder to
any Person after the occurrence of a Triggering Event.
14. Listing. If Class A Company Common Stock or any other securities to be
acquired upon exercise of the Option are then listed on The Nasdaq National
Market (or any other national securities exchange or national securities
quotation system), Issuer, upon the request of Grantee, will promptly file an
application to list the shares of Class A Company Common Stock or Other Option
Securities to be acquired upon exercise of the Option on The Nasdaq National
Market (and any such other national securities exchange or national securities
quotation system) and will use reasonable efforts to obtain approval of such
listing as promptly as practicable.
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 contemplated by this Agreement, including
without limitation making application to list the shares of Class A 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. 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.
B-9
<PAGE>
22. 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 thereto, 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 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.
23. 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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Stock Option
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
MOVIEFONE, INC.
By: /s/ Andrew R. Jarecki
-------------------------------
Name: Andrew R. Jarecki
Title: C. E. O.
AMERICA ONLINE, INC.
By: /s/ Donn Davis
-------------------------------
Name: Donn Davis
Title: Senior Vice President,
Business Developments
B-10
<PAGE>
ANNEX C
STOCKHOLDERS AGREEMENT, dated as of February 1, 1999 (this "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, MovieFone, Inc., a Delaware corporation ("Company"), Acquiror and
MF Acquisition Corporation, a Delaware corporation and a newly formed wholly
owned direct subsidiary of Acquiror ("Newco"), have contemporaneously with the
execution of this Agreement, entered into an Agreement and Plan of Merger dated
as of February 1, 1999 (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; and
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 Agreement; and
WHEREAS, as of the date hereof, the Stockholders own of record the shares of
Class A common stock, par value $0.01 per share, or Class B common stock, par
value $0.01 per share, of the Company (collectively, 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; and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
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 1
Voting of Shares
1.1 Stockholders Agreement. Each Stockholder hereby agrees to (a) appear, in
person or by proxy, or cause the holder of record on any applicable record date
(the "Record Holder") to appear, in person or by proxy, for the purpose of
obtaining a quorum at any annual or special meeting of stockholders of the
Company and at any adjournment thereof, including those at which matters
relating to the Merger, the Merger Agreement or any transaction contemplated
thereby are considered, and (b) vote, or cause the Record Holder to vote, in
person or by proxy, or to the extent written consents are solicited, execute
and deliver written consents with respect to, all of the shares of the Company
Common Stock owned by Stockholder, or with respect to which such Stockholder
has 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.
1.2 No Ownership Interest. Nothing contained in this 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 vested in and belong to the
Stockholders, and Acquiror shall have no authority to manage, direct,
superintend, restrict, regulate, govern, or administer 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.
C-1
<PAGE>
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 $0.01 per share, of Acquiror ("Acquiror Common Stock"), contemplated
by the Merger Agreement.
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.
1.5 No Inconsistent Agreements. Each Stockholder hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, the
Stockholder (a) has not entered, and shall not enter at any time while this
Agreement remains in effect, into any voting agreement or voting trust with
respect to the Shares and (b) has not granted, and shall not grant at any time
while this Agreement remains in effect, a proxy or power of attorney with
respect to the Shares, in either case which is inconsistent with such
Stockholder's obligations pursuant to this Agreement.
ARTICLE 2
Transfer
2.1 Transfer of Title. (a) Each Stockholder hereby covenants and agrees that
such Stockholder will not, prior to the termination of this Agreement, either
directly or indirectly, offer or otherwise agree to sell, assign, pledge,
hypothecate, transfer, exchange, or voluntarily dispose of any Shares, options
to purchase Company Common Stock ("Options") or any other securities or rights
("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 in writing in advance
to be bound by this Agreement as if a party hereto.
(b) Each Stockholder hereby agrees and consents to the entry of stop
transfer instructions by the Company against the transfer of any Shares in
a manner not consistent with the terms of Section 2.1(a) hereof and
acknowledges and agrees that each certificate representing any Shares shall
bear the following legend:
This certificate and the shares represented hereby are
subject to certain limitations on transfer and certain
voting restrictions set forth in the Stockholders
Agreement dated as of February 1, 1999 by and among
America Online, Inc. and the parties identified in
Schedule A thereto (a copy of which is available for
inspection at the offices of MovieFone, Inc.), and any
transferee of this certificate or any of the shares
represented hereby shall be bound by the provisions
thereof.
C-2
<PAGE>
As soon as practicable after the execution and delivery of this Agreement (and
in no event more than three (3) Business Days thereafter), each Stockholder
shall surrender each certificate representing any of such Shares to the Company
in exchange for one or more certificates representing such Shares bearing the
foregoing legend.
ARTICLE 3
Representations and Warranties of Stockholders
Each Stockholder hereby severally and not jointly represents and warrants to
Acquiror, as follows:
3.1 Authority Relative to Agreement. In the case of any Stockholder that is
a corporation, partnership or trust, such Stockholder is duly organized, formed
or created under the laws of the jurisdiction of its organization, formation or
creation. Such Stockholder, in the case of any individual, is competent and, in
the case of any Stockholder that is a corporation, partnership or trust has the
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
In the case of any Stockholder that is a corporation, partnership or trust, all
necessary corporate, partnership or trust action on behalf of such Stockholder
has been taken to authorize this Agreement. This 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.
3.2 No Conflict. The execution and delivery of this Agreement by such
Stockholder do not, and the performance of this Agreement by such Stockholder
will 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,
Options or Rights 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 is bound or
to which the Shares, Options or Rights are subject or by which they are
affected and in the case of any Stockholder that is a corporation, partnership
or trust, the applicable organizational documents or trust agreement.
3.3 Title to the Shares. The Shares, Options and Rights held by such
Stockholder are owned free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements (except that, in the case
of any Stockholder that is a trust, the Shares, Options or Rights held by such
Stockholder are held for the benefit of the beneficiaries of the applicable
trust pursuant to the terms of the applicable trust agreement), 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, Options or
Rights.
ARTICLE 4
Miscellaneous
4.1 No Solicitation. From the date hereof until the Effective Time or, if
earlier, the termination of the Merger Agreement, each 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. Notwithstanding the foregoing, nothing
contained in this Section 4.1 shall restrict any Stockholder from fulfilling
its legal or fiduciary duties arising by reason of such Stockholder's capacity
as an officer or director of the Company or as a trustee of a trust, in each
case, acting in such capacity; provided, however, that in no event shall such
Stockholder fail to perform its obligations under Section 1.1 of this
Agreement.
C-3
<PAGE>
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 Agreement prior to such
termination.
4.3 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this 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 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.
4.4 Successors and Affiliates. This 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 Rights, by
operation of law or otherwise, such Shares shall be held subject to all of the
terms and provisions of this Agreement. Without limiting the foregoing, each
Stockholder specifically agrees that the obligations of such Stockholder
hereunder shall not be terminated by death or incapacity of the Stockholder.
4.5 Entire Agreement. This Agreement, together with the Affiliate
Agreements, in the form attached as Exhibit H 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.
4.6 Captions and Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
4.7 Amendment. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
4.8 Waivers. Except as provided in this Agreement, no action taken pursuant
to this 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 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.
4.9 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.
4.10 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally-recognized overnight courier or be registered or
certified mail, postage prepaid, return receipt requested, or by electronic
mail, with a copy thereof to be delivered by mail (as aforesaid) within 24
hours of such electronic mail, or by telecopier, with confirmation as provided
above addressed as follows:
C-4
<PAGE>
(a)If to a Stockholder:
At the address set forth opposite such Stockholder's name on
Schedule A hereto
(b)If to Acquiror or Newco:
America Online, Inc. Attention: Telecopier: E-mail:
With a copy to:
Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New
York 10103 Attention: Martin H. Levenglick Telecopier: (212) 506-
5151 E-mail: [email protected]
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such
notices or communications shall be deemed to be received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of nationally-
recognized overnight courier, on the next business day after the date when sent
(c) in the case of facsimile transmission or telecopier or electronic mail,
upon confirmed receipt, and (d) in the case of mailing, on the third business
day following the date on which the piece of mail containing such communication
was posted.
4.11 Governing Law; Consent to Jurisdiction. (a) 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 law.
(b) Each Stockholder hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the United
States District Court of the Southern District of New York, and any
appellate court from such court, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing in
this shall affect any right that Acquiror or Newco may otherwise have to
bring any action or proceeding relating to this Agreement against any
Stockholder or its properties in the courts of any jurisdiction.
(c) Each Stockholder hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any
court referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law,
the defense of forum non conveniens to the maintenance of such action or
proceeding in any such court.
(d) Each Stockholder hereby irrevocably appoints and designates CT
Corporation System, whose address is 1633 Broadway, New York, NY 10019, or
any other person having and maintaining a place of business in the State of
New York whom the Parent or Newco may from time to time hereafter designate
(having given 30 days' notice thereof to the Acquiror and Newco), as the
true and lawful attorney and duly authorized agent for acceptance of
service of legal process from Acquiror and Newco. Without prejudice to the
foregoing, each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 4.10. Nothing in this
Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
C-5
<PAGE>
4.12 Definitions. Capitalized terms used and not defined herein shall have
the meaning set forth in the Merger Agreement.
4.13 Obligations of Stockholders. Except as provided in Article 3 and
Section 4.16, 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.
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.
4.15 Interpretation. The parties have participated jointly in the
negotiation of this Agreement. In the event that 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 the
provisions of this Agreement.
4.16 Expenses. If the Merger Agreement is terminated pursuant to Section
8.1(i) as a result of a breach by one or more parties to this Agreement, then
each party in breach of this Agreement jointly and severally agrees to
reimburse Parent, within five (5) business days of Parent's request therefor,
for all Parent Stipulated Expenses and all fees and expenses incurred in
connection with the enforcement or realization of Acquiror's rights and
remedies hereunder.
[Remainder of this page intentionally left blank]
C-6
<PAGE>
COUNTERPART SIGNATURE PAGE TO THE
STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 1, 1999
IN WITNESS WHEREOF, each of the parties hereto have caused this Stockholders
Agreement to be duly executed as of the date first written above.
AMERICA ONLINE, INC.
By: /s/ Donn Davis
-------------------------------
Name: Donn Davis
Title: Senior Vice President,
Business Development
C-7
<PAGE>
COUNTERPART SIGNATURE PAGE TO THE
STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 1, 1999
<TABLE>
<CAPTION>
STOCKHOLDER:
TIMBER NATION TRUST #1 THE TIMBER TOP TRUST
<S> <C>
By: /s/ Henry G. Jarecki By: /s/ Henry G. Jarecki
- ----------------------- -----------------------
Name: Henry G. Jarecki Name: Henry G. Jarecki
Title: Trustee Title: Trustee
THE TIMBER FALLS TRUST THE TIMBER EDGE TRUST
By: /s/ Henry G. Jarecki By: /s/ Henry G. Jarecki
- ----------------------- -----------------------
Name: Henry G. Jarecki Name: Henry G. Jarecki
Title: Trustee Title: Trustee
/s/ Thomas A. Jarecki THE TIMBER ACRES TRUST
- ---------------------
Thomas A. Jarecki
Title: Trustee By: /s/ Henry G. Jarecki
------------------------
Name: Henry G. Jarecki
/s/ Andrew R. Jarecki
- --------------------
Andrew R. Jarecki THE TIMBER ACRES TRUST II
By: /s/ Andrew R. Jarecki
-------------------------
/s/ Eugene D. Jarecki Name: Andrew R. Jarecki
- ---------------------
Eugene D. Jarecki
/s/ J. Russell Leatherman /s/ Robert Gukeisen
- ------------------------ -------------------
J. Russell Leatherman Robert Gukeisen
/s/ Divonne Jarecki
-------------------
Divonne Jarecki
/s/ Adam Slutsky
-------------------
Adam Slutsky
</TABLE>
C-8
<PAGE>
COUNTERPART SIGNATURE PAGE TO THE
STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 1, 1999
<TABLE>
<CAPTION>
JARFAM L.P. THE JEF LIMITED PARTNERSHIP
<S> <C>
By: AIROLG, INC., its General Partner By: THE RAPMIL CORPORATION,
its General Partner
By: /s/ Stanley A. Lefkowitz By: /s/ Stanley A. Lefkowitz
- --------------------------- ---------------------------
Name: Stanley A. Lefkowitz Name: Stanley A. Lefkowitz
Title: Vice President Title: Vice President
FALCONWOOD FOUNDATION, INC.
By: /s/ Henry G. Jarecki
- ------------------------
Name: Henry G. Jarecki
Title: Director
By: /s/ Andrew R. Jarecki
- -------------------------
Name: Andrew R. Jarecki
Title: Director
By: /s/ Stanley A. Lefkowitz
- ----------------------------
Name: Stanley A. Lefkowitz
Title: Director
</TABLE>
C-9
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Number of Shares of
MovieFone, Inc. Common Stock
Stockholder Address Beneficially Owned
- ----------- ------- ----------------------------
<S> <C> <C>
Falconwood 565 5th Avenue 75,000 shares of Class A
Foundation New York, NY 10017 Common Stock
Facsimile: 212-984-1442
Robert Gukeisen c/o MovieFone, Inc. 366,410 shares of Class A
335 Madison Avenue Common Stock
New York, NY 10017
Facsimile: 212-450-8025
Andrew R. Jarecki c/o MovieFone, Inc. Zero (0) shares of Class A
335 Madison Avenue Common Stock
New York, NY 10017
Facsimile: 212-450-8025
Divonne Jarecki 64 North Moore Street, Apt. 3W 3,990 shares of Class A
New York, NY 10013 Common Stock
Facsimile: 212-334-2140
Eugene D. Jarecki c/o Stanley Lefkowitz 84,560 shares of Class A
The Falconwood Group Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
Thomas A. Jarecki c/o MovieFone, Inc. 161,350 shares of Class A
335 Madison Avenue Common Stock
New York, NY 10017
Facsimile: 212-450-8025
J. Russell
Leatherman 1875 Century Park East 166,105 shares of Class A
Suite 2230 Common Stock
Los Angeles, CA 90067
Facsimile: 310-557-1666
Adam Slutsky c/o MovieFone, Inc. 105,280 shares of Class A
335 Madison Avenue Common Stock
New York, NY 10017
Facsimile: 212-450-8025
Timber Nation
Trust c/o Dr. Henry Jarecki 139,860 shares of Class B
#1 The Falconwood Corporation Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
The Timber Edge c/o Dr. Henry Jarecki 1,266,410 shares of Class B
Trust The Falconwood Corporation Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
MovieFone, Inc. Common Stock
Stockholder Address Beneficially Owned
- ----------- ------- ----------------------------
<S> <C> <C>
The Timber Falls c/o Dr. Henry Jarecki 75,000 shares of Class A
Trust The Falconwood Corporation Common Stock;
565 5th Avenue 3,434,280 shares of Class B
New York, NY 10017 Common Stock
Facsimile: 212-984-1442
The Timber Acres c/o Dr. Henry Jarecki 956,840 shares of Class B
Trust The Falconwood Corporation Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
The Timber Acres c/o Andrew Jarecki 1,422,770 shares of Class A
Trust II MovieFone, Inc. Common Stock
335 Madison Avenue
New York, NY 10017
Facsimile: 212-450-8025
The Timber Top c/o Dr. Henry Jarecki 1,156,620 shares of Class B
Trust The Falconwood Corporation Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
JARFAM L.P. c/o Stanley Lefkowitz 197,267 shares of Class A
The Falconwood Group Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
The JEF Limited c/o Stanley Lefkowitz 166,043 shares of Class B
Partnership The Falconwood Group Common Stock
565 5th Avenue
New York, NY 10017
Facsimile: 212-984-1442
</TABLE>
C-11
<PAGE>
ANNEX D
Opinion of Salomon Smith Barney
February 1, 1999
Board of Directors
MovieFone, Inc.
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Class A and Class B Common Stock ("Company Common
Stock"), of MovieFone, Inc. (the "Company"), of the consideration to be
received by such holders in connection with the proposed merger (the "Merger")
of the Company with MF Acquisition Corporation ("Sub"), a wholly owned
subsidiary of American Online, Inc. ("Parent"), pursuant to an Agreement and
Plan of Merger, dated as of February 1, 1999 (the "Merger Agreement"), among
the Company, Parent and Sub. Upon the effectiveness of the Merger, each issued
and outstanding share of Company Common Stock (other than shares owned by
Parent, any subsidiary of Parent, the Company or any subsidiary of the Company)
will be converted into and represent the right to receive (a) that number of
shares of Common Stock of Parent ("Parent Common Stock") equal to the quotient
of $29.25 divided by (i) the Average Parent Trading Price (as defined in the
Merger Agreement) if the Average Parent Trading Price is at least equal to
$129.49 but not greater that $175.19, or (ii) $129.49 if the Average Parent
Trading Price is less than $129.49 or (iii) $175.19 if the Average Parent
Trading Price is greater than $175.19 (the "Exchange Ratio"), plus (b) the
related fraction of a Parent Right (as defined in the Merger Agreement), as
more fully set forth in the Merger Agreement. We understand that the Merger
will be accounted for as a pooling-of-interests in accordance with generally
accepted accounting principles as described in Accounting Principles Board
Opinion Number 16 and is expected to qualify, for federal income tax purposes,
as a reorganization under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and Parent and certain other
financial information concerning the Company, including financial forecasts,
that were provided to us by the Company. We have discussed the past and current
business operations, financial condition and prospects of the Company with
certain officers and employees of the Company. We have also considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company, we have assumed that they have been reasonably
prepared on bases reflecting best currently available estimates and judgments
of the management of the Company, and we express no opinion with respect to
such forecasts or the assumptions on which they are based. We also have assumed
that the Merger will be consummated in accordance with the terms of the Merger
Agreement. We have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of the Company or
Parent. We were requested to approach and held discussions with selected third
parties in connection with the possible sale of the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Parent Common Stock following the
consummation of the Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion does not address the Company's underlying business decision to
effect the Merger, and we express no view on the effect on the Company of the
Merger
D-1
<PAGE>
Board of Directors
MovieFone, Inc.
February 1, 1999
and related transactions. Our opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to holders of Company Common
Stock and does not constitute a recommendation concerning how holders of
Company Common Stock should vote with respect to the Merger Agreement or the
Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, part of
which is contingent upon consummation of the Merger. In the ordinary course of
business, we (including our current and future affiliates) may actively trade
the securities of Parent and the Company and their affiliates for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Also, we and our affiliates
have previously rendered investment banking and financial advisory services to
Parent and the Company and certain of their affiliates for which we have
received customary compensation.
We (including our current and future affiliates) may have other business
relationships with Parent, the Company and their respective affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to holders of Company Common Stock from
a financial point of view.
Very truly yours,
/s/ Salomon Smith Barney
SALOMON SMITH BARNEY, INC.
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), because the person is or
was a director or officer of the corporation. Such indemnity may be against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation.
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 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."
II-1
<PAGE>
"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 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
II-2
<PAGE>
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 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. Indemnifying them against certain liabilities, including
certain liabilities arising under the Securities Act, which might be incurred
by them in such capacities.
II-3
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filled herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 1, 1999, by and
among the Registrant, MF Acquisition Corporation and MovieFone,
Inc., including the Stockholders Agreement and the Stock Option
Agreement (filed as Exhibit 2.1 to The Registrant's Current Report
on Form 8-K dated February 11, 1999 and incorporated herein by
reference.)
4.1 Restated Certificate of Incorporation of The Registrant (filed as
Exhibit 3.1 to The Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by
reference).
4.2 Amendment of Section A of Article 4 of the Restated Certificate of
Incorporation of The Registrant (filed as Exhibit 3.1 to The
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference).
4.3 Certificate of Designation, Preferences and Rights of Series A-1
Junior Participating Preferred Stock of The Registrant (filed as
Exhibit 3.3 to The Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 and incorporated herein by
reference).
4.4 Certificate of Elimination of Series A Junior Participation
Preferred Stock of The Registrant (filed as Exhibit 3.4 to The
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and incorporated herein by reference).
4.5 Restated By-Laws of The Registrant (filed as Exhibit 3.5 to The
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and incorporated herein by reference).
4.6 Indenture, dated as of November 17, 1997, between The Registrant,
as issuer, and State Street Bank and Trust Company, as trustee
(filed as Exhibit 4.1 to The Registrant's Current Report on
Form 8-K, dated as of December 2, 1997 and incorporated herein by
reference).
4.7 Rights Agreement dated as of May 12, 1998, between The Registrant
and BankBoston, N.A., as Rights Agent (filed as Exhibit 4.2 to The
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding legality
of securities being registered.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding
certain U.S. income tax aspects of the Merger.
8.2 Opinion of Orrick, Herrington & Sutcliffe LLP regarding certain
U.S. income tax aspects of the Merger.
23.1 Consent of Orrick, Herrington & Sutcliffe 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 Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included as
part of its opinion filed as Exhibit 8.1 and incorporated herein
by reference).
23.5 Consent of Salomon Smith Barney
24.1 Power of Attorney (included on the signature page of this Form S-4
and incorporated herein by reference).
99.1 Opinion of Salomon Smith Barney (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 MovieFone, Inc.
</TABLE>
II-4
<PAGE>
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
(2) that 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 Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of any such request, and to
send the incorporated documents by first class mail or other equally
prompt means, including information contained in documents filed after
the effective date of this registration statement through the date of
responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in this registration
statement when it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Loudoun, Commonwealth of
Virginia, on April 21, 1999.
America Online, Inc.
/s/ J. Michael Kelly
By: __________________________________
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 and April 21, 1999
______________________________________ Chief Executive Officer
Stephen M. Case (principal executive
officer)
/s/ Robert W. Pittman President, Chief Operating April 21, 1999
______________________________________ Officer and Director
Robert W. Pittman
/s/ J. Michael Kelly Senior Vice President, April 21, 1999
______________________________________ Chief Financial Officer,
J. Michael Kelly Treasurer and Assistant
Secretary (principal
financial officer)
/s/ James MacGuidwin Vice President, April 21, 1999
______________________________________ Controller, Chief
James MacGuidwin Accounting and Budget
Officer (principal
accounting officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Daniel F. Akerson Director April 21, 1999
______________________________________
Daniel F. Akerson
Director
______________________________________
James L. Barksdale
/s/ Frank D. Caufield Director April 21, 1999
______________________________________
Frank D. Caufield
/s/ Alexander M. Haig Director April 21, 1999
______________________________________
Alexander M. Haig
/s/ William N. Melton Director April 21, 1999
______________________________________
William N. Melton
/s/ Thomas Middelhoff Director April 21, 1999
______________________________________
Thomas Middelhoff
/s/ Colin L. Powell Director April 21, 1999
______________________________________
Colin L. Powell
/s/ Franklin D. Raines Director April 21, 1999
______________________________________
Franklin D. Raines
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 1, 1999, by and
among the Registrant, MF Acquisition Corporation and MovieFone,
Inc., including the Stockholders Agreement and the Stock Option
Agreement (filed as Exhibit 2.1 to The Registrant's Current Report
on Form 8-K dated February 11, 1999 and incorporated herein by
reference.)
4.1 Restated Certificate of Incorporation of The Registrant (filed as
Exhibit 3.1 to The Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by
reference).
4.2 Amendment of Section A of Article 4 of the Restated Certificate of
Incorporation of The Registrant (filed as Exhibit 3.1 to The
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference).
4.3 Certificate of Designation, Preferences and Rights of Series A-1
Junior Participating Preferred Stock of The Registrant (filed as
Exhibit 3.3 to The Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 and incorporated herein by
reference).
4.4 Certificate of Elimination of Series A Junior Participation
Preferred Stock of The Registrant (filed as Exhibit 3.4 to The
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and incorporated herein by reference).
4.5 Restated By-Laws of The Registrant (filed as Exhibit 3.5 to The
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and incorporated herein by reference).
4.6 Indenture, dated as of November 17, 1997, between The Registrant,
as issuer, and State Street Bank and Trust Company, as trustee
(filed as Exhibit 4.1 to The Registrant's Current Report on Form
8-K, dated as of December 2, 1997 and incorporated herein by
reference).
4.7 Rights Agreement dated as of May 12, 1998, between The Registrant
and BankBoston, N.A., as Rights Agent (filed as Exhibit 4.2 to The
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding legality
of securities being registered.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding
certain U.S. income tax aspects of the Merger.
8.2 Opinion of Orrick, Herrington & Sutcliffe LLP regarding certain
U.S. income tax aspects of the Merger.
23.1 Consent of Orrick, Herrington & Sutcliffe 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 Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included as
part of its opinion filed as Exhibit 8.1 and incorporated herein
by reference).
23.5 Consent of Salomon Smith Barney.
24.1 Power of Attorney (included on the signature page of this Form S-4
and incorporated herein by reference).
99.1 Opinion of Salomon Smith Barney (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 MovieFone, Inc.
</TABLE>
II-8
<PAGE>
EXHIBIT 5.1
[Letterhead of Orrick, Herrington & Sutcliffe LLP]
April 21, 1999
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
America Online, Inc.
Dear Sir/Madam:
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 "SEC") on the date hereof for the
purpose of registering with the SEC under the Securities Act of 1933, as
amended (the "Securities Act") up to 4,154,717 shares (the "Shares") of the
Company's common stock, $.01 par value, (the "Common Stock") pursuant to the
Agreement and Plan of Merger dated as of February 1, 1999 (the "Agreement"),
among the Company, MF Acquisition Corporation and MovieFone, Inc.
("MovieFone").
In connection with the rendering of the opinion set forth below, we have
examined, are familiar with and relied on originals or copies, certified or
otherwise, identified to our satisfaction, of (i) the Registration Statement,
(ii) the Agreement, (iii) the Restated Certificate of Incorporation and the
Restated By-laws of the Company, as amended, each as currently in effect, (iv)
the resolutions adopted by the Board of Directors of the Company on January 25,
1999, relating to the issuance of the Shares and certain related matters and
(v) such other documents, agreements, records, instruments, certificates of
public officials and certificates of officers or other representatives of the
Company or others as we have deemed necessary or appropriate for purposes of
and as a basis for rendering the opinion set forth below.
In our examination, we have (i) assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals, (ii)
assumed the conformity to original document of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
copies and (iii) assumed and relied upon the truth, accuracy and completeness
(without independent investigation or verification) of the information,
representations, warranties and statements contained in the records, documents,
instruments and certificates we have reviewed. In rendering the opinion set
forth below, we have assumed that such parties had, have or will have all
requisite power and authority to execute and deliver all agreements, documents,
instruments and certificates examined by us and have also assumed the due
authorization by all requisite action, and the due execution and delivery by
such parties of all such agreements, documents, instruments and certificates
and the validity and binding effect thereof. As to any facts material to the
opinion 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.
This opinion is limited to the General Corporation Law of the State of
Delaware. We do not express any opinion as to any other law.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance in connection with the Merger (as
defined in the Agreement) and, upon consummation of the Merger, the issuance of
the Shares and the delivery of proper stock certificates therefor in accordance
with the terms and condition of the Agreement, the Shares will be validly
issued, fully paid and non-assessable.
<PAGE>
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 MovieFone 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 SEC 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/ ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
Exhibit 8.1
[SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP LETTERHEAD]
April 21, 1999
MovieFone, Inc.
335 Madison Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to you, MovieFone, Inc. ("MovieFone"), a Delaware
corporation, in connection with the proposed merger (the "Merger") of MF
Acquisition Corporation, a Delaware corporation that is wholly owned by America
Online, Inc., with and into MovieFone. This opinion is being furnished in
connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed on the date hereof with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") and in accordance with the requirements of Item 601(b)(8) of
Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Registration Statement and
such other materials as we have deemed necessary or appropriate as a basis for
our opinion. In addition, we have considered the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), regulations promulgated
thereunder by the U.S. Department of Treasury (the "Regulations"), pertinent
judicial authorities, rulings of the Internal Revenue Service (the "IRS"), and
such other authorities as we have considered relevant, in each case as in
effect on the date hereof. It should be noted that such Code, Regulations,
judicial decisions, administrative interpretations and other authorities are
subject to change at any time, perhaps with retroactive effect. A material
change in any of the materials or authorities upon which our opinion is based
could affect our conclusions stated herein.
Based upon the foregoing, although the discussion in the Registration
Statement under the headings "Summary of the Transaction -- U.S. Federal Income
Tax Consequences of the Merger" and "Material United States Federal Income Tax
Consequences of the Merger" does not purport to discuss all of the anticipated
material U.S. federal income tax consequences relating to the Merger, it is our
opinion that such discussion constitutes in all material respects a fair and
accurate summary of the anticipated material U.S. federal income tax
consequences under existing law. There can be no assurance that the IRS will
not assert contrary positions.
<PAGE>
MovieFone, Inc.
April 21, 1999
Page 2
This opinion is being furnished in connection with the Registration
Statement. You may rely upon and refer to the foregoing opinion in the
Registration Statement. Any variation or difference in any fact from those set
forth or assumed either herein or in the Registration Statement may affect the
conclusions stated herein.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
heading "Material 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. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate
Meagher & Flom LLP
<PAGE>
Exhibit 8.2
[Letterhead of Orrick, Herrington & Sutcliffe LLP]
April 21, 1999
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
Ladies and Gentlemen:
We have acted as counsel to America Online, Inc., a Delaware corporation
("AOL"), in connection with the contemplated merger (the "Merger") of MF
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary
of AOL ("Merger Sub") with and into MovieFone, Inc., a Delaware corporation
("MovieFone"), pursuant to an Agreement and Plan of Merger dated as of February
1, 1999 (the "Merger Agreement") by and among AOL, Merger Sub and MovieFone.
You have requested our opinion as to certain federal income tax matters
relating to the Merger. This opinion is being delivered to you pursuant to
Section 6.2(g) 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 the registration statement relating to the Merger on Form S-4 in the form
filed with the Securities and Exchange Commission (the "Registration
Statement"), the Merger Agreement and such other documents and corporate
records as we have deemed necessary or appropriate for purposes of this
opinion. In addition, we have relied upon certain statements, representations
and agreements made by AOL, Merger Sub and MovieFone, including representations
set forth in the Officer's Certificates of AOL, Merger Sub and MovieFone that
were provided to us (the "Officers' Certificates"). 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, Merger
Sub, MovieFone, and others, including those set forth in the Officers'
Certificates. We have no reason to believe that such facts, information,
covenants and representations are not true, but have not attempted to verify
them independently and expressly disclaim an opinion as to their validity and
accuracy.
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 Officers' Certificates 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.
<PAGE>
The opinion expressed in this letter is based on the provisions of the
Internal Revenue Code of 1986, as amended, final, temporary and proposed
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect as of the date hereof and all of
which are subject to change (possibly on a retroactive basis). No ruling from
the Internal Revenue Service (the "IRS") has been or will be sought on any
issues related to the Merger, and there can be no assurance that the IRS will
not take a contrary view. Although our opinion expressed in this letter
represents our best judgments as to such matters, our opinion has no binding
effect on the IRS or the courts.
Based upon and subject to the foregoing, and subject to the qualifications
set forth herein, we are of the opinion that the discussion under the heading
"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.
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 6.2(g) of
the Merger Agreement and it may not to be relied upon, used, circulated, quoted
or otherwise referred to by, nor may copies hereof be delivered to, any other
person without our prior written approval. We consent to the use of our name
under the heading "Material 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. We disclaim any obligation to update
this opinion letter for events occurring or coming to our attention after the
date hereof.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
LLP
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Proxy Statement-
Prospectus of MovieFone, Inc. and America Online, Inc. which is part of the
Registration Statement on Form S-4 of America Online, Inc., of our report dated
March 23, 1999, appearing in the Annual Report on Form 10-K of MovieFone, Inc.,
for the year ended December 31, 1998 and to the reference to us under the
heading "Experts" in the Proxy Statement-Prospectus, which is part of this
Registration Statement.
Deloitte & Touche LLP
Parsippany, NJ
April 20, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference of our firm under the captions "Experts" and to
the incorporation by reference therein of our report dated September 25, 1998,
with respect to the consolidated financial statements of America Online, Inc.
included in its Annual Report on Form 10-K for the year ended June 30, 1998,
our report dated September 25, 1998 (except for the last paragraph of Note 17,
as to which the date is February 15, 1999) with respect to the consolidated
financial statements of America Online, Inc., included in its Current Report on
Form 8-K dated November 9, 1998, and our report dated September 25, 1998
(except for the second paragraph of Note 19, as to which the date is February
15, 1999 and the third paragraph of Note 19, as to which the date is April 15,
1999), with respect to the supplemental consolidated financial statements of
America Online, Inc. included in its Current Report on Form 8-K/A filed on
April 21, 1999, included in the Proxy Statement of America Online, Inc. that is
made part of the Registration Statement (Form S-4 No. 333- ) and Prospectus
of America Online, Inc. for the registration of 4,154,717 shares of its common
stock.
/s/ Ernst & Young LLP
Vienna, Virginia
April 15, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF SALOMON SMITH BARNEY, INC.
We hereby consent to the use of our name in, to the description of our
opinion letter under the caption "Opinion of MovieFone's Financial Advisor" in,
and to the inclusion of our opinion letter as Appendix D to, the Proxy
Statement-Prospectus of MovieFone, Inc. that is made a part of the Registration
Statement on Form S-4 (File No. 333- ) of America Online, Inc. By giving
such consent we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Salomon Smith Barney, Inc.
New York, NY
April 20, 1999
<PAGE>
THIS PROXY IS SOLICITATED ON BEHALF OF THE BOARD OF DIRECTORS PROXY FOR THE
SPECIAL MEETING OF STOCKHOLDERS MAY 21, 1999 MOVIEFONE, INC.
The undersigned stockholder of MovieFone, Inc. (the "Company") hereby
appoints Andrew A. Jarecki and Adam H. Slutsky, and each of them acting singly,
the attorneys and proxies of the undersigned, with full power of substitution,
to vote on behalf of the undersigned all of the shares of capital stock of the
Company that the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company to be held on May 21, 1999 at 9:00 AM at the offices
of the Company at 335 Madison Avenue, 27th Floor, New York, New York 10017, and
at all adjournments thereof, hereby revoking any proxy heretofore given with
respect to such shares.
This Proxy when properly executed will be voted in this manner directed by
the undersigned stockholders(s). If no direction is made, this proxy will be
voted FOR proposal 1. In their discretion, the proxies are also authorized to
vote upon such matters as may properly come before the meeting.
PLEASE SIGN AND MAIL PROXY TODAY
Mark Here For
Address Change
and Note on Reverse
(Continued and to be signed on reverse side.)
SEE REVERSE
SIDE
<PAGE>
Please mark your votes as in this example
DO NOT PRINT IN THIS AREA
The Board of Directors recommends a vote FOR proposal 1.
1. Proposal to adopt the Agreement and Plan of Merger, dated as of February 1,
1999, by and among America Online, Inc., MF Acquisition Corporation, a wholly
owned subsidiary of America Online, Inc., and MovieFone, Inc., pursuant to which
MF Acquisition Corporation will merge with and into MovieFone and MovieFone will
survive the merger as a wholly owned subsidiary of America Online. Adoption of
the Agreement and Plan of Merger will also constitute approval of the merger and
the other transactions contemplated by the Agreement and Plan of Merger.
The Board of Directors recommends a vote FOR the adoption of the Agreement and
Plan of Merger, dated as of February 1, 1999, by and among America Online, Inc.,
MF Acquisition Corporation and MovieFone, Inc.
FOR AGAINST ABSTAIN
This proxy, when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR the adoption of the merger
agreement. The proxies are hereby authorized to vote in their discretion upon
such other matters as may properly come before the meeting and any adjournments
or postponements thereof.
Date: , 1999 Date: , 1999
Signature Signature
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as an attorney, executor, adminstrator, trustee or guardian, please
give full title as such.
