CONFORMED COPY
STOCK OPTION AGREEMENT, dated as of January 10, 2000 (the
"Agreement"), between America Online, Inc., a Delaware corporation
("Grantee"), and Time Warner Inc., a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer are, concurrently with the execution and
delivery of this Agreement, entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement;" capitalized terms used
without definition herein having the meanings assigned to them in the Merger
Agreement), pursuant to which the parties will engage in a business
combination in a merger of equals (the "Merger"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Grantee has required that Issuer agree, and believing it to
be in the best interests of Issuer, Issuer has agreed, among other things, to
grant to Grantee the Option (as hereinafter defined) to purchase shares of
common stock, par value $.01 per share, of Issuer ("Issuer Common Stock") at a
price per share equal to the Exercise Price (as hereinafter defined).
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
OPTION TO PURCHASE SHARES
1.1 Grant of Option.
(a) Issuer hereby grants to Grantee an irrevocable option to
purchase, in whole or in part, an aggregate of up to 233,263,204 duly
authorized, validly issued, fully paid and nonassessable shares of Issuer
Common Stock (representing 19.9% of the outstanding shares of Issuer Common
Stock as of November 30, 1999) on the terms and subject to the conditions set
forth herein (the "Option"); provided, however, that in no event shall the
number of shares of Issuer Common Stock for which this Option is exercisable
exceed 19.9% of the issued and outstanding shares of Issuer Common Stock at
the time of exercise without giving effect to the issuance of any Option
Shares (as hereinafter defined). The number of shares of Issuer Common Stock
that may be received upon the exercise of the Option and the Exercise Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Issuer Common
Stock are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement and other than pursuant to an
event described in Section 3.1 hereof), the number of shares of Issuer Common
Stock subject to the Option shall be increased so that, after such
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issuance, such number together with any shares of Issuer Common Stock
previously issued pursuant hereto, equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding without giving effect to any
shares subject or issued pursuant to the Option. Nothing contained in this
Section 1.1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach or fail to comply with any provision of the Merger Agreement.
As used herein, the term "Option Shares" means the shares of Issuer Common
Stock issuable pursuant to the Option, as the number of such shares shall be
adjusted pursuant to the terms hereof.
1.2 Exercise of Option.
(a) The Option may be exercised by Grantee, in whole or in
part, at any time, or from time to time, commencing upon the Exercise Date and
prior to the Expiration Date. As used herein, the term "Exercise Date" means
the date on which Grantee becomes unconditionally entitled to receive the Time
Warner Termination Fee pursuant to Section 8.2(b) of the Merger Agreement. As
used herein, the term "Expiration Date" means the first to occur prior to
Grantee's exercise of the Option pursuant to Section 1.2(b) of:
(i) the Effective Time;
(ii) written notice of termination of this Agreement
by Grantee to Issuer;
(iii) 12 months after the first occurrence of an Exercise
Date; or
(iv) the date of termination of the Merger Agreement,
unless, in the case of this clause (iv), Grantee has the right to receive
the Time Warner Termination Fee either (x) upon or (y) following such
termination upon the occurrence of certain events, in which case the
Option will not terminate until the later of (x) 15 business days
following the time the Time Warner Termination Fee becomes
unconditionally payable and (y) the expiration of the period in which
Grantee has such right to receive the Time Warner Termination Fee.
Notwithstanding the termination of the Option, Grantee shall be entitled to
purchase those Option Shares with respect to which it may have exercised the
Option by delivery of an Option Notice (as defined below) prior to the
Expiration Date, and the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or at the
Expiration Date.
(b) In the event Grantee wishes to exercise the Option, Grantee
shall send a written notice to Issuer of its intention to so exercise the
Option (an "Option Notice"), specifying the number of Option Shares to be
purchased (and the denominations of the certificates, if more than one),
whether the aggregate Exercise Price will be paid in cash or by surrendering a
portion of the Option in accordance with Section 1.3(b) or a combination
thereof, and the place in the United States, time and date of the closing of
such purchase (the "Option
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Closing" and the date of such Closing, the "Option Closing Date"), which date
shall not be less than two Business Days nor more than ten Business Days from
the date on which an Option Notice is delivered; provided that the Option
Closing shall be held only if (i) such purchase would not otherwise violate or
cause the violation of, any applicable material law, statute, ordinance, rule
or regulation (collectively, "Laws") (including the HSR Act and the
Communications Act), and (ii) no material judgment, order, writ, injunction,
ruling or decree of any Governmental Entity (collectively, "Orders") shall
have been promulgated, enacted, entered into, or enforced by any Governmental
Entity which prohibits delivery of the Option Shares, whether temporary,
preliminary or permanent; provided, however, that the parties hereto shall use
their reasonable best efforts to (x) promptly make and process all necessary
filings and applications and obtain all consents, approvals, Orders,
authorizations, registrations and declarations or expiration or termination of
any required waiting periods (collectively, "Approvals") and to comply with
any such applicable Laws and (y) have any such Order vacated or reversed. In
the event the Option Closing is delayed pursuant to clause (i) or (ii) above,
the Option Closing shall be within ten Business Days following the cessation
of such restriction, violation, Law or Order or the receipt of any necessary
Approval, as the case may be (so long as the Option Notice was delivered prior
to the Expiration Date); provided further that, notwithstanding any prior
Option Notice, Grantee shall be entitled to rescind such Option Notice and
shall not be obligated to purchase any Option Shares in connection with such
exercise upon written notice to such effect to Issuer.
(c) At any Option Closing, (i) Issuer shall deliver to Grantee
all of the Option Shares to be purchased by delivery of a certificate or
certificates evidencing such Option Shares in the denominations designated by
Grantee in the Option Notice, and (ii) if the Option is exercised in part
and/or surrendered in part to pay the aggregate Exercise Price pursuant to
Section 1.3(b), Issuer and Grantee shall execute and deliver an amendment to
this Agreement reflecting the Option Shares for which the Option has not been
exercised and/or surrendered. If at the time of issuance of any Option Shares
pursuant to an exercise of all or part of the Option hereunder, Issuer shall
have issued any rights or other securities which are attached to or otherwise
associated with the Issuer Common Stock, then each Option Share issued
pursuant to such exercise shall also represent such rights or other securities
with terms substantially the same as and at least as favorable to Grantee as
are provided under any shareholder rights agreement or similar agreement of
Issuer then in effect. At the Option Closing, Grantee shall pay to Issuer by
wire transfer of immediately available funds to an account specified by Issuer
to Grantee in writing at least two Business Days prior to the Option Closing
an amount equal to the Exercise Price multiplied by the number of Option
Shares to be purchased for cash pursuant to this Article I; provided that the
failure or refusal of Issuer to specify an account shall not affect Issuer's
obligation to issue the Option Shares.
(d) Upon the delivery by Grantee to Issuer of the Option Notice
and the tender of the applicable aggregate Exercise Price in immediately
available funds or the requisite portion of the Option in accordance with
Section 1.3, Grantee shall be deemed to be the holder of record of the Option
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of Issuer may then be closed, that certificates representing such Option
Shares
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may not then have been actually delivered to Grantee, or Issuer may have
failed or refused to take any action required of it hereunder. Issuer shall
pay all expenses that may be payable in connection with the preparation,
issuance and delivery of stock certificates or an amendment to this Agreement
under this Section 1.2 and any filing fees and other expenses arising from the
performance of the transactions contemplated hereby.
1.3 Payments.
(a) The purchase and sale of the Option Shares pursuant to
Section 1.2 of this Agreement shall be at a purchase price equal to $110.63
per share (as such amount may be adjusted pursuant to the terms hereof, the
"Exercise Price"), payable at Grantee's option in cash, by surrender of a
portion of the Option in accordance with Section 1.3(b), or a combination
thereof.
(b) Grantee may elect to purchase Option Shares issuable, and
pay some or all of the aggregate Exercise Price payable, upon an exercise of
the Option by surrendering a portion of the Option with respect to such number
of Option Shares as is determined by dividing (i) the aggregate Exercise Price
payable in respect of the number of Option Shares being purchased in such
manner by (ii) the excess of the Fair Market Value (as defined below) per
share of Issuer Common Stock as of the last trading day preceding the date
Grantee delivers its Option Notice (such date, the "Option Exercise Date")
over the per share Exercise Price. The "Fair Market Value" per share of Issuer
Common Stock shall be (i) if the Issuer Common Stock is listed on the New York
Stock Exchange, Inc. (the "NYSE") or any other nationally recognized exchange
or trading system as of the Option Exercise Date, the average of last reported
sale prices per share of Issuer Common Stock thereon for the 10 trading days
commencing on the 12th trading day immediately preceding the Option Exercise
Date, or (ii) if the Issuer Common Stock is not listed on the NYSE or any
other nationally recognized exchange or trading system as of the Option
Exercise Date, the amount determined by a mutually acceptable independent
investment banking firm as the value per share the Issuer Common Stock would
have if publicly traded on a nationally recognized exchange or trading system
(assuming no discount for minority interest, illiquidity or restrictions on
transfer). That portion of the Option so surrendered under this Section 1.3(b)
shall be canceled and shall thereafter be of no further force and effect.
(c) Certificates for the Option Shares delivered at an Option
Closing will have typed or printed thereon a restrictive legend which will
read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JANUARY
10,
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2000, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF TIME WARNER
INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares
have been sold in reliance on and in accordance with Rule 144 under the
Securities Act or Grantee has delivered to Issuer a copy of a letter from the
staff of the SEC, or an opinion of counsel in form and substance reasonably
satisfactory to Issuer and its counsel, to the effect that such legend is not
required for purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend will be removed by
delivery of substitute certificate(s) without such reference if the Option
Shares evidenced by certificate(s) containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be taken with a view
to the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from registration
under the Securities Act.
2.2 Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Option Shares. Issuer has taken all necessary corporate and
other action to authorize and reserve for issuance, and, subject to receipt of
any Approvals, to permit it to issue, the Option Shares and all additional
shares or other securities which may be issued pursuant to Section 3.1 upon
exercise of the Option, and, at all times from the date hereof until such time
as the obligation to deliver Option Shares hereunder terminates, will have
reserved for issuance upon exercise of the Option the Option Shares and such
other additional shares or securities, if any. All of the Option Shares and
all additional shares or other securities or property which may be issuable
pursuant to Section 3.1, upon exercise of the Option and issuance pursuant
hereto, shall be duly authorized, validly issued, fully paid and
nonassessable, shall be delivered free and clear of all Liens of any nature
whatsoever, and shall not be subject to any preemptive or similar right of any
Person.
(b) No Restrictions. No Delaware law or other takeover statute or
similar Law and no provision of the Restated Certificate of Incorporation or
Bylaws of Issuer or any agreement to which Issuer is a party (a) would or
would purport to impose restrictions which
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might adversely affect or delay the consummation of the transactions
contemplated by this Agreement, or (b) as a result of the consummation of the
transactions contemplated by this Agreement, (i) would or would purport to
restrict or impair the ability of Grantee to vote or otherwise exercise the
rights of a shareholder with respect to securities of Issuer or any of its
Subsidiaries that may be acquired or controlled by Grantee or (ii) would or
would purport to entitle any Person to acquire securities of Issuer.
ARTICLE III
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
3.1 Adjustment Upon Changes in Capitalization. In addition to the
adjustment in the number of shares of Issuer Common Stock that may be
purchased upon exercise of the Option pursuant to Section 1.1 of this
Agreement, the number of shares of Issuer Common Stock that may be purchased
upon the exercise of the Option and the Exercise Price shall be subject to
adjustment from time to time as provided in this Section 3.1. In the event of
any change in the number of issued and outstanding shares of Issuer Common
Stock by reason of any stock dividend, split-up, merger, recapitalization,
combination, conversion, exchange of shares, spin-off or other change in the
corporate or capital structure of Issuer which would have the effect of
diluting or otherwise diminishing Grantee's rights hereunder, the number and
kind of Option Shares or other securities subject to the Option and the
Exercise Price therefor shall be appropriately adjusted so that Grantee shall
receive upon exercise of the Option (or, if such a change occurs between
exercise and the Option Closing, upon the Option Closing) the number and kind
of shares or other securities or property that Grantee would have received in
respect of the Option Shares that Grantee is entitled to purchase upon
exercise of the Option if the Option had been exercised (or the purchase
thereunder had been consummated, as the case may be) immediately prior to such
event or the record date for such event, as applicable. The rights of Grantee
under this Section shall be in addition to, and shall in no way limit, its
rights against Issuer for breach of or the failure to perform any provision of
the Merger Agreement.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Registration of Option Shares Under the Securities Act.
(a) If requested by Grantee at any time and from time to time
within two years after receipt by Grantee of Option Shares (the "Registration
Period"), Issuer shall use its reasonable best efforts, as promptly as
practicable, to effect the registration under the Securities Act and any
applicable state law (a "Demand Registration") of such number of Option Shares
or such other Issuer securities owned by or issuable to Grantee in accordance
with the method of sale or other disposition contemplated by Grantee,
including a "shelf" registration
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statement under Rule 415 of the Securities Act or any successor provision, and
to obtain all consents or waivers of other parties that are required therefor.
Grantee agrees to use reasonable best efforts to cause, and to use reasonable
best efforts to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration statement
to be effected on a widely distributed basis so that upon consummation thereof
no purchaser or transferee will own beneficially more than 3% of the
then-outstanding voting power of Issuer. Except with respect to such a "shelf"
registration, Issuer shall keep such Demand Registration effective for a
period of not less than 150 days, unless, in the written opinion of counsel to
Issuer, which opinion shall be delivered to Grantee and which shall be
satisfactory in form and substance to Grantee and its counsel, such
registration under the Securities Act is not required in order to lawfully
sell and distribute such Option Shares or other Issuer securities in the
manner contemplated by Grantee. Issuer shall only have the obligation to
effect three Demand Registrations pursuant to this Section 4.1; provided that
only requests relating to a registration statement that has become effective
under the Securities Act shall be counted for purposes of determining the
number of Demand Registrations made. Issuer shall be entitled to postpone for
up to 150 days from receipt of Grantee's request for a Demand Registration the
filing of any registration statement in connection therewith if the Board of
Directors of Issuer determines in its good faith reasonable judgment that such
registration would materially interfere with or require premature disclosure
of, any material acquisition, reorganization, pending or proposed offering of
Issuer Securities or other transaction involving Issuer or any other material
contract under active negotiation by Issuer; and provided further that Issuer
shall not have postponed any Demand Registration pursuant to this sentence
during the twelve month period immediately preceding the date of delivery of
Grantee's request for a Demand Registration.
(b) If Issuer effects a registration under the Securities Act
of Issuer Common Stock for its own account or for any other stockholders of
Issuer (other than on Form S-4 or Form S-8, or any successor form), Grantee
shall have the right to participate in such registration and include in such
registration the number of shares of Issuer Common Stock or such other Issuer
securities as Grantee shall designate by notice to Issuer (an "Incidental
Registration" and, together with a Demand Registration, a "Registration");
provided, however, that, if the managing underwriters of such offering advise
Issuer in writing that in their opinion the number of shares of Issuer Common
Stock or other securities requested to be included in such Incidental
Registration exceeds the number which can be sold in such offering, Issuer
shall include therein (i) first, all shares proposed to be included therein by
Issuer, (ii) second, subject to the rights of any other holders of
registration rights in effect as of the date hereof, the shares requested to
be included therein by Grantee and (iii) third, shares proposed to be included
therein by any other stockholder of Issuer. Participation by Grantee in any
Incidental Registration shall not affect the obligation of Issuer to effect
Demand Registrations under this Section 4.1. Issuer may withdraw any
registration under the Securities Act that gives rise to an Incidental
Registration without the consent of Grantee.
(c) In connection with any Registration pursuant to this
Section 4.1, (i) Issuer and Grantee shall provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution obligations in
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connection with such Registration, and (ii) Issuer shall use reasonable best
efforts to cause any Option Shares included in such Registration to be
approved for listing on the NYSE or any other nationally recognized exchange
or trading system upon which Issuer's securities are then listed, subject to
official notice of issuance, which notice shall be given by Issuer upon
issuance. Grantee will provide all information reasonably requested by Issuer
for inclusion in any registration statement to be filed hereunder. The costs
and expenses incurred by Issuer in connection with any Registration pursuant
to this Section 4.1 (including any fees related to qualifications under Blue
Sky Laws and SEC filing fees) (the "Registration Expenses") shall be borne by
Issuer, excluding legal fees of Grantee's counsel and underwriting discounts
or commissions with respect to Option Shares to be sold by Grantee included in
a Registration.
4.2 Transfers of Option Shares. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except (i) in an underwritten
public offering as provided in Section 4.1 or (ii) to any purchaser of
transferee who would not, to the knowledge of the Grantee after reasonable
inquiry, immediately following such sale, assignment, transfer or disposal
beneficially own more than 3% of the then-outstanding voting power of the
Issuer; provided, however, that Grantee shall be permitted to sell any Option
Shares if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended by a majority of the members of the Board of
Directors of Issuer (which majority shall include a majority of directors who
were directors as of the date hereof).
ARTICLE V
REPURCHASE RIGHTS; SUBSTITUTE OPTIONS
5.1 Repurchase Rights.
(a) Subject to Section 6.1, at any time on or after the
Exercise Date and prior to the Expiration Date, Grantee shall have the right
(the "Repurchase Right") to require Issuer to repurchase from Grantee (i) the
Option or any part thereof as Grantee shall designate at a price (the "Option
Repurchase Price") equal to the amount, subject to reduction at the sole
discretion of Grantee pursuant to clause (iii) of Section 6.1(a), by which (A)
the Market/Offer Price (as defined below) exceeds (B) the Exercise Price,
multiplied by the number of Option Shares as to which the Option is to be
repurchased and (ii) such number of Option Shares as Grantee shall designate
at a price (the "Option Share Repurchase Price") equal to the Market/Offer
Price multiplied by the number of Option Shares so designated. The term
"Market/Offer Price" shall mean the highest of (i) the highest price per share
of Issuer Common Stock offered or paid in any Acquisition Proposal, or (ii)
the highest closing price for shares of Issuer Common Stock during the
six-month period immediately preceding the date Grantee gives the Repurchase
Notice (as hereinafter defined). In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by Grantee and reasonably
acceptable to Issuer, which determination, absent manifest error, shall be
conclusive for all purposes of this Agreement.
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(b) Grantee shall exercise its Repurchase Right by delivering to
Issuer written notice (a "Repurchase Notice") stating that Grantee elects to
require Issuer to repurchase all or a portion of the Option and/or the Option
Shares as specified therein. The closing of the Repurchase Right (the
"Repurchase Closing") shall take place in the United States at the place, time
and date specified in the Repurchase Notice, which date shall not be less than
two Business Days nor more than ten Business Days from the date on which the
Repurchase Notice is delivered. At the Repurchase Closing, subject to the
receipt of a writing evidencing the surrender of the Option and/or
certificates representing Option Shares, as the case may be, Issuer shall
deliver to Grantee the Option Repurchase Price therefor or the Option Share
Repurchase Price therefor, as the case may be, or the portion thereof that
Issuer is not then prohibited under applicable Law from so delivering. At the
Repurchase Closing, (i) Issuer shall pay to Grantee the Option Repurchase
Price for the portion of the Option which is to be repurchased or the Option
Shares Repurchase Price for the number of Option Shares to be repurchased, as
the case may be, by wire transfer of immediately available funds to an account
specified by Grantee at least 24 hours prior to the Repurchase Closing and
(ii) if the Option is repurchased only in part, Issuer and Grantee shall
execute and deliver an amendment to this Agreement reflecting the Option
Shares for which the Option is not being repurchased.
(c) To the extent that Issuer is prohibited under applicable Law
from repurchasing the portion of the Option or the Option Shares designated in
such Repurchase Notice, Issuer shall immediately so notify Grantee and
thereafter deliver, from time to time, to Grantee the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that it
is no longer prohibited from delivering, within five Business Days after the
date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a Repurchase Notice is prohibited under
applicable Law from delivering to Grantee the full amount of the Option
Repurchase Price and the Option Share Repurchase Price for the Option or
Option Shares to be repurchased, respectively, Grantee may rescind the
exercise of the Repurchase Right, whether in whole, in part or to the extent
of the prohibition, and, to the extent rescinded, no part of the amounts,
terms or the rights with respect to the Option or Repurchase Right shall be
changed or affected as if such Repurchase Right were not exercised. Issuer
shall use its reasonable best efforts to obtain all required regulatory and
legal approvals and to file any required notices to permit Grantee to exercise
its Repurchase Right and shall use its reasonable best efforts to avoid or
cause to be rescinded or rendered inapplicable any prohibition on Issuer's
repurchase of the Option or the Option Shares.
5.2 Substitute Option.
(a) In the event that Issuer enters into an agreement (i) to
consolidate with or merge into any Person, other than Grantee or any
Subsidiary of Grantee (each an "Excluded Person"), and Issuer is not the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any Person, other than an Excluded Person, to merge into Issuer and
Issuer shall be the continuing or surviving or acquiring corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for stock or other securities of any
other Person or cash or any other property or the
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then outstanding shares of Issuer Common Stock shall after such merger
represent less than 50% of the outstanding voting securities of the merged or
acquiring company, or (iii) to sell or otherwise transfer all or substantially
all of its assets to any Person, other than an Excluded Person, then, and in
each such case, the agreement governing such transaction shall make proper
provision so that, unless earlier exercised by Grantee, the Option shall, upon
the consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor, as
applicable and make any other necessary adjustments; provided, however, that
if such a conversion or exchange cannot, because of applicable Law be the same
as the Option, such terms shall be as similar as possible and in no event less
advantageous to Grantee than the Option.
(b) In addition to any other restrictions or covenants, Issuer
agrees that it shall not enter or agree to enter into any transaction
described in Section 5.2(a) unless the Acquiring Corporation (as hereinafter
defined) and any Person that controls the Acquiring Corporation assume in
writing all the obligations of Issuer hereunder and agree for the benefit of
Grantee to comply with this Article V.
(c) For purposes of this Section 5.2, the term "Acquiring
Corporation" shall mean (i) the continuing or surviving Person of a
consolidation or merger with Issuer (if other than Issuer), (ii) Issuer in a
consolidation or merger in which Issuer is the continuing or surviving or
acquiring Person, and (iii) the transferee of all or substantially all of
Issuer's assets.
ARTICLE VI
MISCELLANEOUS
6.1 Total Profit.
(a) Notwithstanding any other provision of this Agreement, in no
event shall Grantee's Total Profit (as hereinafter defined) plus any Time
Warner Termination Fee paid pursuant to Section 8.2(b) of the Merger Agreement
and any fees paid by Issuer pursuant to Section 8.2(d) of the Merger Agreement
(such Time Warner Termination Fee and such fees paid pursuant to Section
8.2(d) of the Merger Agreement, collectively, the "Total Issuer Fees") exceed
in the aggregate an amount (the "Limitation Amount") equal to 2.75% of the
product of (x) the number of shares of Issuer Common Stock outstanding as of
the date hereof (assuming the exercise of all outstanding options (other than
the Option) and the conversion into Issuer Common Stock of all securities of
the Issuer convertible into Issuer Common Stock) multiplied by (y) the
Exchange Ratio multiplied by (z) the last sale price of the common stock, par
value $0.01 per share, of Grantee on the NYSE on January 7, 2000, and, if the
total amount that would otherwise be received by Grantee otherwise would
exceed such amount, Grantee, at its sole election, shall either (i) reduce the
number of shares of
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Issuer Common Stock subject to this Option, (ii) deliver to Issuer for
cancellation Option Shares previously purchased by Grantee, (iii) reduce the
amount of the Option Repurchase Price or the Option Share Repurchase Price,
(iv) pay cash to Issuer, or (v) any combination thereof, so that Grantee's
actually realized Total Profit, when aggregated with the Total Issuer Fees so
paid to Grantee, shall not exceed the Limitation Amount after taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of Option Shares as would, as of the
date of exercise, result in a Notional Total Profit (as defined below) which,
together with the Total Issuer Fees theretofore paid to Grantee, would exceed
the Limitation Amount; provided, that nothing in this sentence shall restrict
any exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 5.1, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 5.1, less (y)
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts or the fair market value of any property received by Grantee pursuant
to any consummated arm's-length sales of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party, less (y) Grantee's purchase price of such Option Shares.
(d) As used herein, the term "Notional Total Profit" with respect
to any number of Option Shares as to which Grantee may propose to exercise the
Option shall be the Total Profit determined as of the date of such proposal
assuming that the Option was exercised on such date for such number of Option
Shares and assuming that such Option Shares, together with all other Option
Shares held by Grantee and its affiliates as of such date, were sold for cash
at the closing market price (less customary brokerage commissions) for shares
of Issuer Common Stock on the preceding trading day on the NYSE (or on any
other nationally recognized exchange or trading system on which shares of
Issuer Common Stock are then so listed or traded).
6.2 Further Assurances; Listing.
(a) From time to time, at the other party's request and without
further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate the transactions contemplated by this Agreement,
including, without limitation, to vest in Grantee good and marketable title,
free and clear of all Liens, to any Option Shares purchased hereunder. Issuer
agrees not to avoid or seek to avoid (whether by charter amendment or through
reorganization, consolidation, merger, issuance of rights or securities, the
Time Warner Rights Agreement or similar agreement, dissolution or sale of
assets, or by any other voluntary act) the observance or performance of any of
the covenants, agreements or conditions to be observed or performed hereunder
by it.
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(b) If the Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then listed on the NYSE (or any other
national securities exchange or trading system), Issuer, upon the request of
Grantee, will promptly file an application to list the shares of Issuer Common
Stock or such other securities to be acquired upon exercise of the Option on
the NYSE (and any other national securities exchange or trading system) and
will use reasonable best efforts to obtain approval of such listing as
promptly as practicable.
6.3 Division of Option; Lost Options. The Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling Grantee to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of Option
Shares purchasable hereunder. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft or destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new agreement of
like tenor and date.
6.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
6.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the tenth
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to Grantee to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia
Fax: (703) 265-1495
Attention: Paul T. Cappuccio, Esq.
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with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Richard I. Beattie, Esq.
(b) if to Issuer to:
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Fax: (212) 265-2646
Attention: Christopher P. Bogart, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax: (212) 474-3700
Attention: Robert A. Kindler, Esq.
6.6 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an
Article or Section of or Exhibit or Schedule to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
6.8 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the other agreements of the parties
referred to herein constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
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(b) This Agreement shall be binding upon and inure solely to
the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
6.10 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
6.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise),
without the prior written consent of the other party, and any attempt to make
any such assignment without such consent shall be null and void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
6.12 Submission to Jurisdiction; Waivers. Each of Grantee and Issuer
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of Grantee and Issuer hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts.
Each of Grantee and Issuer hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, (a) any claim that it is
not personally subject to the jurisdiction of the above-named courts for any
reason other than the failure to lawfully serve process (b) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), (c) to the fullest extent permitted by
applicable law, that (i) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (ii) the venue of such suit, action or
proceeding is improper and (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts and (d) any right to a trial by jury.
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6.13 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms
hereof, this being in addition to any other remedy to which they are entitled
at law or in equity.
6.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor will any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive
to, and not exclusive of, any rights or remedies otherwise available.
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IN WITNESS WHEREOF, Grantee and Issuer have caused this Agreement to
be duly executed as of the date first above written.
AMERICA ONLINE, INC.
By: /s/ Stephen M. Case
----------------------------------
Name: Stephen M. Case
Title: Chairman & Chief Executive
Officer
TIME WARNER INC.
By: /s/ Gerald M. Levin
----------------------------------
Name: Gerald M. Levin
Title: Chairman & Chief Executive
Officer