-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKKGpDXTCA1k6LaqYwC56Ht+zhX32AUv1u+b3sdJ5th8RQeCn5u3EmugdR6bTDy2 h1r0deLS81bS2bk1ZYpzDQ== 0001193125-09-213323.txt : 20100105 0001193125-09-213323.hdr.sgml : 20100105 20091026085918 ACCESSION NUMBER: 0001193125-09-213323 CONFORMED SUBMISSION TYPE: 10-12B/A PUBLIC DOCUMENT COUNT: 53 FILED AS OF DATE: 20091026 DATE AS OF CHANGE: 20091117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AOL Inc. CENTRAL INDEX KEY: 0001468516 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 204268793 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12B/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-34419 FILM NUMBER: 091135685 BUSINESS ADDRESS: STREET 1: 770 BROADWAY STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10003 BUSINESS PHONE: 703-265-1000 MAIL ADDRESS: STREET 1: 22000 AOL WAY CITY: DULLES STATE: VA ZIP: 20166 10-12B/A 1 d1012ba.htm FORM 10 AMENDMENT #2 FORM 10 AMENDMENT #2

As filed with the Securities and Exchange Commission on October 26, 2009

File No. 001-34419

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR (g)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

AOL Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-4268793

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

770 Broadway

New York, New York

  10003
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code:

(212) 652-6400

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class to be so Registered

  

Name of Each Exchange on

Which Each Class is to be Registered

Common Stock, par value $0.01    New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act:

None.

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,

a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,”

“accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2

of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

 


AOL Inc.

Cross-Reference Sheet Between the Information Statement and Items of Form 10

Our Information Statement may be found as Exhibit 99.1 to this Registration Statement on Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the Information Statement.

 

Item
No.

  

Caption

  

Location in Information Statement

1.    Business   

See “Summary,” “Cautionary Statement

Concerning Forward-Looking Statements,”

“The Spin-Off,” “Business” and

“Management’s Discussion and Analysis of

Financial Condition and Results of Operations”

1A.    Risk Factors   

See “Risk Factors” and “Cautionary Statement

Concerning Forward-Looking Statements”

2.    Financial Information   

See “Summary,” “Risk Factors,” “Selected

Historical Financial Data” and “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations”

3.    Properties    See “Business—Property and Equipment”
4.    Security Ownership of Certain Beneficial Owners and Management   

See “Security Ownership of Certain Beneficial

Owners and Management”

5.    Directors and Executive Officers    See “Management”
6.    Executive Compensation    See “Executive Compensation”
7.    Certain Relationships and Related Transactions, and Director Independence   

See “Risk Factors,” “Management” and

“Certain Relationships and Related Party

Transactions”

8.    Legal Proceedings    See “Business—Legal Proceedings”
9.    Market Price of and Dividends on the Registrant’s Common Equity and Related Shareholder Matters    See “The Spin-Off”
10.    Recent Sales of Unregistered Securities   

See “Description of Our Capital Stock” and

“Certain Relationships and Related Party

Transactions—Related Party Transactions—

Patch Acquisition”

11.    Description of Registrant’s Securities to be Registered    See “Description of Our Capital Stock”
12.    Indemnification of Directors and Officers    See “Description of Our Capital Stock”
13.    Financial Statements and Supplementary Data   

See “Summary,” “Selected Historical Financial

Data” and “Index to Financial Statements” and

the financial statements referenced therein

14.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    None
15.    Financial Statements and Exhibits    See “Index to Financial Statements” and the financial statements referenced therein

 

2


(a) List of Financial Statements and Schedules

The following financial statements and schedules are included in the Information Statement and filed as part of this Registration Statement on Form 10:

 

  (1) Audited Consolidated Financial Statements of AOL Inc., including Report of Independent Registered Public Accounting Firm;

 

  (2) Unaudited Interim Consolidated Financial Statements of AOL Inc.; and

 

  (3) Schedule II - Valuation and Qualifying Accounts.

(b) Exhibits

The following documents are filed as exhibits hereto:

 

Exhibit
Number
  

Exhibit Description

  2.1    Form of Separation and Distribution Agreement between AOL Inc. and Time Warner Inc.
  3.1    Form of Amended and Restated Certificate of Incorporation of AOL Inc.
  3.2    Form of Amended and Restated By-laws of AOL Inc.
  8.1    Opinion of Cravath, Swaine & Moore LLP relating to certain tax matters.
10.1    Form of Transition Services Agreement between AOL Inc. and Time Warner Inc.
10.2    Form of Second Tax Matters Agreement between AOL Inc. and Time Warner Inc.
10.3    Form of Employee Matters Agreement between AOL Inc., AOL LLC and Time Warner Inc.
10.4    Form of Intellectual Property Cross-License Agreement between AOL Inc. and Time Warner Inc.
10.5    Form of IT Applications and Database Agreement between AOL Inc. and Time Warner Inc.
10.6    Employment Agreement between AOL LLC, Time Warner Inc. and Timothy Armstrong, dated March 12, 2009 and effective as of April 7, 2009.
10.7    Employment Agreement between AOL LLC and Arthur Minson, dated August 24, 2009 and effective as of September 8, 2009.
10.8    Employment Letter Agreement between AOL LLC and Ira Parker, dated January 7, 2008.
10.9    Employment Letter Agreement between AOL LLC and Tricia Primrose, dated December 7, 2007.
10.10   

Exhibit withdrawn.

10.11    2009 Retention Program Letter Agreement between AOL LLC and Ira Parker, dated April 1, 2009.
10.12    2009 Retention Program Letter Agreement between AOL LLC and Tricia Primrose, dated April 1, 2009.
10.13   

Exhibit withdrawn.

10.14    2008 Retention Program Letter Agreement between AOL LLC and Ira Parker, dated May 7, 2008.
10.15    2008 Retention Program Letter Agreement between AOL LLC and Tricia Primrose, dated May 7, 2008.
10.16   

Exhibit withdrawn.

 

3


10.17  

Exhibit withdrawn.

10.18  

Exhibit withdrawn.

10.19   Relocation Letter Agreement between AOL LLC and Ira Parker, dated April 1, 2009.
10.20   AOL LLC 2009 Global Bonus Plan.
10.21   AOL LLC 2008 Annual Incentive Plan.
10.22   Amended and Restated Interactive Marketing Agreement between AOL LLC and Google, Inc., dated October 1, 2003 (the “IMA”).**
10.23   First Amendment to the IMA, dated December 15, 2003.**
10.24   Second Amendment to the IMA, dated March 30, 2004.**
10.25   Addendum One to the Second Amendment to the IMA, dated October 5, 2004.**
10.26   Third Amendment to the IMA, dated April 7, 2004.**
10.27   Fourth Amendment to the IMA, dated June 1, 2004.**
10.28   Fifth Amendment to the IMA, dated June 14, 2004.**
10.29   Sixth Amendment to the IMA, dated December 17, 2004.**
10.30   Seventh Amendment to the IMA, dated March 28, 2005.**
10.31   Eighth Amendment to the IMA, dated April 28, 2005.**
10.32   Ninth Amendment to the IMA, dated December 15, 2005.**
10.33   Tenth Amendment to the IMA, dated March 24, 2006.**
10.34   Eleventh Amendment to the IMA, dated September 28, 2006.
10.35   Twelfth Amendment to the IMA, dated December 15, 2006.**
10.36   Thirteenth Amendment to the IMA, dated January 12, 2007.**
10.37   Fourteenth Amendment to the IMA, dated February 16, 2007.**
10.38   Fifteenth Amendment to the IMA, dated March 2, 2007.**
10.39   Sixteenth Amendment to the IMA, dated September 24, 2007.**
10.40   Seventeenth Amendment to the IMA, dated February 29, 2008.**
10.41   Eighteenth Amendment to the IMA, dated March 31, 2008.
10.42   Nineteenth Amendment to the IMA, dated April 30, 2008.**
10.43   Twentieth Amendment to the IMA, dated October 1, 2008.
10.44   Twenty-First Amendment to the IMA, dated November 1, 2008.**
10.45   Twenty-Second Amendment to the IMA, dated March 13, 2009.**
10.46   Consent Letter related to the IMA, dated August 19, 2008.**
10.47   Network Services Agreement between AOL LLC and MCI Communications Services, Inc., a subsidiary of Verizon Communications Inc., dated January 1, 2004 (the “Verizon NSA”).**
10.48   Amendment No. 1 to the Verizon NSA, dated June 9, 2004.**

 

4


10.49   Amendment No. 2 to the Verizon NSA, dated February 1, 2005.**
10.50   Amendment No. 3 to the Verizon NSA, dated July 1, 2006.**
10.51   Amendment No. 4 to the Verizon NSA, dated April 10, 2007.**
10.52   Amendment No. 5 to the Verizon NSA, dated January 1, 2008.**
10.53   Amended and Restated Agreement for Delivery of Service between AOL LLC and Level 3 Communications, LLC, dated April 18, 2000 (the “Level 3 ADS”).**
10.54   Amendment No. 1 to the Level 3 ADS, dated March 29, 2001.**
10.55   Amendment No. 2 to the Level 3 ADS, dated December 17, 2004.**
10.56   Third Amendment to the Level 3 ADS, dated February 25, 2008.
10.57   Letter Agreement related to the Level 3 ADS, dated October 13, 2005.**
10.58   Letter Agreement related to the Level 3 ADS, dated May 31, 2006.**
10.59   Letter Agreement related to the Level 3 ADS, dated September 13, 2006.
10.60   Letter Agreement related to the Level 3 ADS, dated June 29, 2007.**
10.61   Letter Agreement related to the Level 3 ADS, dated March 7, 2008.**
10.62   Letter Agreement related to the Level 3 ADS, dated July 1, 2008.**
10.63   Letter Agreement related to the Level 3 ADS, dated December 15, 2008.**
10.64   Letter Agreement related to the Level 3 ADS, dated September 1, 2009.**
10.65   Agreement and Plan of Merger, dated as of March 12, 2008, by and among AOL LLC, Buckingham Acquisition Corp., Bebo, Inc. and Michael Birch (the “Bebo Merger Agreement”).***†
10.66   Amendment to the Bebo Merger Agreement, dated as of May 5, 2008.***
10.67   Letter Agreement related to the Level 3 ADS, dated September 29, 2009.**
10.68   Agreement and Plan of Merger by and among AOL LLC, Pumpkin Merger Corporation, Patch Media Corporation and Jon Brod, dated May 30, 2009 (the “Patch Merger Agreement”).
10.69   Side Letter Agreement related to the Patch Merger Agreement, dated June 10, 2009.
10.70   Side Letter Agreement related to the Patch Merger Agreement, dated August 11, 2009.
10.71   Form of Assignment and Assumption Agreement by and among AOL Inc., AOL LLC and Time Warner Inc.
10.72   Form of Employee Matters Assignment and Assumption Agreement by and among AOL Inc., AOL LLC and Time Warner Inc.
10.73   Form of Master Services Agreement for ATDN and Hosting Services between AOL Inc. and Time Warner Inc.
10.74   Private Label Publisher Master Services Agreement between Quigo Technologies and Time Inc., dated as of June 15, 2007 (the “Private Label Publisher MSA”).
10.75   First Addendum to the Private Label Publisher MSA, dated October 10, 2008.
10.76   Second Addendum to the Private Label Publisher MSA, dated April 16, 2009.
10.77   Search Services Agreement between AOL LLC and Time Inc., dated as of August 23, 2007 (the “SSA”).
10.78   First Amendment to the SSA, dated as of March 10, 2009.

 

5


10.79   Memorandum of Understanding between America Online, Inc. and Telepictures Productions Inc., dated as of July 25, 2005.
10.80   Relocation Letter Agreement between AOL LLC and Ira Parker, dated September 25, 2009.
10.81   Employment Agreement between Time Warner Inc., AOL LLC and Randel A. Falco, dated March 7, 2008.
10.82   Employment Agreement between AOL LLC and Ron Grant, dated December 21, 2006.
10.83   Employment Letter Agreement between AOL LLC and Nisha Kumar, dated January 9, 2008.
10.84   2009 Retention Program Letter Agreement between AOL LLC and Nisha Kumar, dated April 1, 2009.
10.85   2008 Retention Program Letter Agreement between AOL LLC and Nisha Kumar, dated May 7, 2008.
10.86   Equity Letter Agreement between Time Warner Inc. and Ron Grant, dated February 18, 2009.
10.87   Separation Letter Agreement between Time Warner Inc., AOL LLC and Randel A. Falco, dated May 13, 2009.
10.88   Separation Letter Agreement between AOL LLC and Ron Grant, dated May 26, 2009.
10.89   Separation Letter Agreement between AOL LLC and Nisha Kumar, dated June 30, 2009.
10.90   Form of AOL Inc. Annual Incentive Plan for Executive Officers.
10.91   Form of AOL Inc. 2010 Stock Incentive Plan.
10.92   Commitment Letter for $250 million senior secured credit facility.*
10.93   Form of Amendment to Memorandum of Understanding between AOL LLC and Telepictures Productions Inc.
  21.1   List of subsidiaries of AOL Inc.
  99.1   Preliminary Information Statement of AOL Inc., subject to completion, dated October 26, 2009.

 

* To be filed by amendment.
** An application for confidential treatment for selected portions of this agreement has been filed with the Securities and Exchange Commission.
*** Pursuant to Item 601(b)(2) of Regulation S-K, AOL Inc. hereby agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Agreement and Plan of Merger to the Securities and Exchange Commission upon request.

Previously filed on September 16, 2009.

 

6


SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to its Registration Statement on Form 10 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   AOL HOLDINGS LLC,
           
         By:   

/s/ Timothy Armstrong

            Name:    Timothy Armstrong
            Title:      Chairman and Chief Executive Officer

Dated: October 26, 2009

 

7


EXHIBIT INDEX

 

Exhibit
Number
  

Exhibit Description

2.1      Form of Separation and Distribution Agreement between AOL Inc. and Time Warner Inc.
3.1      Form of Amended and Restated Certificate of Incorporation of AOL Inc.
3.2      Form of Amended and Restated By-laws of AOL Inc.
8.1      Opinion of Cravath, Swaine & Moore LLP relating to certain tax matters.
10.1      Form of Transition Services Agreement between AOL Inc. and Time Warner Inc.
10.2      Form of Second Tax Matters Agreement between AOL Inc. and Time Warner Inc.
10.3      Form of Employee Matters Agreement between AOL Inc., AOL LLC and Time Warner Inc.
10.4      Form of Intellectual Property Cross-License Agreement between AOL Inc. and Time Warner Inc.
10.5      Form of IT Applications and Database Agreement between AOL Inc. and Time Warner Inc.
10.6      Employment Agreement between AOL LLC, Time Warner Inc. and Timothy Armstrong, dated March 12, 2009 and effective as of April 7, 2009.
10.7      Employment Agreement between AOL LLC and Arthur Minson, dated August 24, 2009 and effective as of September 8, 2009.
10.8      Employment Letter Agreement between AOL LLC and Ira Parker, dated January 7, 2008.
10.9      Employment Letter Agreement between AOL LLC and Tricia Primrose, dated December 7, 2007.
10.10   

Exhibit withdrawn.

10.11    2009 Retention Program Letter Agreement between AOL LLC and Ira Parker, dated April 1, 2009.
10.12    2009 Retention Program Letter Agreement between AOL LLC and Tricia Primrose, dated April 1, 2009.
10.13   

Exhibit withdrawn.

10.14    2008 Retention Program Letter Agreement between AOL LLC and Ira Parker, dated May 7, 2008.
10.15    2008 Retention Program Letter Agreement between AOL LLC and Tricia Primrose, dated May 7, 2008.
10.16   

Exhibit withdrawn.

10.17   

Exhibit withdrawn.

10.18   

Exhibit withdrawn.

10.19    Relocation Letter Agreement between AOL LLC and Ira Parker, dated April 1, 2009.
10.20    AOL LLC 2009 Global Bonus Plan.
10.21    AOL LLC 2008 Annual Incentive Plan.
10.22    Amended and Restated Interactive Marketing Agreement between AOL LLC and Google, Inc., dated October 1, 2003 (the “IMA”).**
10.23    First Amendment to the IMA, dated December 15, 2003.**

 

8


Exhibit
Number
  

Exhibit Description

10.24    Second Amendment to the IMA, dated March 30, 2004.**
10.25    Addendum One to the Second Amendment to the IMA, dated October 5, 2004.**
10.26    Third Amendment to the IMA, dated April 7, 2004.**
10.27    Fourth Amendment to the IMA, dated June 1, 2004.**
10.28    Fifth Amendment to the IMA, dated June 14, 2004.**
10.29    Sixth Amendment to the IMA, dated December 17, 2004.**
10.30    Seventh Amendment to the IMA, dated March 28, 2005.**
10.31    Eighth Amendment to the IMA, dated April 28, 2005.**
10.32    Ninth Amendment to the IMA, dated December 15, 2005.**
10.33    Tenth Amendment to the IMA, dated March 24, 2006.**
10.34    Eleventh Amendment to the IMA, dated September 28, 2006.
10.35    Twelfth Amendment to the IMA, dated December 15, 2006.**
10.36    Thirteenth Amendment to the IMA, dated January 12, 2007.**
10.37    Fourteenth Amendment to the IMA, dated February 16, 2007.**
10.38    Fifteenth Amendment to the IMA, dated March 2, 2007.**
10.39    Sixteenth Amendment to the IMA, dated September 24, 2007.**
10.40    Seventeenth Amendment to the IMA, dated February 29, 2008.**
10.41    Eighteenth Amendment to the IMA, dated March 31, 2008.
10.42    Nineteenth Amendment to the IMA, dated April 30, 2008.**
10.43    Twentieth Amendment to the IMA, dated October 1, 2008.
10.44    Twenty-First Amendment to the IMA, dated November 1, 2008.**
10.45    Twenty-Second Amendment to the IMA, dated March 13, 2009.**
10.46    Consent Letter related to the IMA, dated August 19, 2008.**
10.47    Network Services Agreement between AOL LLC and MCI Communications Services, Inc., a subsidiary of Verizon Communications Inc., dated January 1, 2004 (the “Verizon NSA”).**
10.48    Amendment No. 1 to the Verizon NSA, dated June 9, 2004.**
10.49    Amendment No. 2 to the Verizon NSA, dated February 1, 2005.**
10.50    Amendment No. 3 to the Verizon NSA, dated July 1, 2006.**
10.51    Amendment No. 4 to the Verizon NSA, dated April 10, 2007.**
10.52    Amendment No. 5 to the Verizon NSA, dated January 1, 2008.**
10.53    Amended and Restated Agreement for Delivery of Service between AOL LLC and Level 3 Communications, LLC, dated April 18, 2000 (the “Level 3 ADS”).**
10.54    Amendment No. 1 to the Level 3 ADS, dated March 29, 2001.**
10.55    Amendment No. 2 to the Level 3 ADS, dated December 17, 2004.**

 

9


Exhibit
Number
  

Exhibit Description

10.56    Third Amendment to the Level 3 ADS, dated February 25, 2008.
10.57    Letter Agreement related to the Level 3 ADS, dated October 13, 2005.**
10.58    Letter Agreement related to the Level 3 ADS, dated May 31, 2006.**
10.59    Letter Agreement related to the Level 3 ADS, dated September 13, 2006.
10.60    Letter Agreement related to the Level 3 ADS, dated June 29, 2007.**
10.61    Letter Agreement related to the Level 3 ADS, dated March 7, 2008.**
10.62    Letter Agreement related to the Level 3 ADS, dated July 1, 2008.**
10.63    Letter Agreement related to the Level 3 ADS, dated December 15, 2008.**
10.64    Letter Agreement related to the Level 3 ADS, dated September 1, 2009.**
10.65    Agreement and Plan of Merger, dated as of March 12, 2008, by and among AOL LLC, Buckingham Acquisition Corp., Bebo, Inc. and Michael Birch (the “Bebo Merger Agreement”).***†
10.66    Amendment to the Bebo Merger Agreement, dated as of May 5, 2008.***
10.67    Letter Agreement related to the Level 3 ADS, dated September 29, 2009.**
10.68    Agreement and Plan of Merger by and among AOL LLC, Pumpkin Merger Corporation, Patch Media Corporation and Jon Brod, dated May 30, 2009 (the “Patch Merger Agreement”).
10.69    Side Letter Agreement related to the Patch Merger Agreement, dated June 10, 2009.
10.70    Side Letter Agreement related to the Patch Merger Agreement, dated August 11, 2009.
10.71    Form of Assignment and Assumption Agreement by and among AOL Inc., AOL LLC and Time Warner Inc.
10.72    Form of Employee Matters Assignment and Assumption Agreement by and among AOL Inc., AOL LLC and Time Warner Inc.
10.73    Form of Master Services Agreement for ATDN and Hosting Services between AOL Inc. and Time Warner Inc.
10.74    Private Label Publisher Master Services Agreement between Quigo Technologies and Time Inc., dated as of June 15, 2007 (the “Private Label Publisher MSA”).
10.75    First Addendum to the Private Label Publisher MSA, dated October 10, 2008.
10.76    Second Addendum to the Private Label Publisher MSA, dated April 16, 2009.
10.77    Search Services Agreement between AOL LLC and Time Inc., dated as of August 23, 2007 (the “SSA”).
10.78    First Amendment to the SSA, dated as of March 10, 2009.
10.79    Memorandum of Understanding between America Online, Inc. and Telepictures Productions Inc., dated as of July 25, 2005.
10.80    Relocation Letter Agreement between AOL LLC and Ira Parker, dated September 25, 2009.
10.81    Employment Agreement between Time Warner Inc., AOL LLC and Randel A. Falco, dated March 7, 2008.
10.82    Employment Agreement between AOL LLC and Ron Grant, dated December 21, 2006.
10.83    Employment Letter Agreement between AOL LLC and Nisha Kumar, dated January 9, 2008.
10.84    2009 Retention Program Letter Agreement between AOL LLC and Nisha Kumar, dated April 1, 2009.

 

10


Exhibit
Number
  

Exhibit Description

10.85    2008 Retention Program Letter Agreement between AOL LLC and Nisha Kumar, dated May 7, 2008.
10.86    Equity Letter Agreement between Time Warner Inc. and Ron Grant, dated February 18, 2009.
10.87    Separation Letter Agreement between Time Warner Inc., AOL LLC and Randel A. Falco, dated May 13, 2009.
10.88    Separation Letter Agreement between AOL LLC and Ron Grant, dated May 26, 2009.
10.89    Separation Letter Agreement between AOL LLC and Nisha Kumar, dated June 30, 2009.
10.90    Form of AOL Inc. Annual Incentive Plan for Executive Officers.
10.91    Form of AOL Inc. 2010 Stock Incentive Plan.
10.92    Commitment Letter for $250 million senior secured credit facility.*
10.93    Form of Amendment to Memorandum of Understanding between AOL LLC and Telepictures Inc.
21.1      List of subsidiaries of AOL Inc.
99.1      Preliminary Information Statement of AOL Inc., subject to completion, dated October 26, 2009.

 

* To be filed by amendment.
** An application for confidential treatment for selected portions of this agreement has been filed with the Securities and Exchange Commission.
*** Pursuant to Item 601(b)(2) of Regulation S-K, AOL Inc. hereby agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Agreement and Plan of Merger to the Securities and Exchange Commission upon request.

Previously filed on September 16, 2009.

 

11

EX-2.1 2 dex21.htm EXHIBIT 2.1 EXHIBIT 2.1

Exhibit 2.1

 

 

 

 

SEPARATION AND DISTRIBUTION AGREEMENT

By and Between

TIME WARNER INC.

and

AOL INC.

 

 

 

Dated as of             , 2009

 

 

 

 

 

 


TABLE OF CONTENTS

 

          Page
   ARTICLE I   
   Definitions   
   ARTICLE II   
   The Separation   
SECTION 2.01.    Transfer of Assets and Assumption of Liabilities    11
SECTION 2.02.    Certain Matters Governed Exclusively by Ancillary Agreements    12
SECTION 2.03.    Termination of Agreements    12
SECTION 2.04.    Disclaimer of Representations and Warranties    13
   ARTICLE III   
   Credit Facilities   
SECTION 3.01.    Replacement of Credit Support    13
   ARTICLE IV   
   Actions Pending the Distribution   
SECTION 4.01.    Actions Prior to the Distribution    15
SECTION 4.02.    Conditions Precedent to Consummation of the Distribution    16
   ARTICLE V   
   The Distribution   
SECTION 5.01.    The Distribution    17
SECTION 5.02.    Fractional Shares    17
SECTION 5.03.    Sole Discretion of TWX    18
   ARTICLE VI   
   Mutual Releases; Indemnification   
SECTION 6.01.    Release of Pre-Distribution Claims    18
SECTION 6.02.    Indemnification by AOL    20

 

i


          Page
SECTION 6.03.    Indemnification by TWX    21
SECTION 6.04.    Indemnification of AOL Directors, Officers and Employees    21
SECTION 6.05.    Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds    21
SECTION 6.06.    Procedures for Indemnification of Third-Party Claims    22
SECTION 6.07.    Additional Matters    23
SECTION 6.08.    Remedies Cumulative    24
SECTION 6.09.    Survival of Indemnities    24
SECTION 6.10.    Limitation on Liability    24
   ARTICLE VII   
   Access to Information; Confidentiality   
SECTION 7.01.    Agreement for Exchange of Information; Archives    24
SECTION 7.02.    Ownership of Information    25
SECTION 7.03.    Compensation for Providing Information    25
SECTION 7.04.    Record Retention    26
SECTION 7.05.    Accounting Information    26
SECTION 7.06.    Limitations of Liability    27
SECTION 7.07.    Production of Witnesses; Records; Cooperation    27
SECTION 7.08.    Confidential Information    28
SECTION 7.09.    AOL LLC Corporate Records    29
   ARTICLE VIII   
   Insurance   
SECTION 8.01.    Insurance    29
   ARTICLE IX   
   Further Assurances and Additional Covenants   
SECTION 9.01.    Further Assurances    31
   ARTICLE X   
   Termination   
SECTION 10.01.    Termination    32
SECTION 10.02.    Effect of Termination    32

 

ii


          Page
   ARTICLE XI   
   Miscellaneous   
SECTION 11.01.    Counterparts; Entire Agreement; Corporate Power    33
SECTION 11.02.    Governing Law; Jurisdiction    33
SECTION 11.03.    Assignability    33
SECTION 11.04.    Third-Party Beneficiaries    34
SECTION 11.05.    Notices    34
SECTION 11.06.    Severability    35
SECTION 11.07.    Force Majeure    35
SECTION 11.08.    Publicity    35
SECTION 11.09.    Expenses    35
SECTION 11.10.    Headings    36
SECTION 11.11.    Survival of Covenants    36
SECTION 11.12.    Waivers of Default    36
SECTION 11.13.    Specific Performance    36
SECTION 11.14.    Amendments    36
SECTION 11.15.    Interpretation    36

 

Schedule I    -      Internal Transactions
Schedule II    -      TWX Retained Assets
Schedule III    -      TWX Retained Liabilities
Schedule IV    -      Payables Transactions

 

iii


SEPARATION AND DISTRIBUTION AGREEMENT dated as of             , 2009, by and between TIME WARNER INC., a Delaware corporation (“TWX”), and AOL INC., a Delaware corporation (“AOL”). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof.

R E C I T A L S

WHEREAS the board of directors of TWX has determined that it is in the best interests of TWX and its shareholders to distribute its entire interest in its wholly owned subsidiary, AOL, by way of a stock dividend to be made to holders of common stock of TWX;

WHEREAS in furtherance of the foregoing, it is appropriate and desirable to effect the Separation and the Distribution, each as more fully described in this Agreement;

WHEREAS TWX and AOL have prepared, and AOL has filed with the Commission, the Form 10, which includes the Information Statement and sets forth appropriate disclosure concerning AOL and the Distribution;

WHEREAS on July 8, 2009, TWX purchased membership interests representing 5% of AOL Holdings LLC, a Delaware limited liability company that was classified as a corporation for U.S. Federal income tax purposes (“AOL Holdings”), from Google Inc., a Delaware corporation (the “Google Buyout”);

WHEREAS, immediately after the Google Buyout, TWX and TW AOL Holdings Inc., a Virginia corporation (“TWA”), owned membership interests representing 7.5% and 92.5% of AOL Holdings, respectively;

WHEREAS on             , 2009, the TWA Conversion was effected and, as a result, TW AOL Holdings LLC, a Virginia limited liability company (“TWA LLC”), became the successor to TWA;

WHEREAS on             , 2009, Original AOL Inc., a direct wholly owned Subsidiary of AOL LLC, completed the Existing AOL Inc. Name Change;

WHEREAS on             , 2009, the AOL Conversion was effected and, as a result, AOL became the successor to AOL Holdings;

WHEREAS TWX and AOL intend that each of the Transactions qualifies for its Intended Tax Treatment; and

WHEREAS it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Distribution and certain other agreements that will govern certain matters relating to the Separation, the Distribution and the relationship of TWX, AOL and their respective Subsidiaries following the Distribution.


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NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

Definitions

For the purpose of this Agreement, the following terms shall have the following meanings:

Action” means any claim, demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any Federal, state, local, foreign or international arbitration or mediation tribunal.

Affiliate” of any Person means a Person that controls, is controlled by or is under common control with such Person. As used herein, “control” of any entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise; provided, however, that, except as specified in the following sentence, (i) AOL and its Subsidiaries shall not be considered Affiliates of TWX or any of its Subsidiaries and (ii) TWX and its Subsidiaries shall not be considered Affiliates of AOL or any of its Subsidiaries. For the avoidance of doubt, AOL LLC shall be considered an Affiliate of AOL and its Subsidiaries, and not TWX, at all times prior to the Distribution, but shall be considered an Affiliate of TWX and its Subsidiaries, and not AOL, at all times following the Distribution.

Agent” means the distribution agent to be appointed by TWX to distribute to the shareholders of TWX, pursuant to the Distribution, the shares of AOL Common Stock held by TWX.

Agreement” means this Separation and Distribution Agreement, including the Schedules hereto.

Ancillary Agreements” means the Transition Services Agreement, TMA, EMA, IPA, Assignment and Assumption Agreement and any other instruments, assignments, documents and agreements executed in connection with the implementation of the transactions contemplated by this Agreement.

AOL” has the meaning set forth in the preamble.

AOL Actions and Investigations” means the “Actions and Investigations” referred to in the Release and Agreement between TWX and various insurance companies, dated as of January 31, 2006.

AOL Assets” means all of the Assets held by AOL LLC directly (including, for the avoidance of doubt, all capital stock of any Person held by AOL LLC), but excluding the TWX Retained Assets and any Assets held by a member of the AOL Group that are determined


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by the Parties, in good faith, to be primarily related to or used primarily in connection with the business or operations of a member of the TWX Group.

AOL Business” means the businesses and operations of the AOL Group, including the businesses and operations of AOL LLC prior to the Distribution.

AOL Common Stock” means the common stock, $0.01 par value per share, of AOL.

AOL Conversion” has the meaning set forth on Schedule I.

AOL Group” means AOL and each of its controlled Affiliates.

AOL Holdings” has the meaning set forth in the recitals.

AOL Indemnitees” has the meaning set forth in Section 6.03.

AOL Liabilities” means the Liabilities of the AOL Group, including the AOL LLC Liabilities and the Liabilities assumed by or assigned to AOL under this Agreement, but excluding the TWX Retained Liabilities.

AOL LLC Liabilities” means the Liabilities of AOL LLC, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or prior to the Distribution Date, including as a result of or in connection with this Agreement, the Assignment and Assumption Agreement or any of the transactions or other actions to implement the Separation or Distribution, but excluding the TWX Retained Liabilities.

AOL LLC Name Change” has the meaning set forth on Schedule I.

AOL Online Shares” has the meaning set forth on Schedule I.

AOL Online Transfer” has the meaning set forth on Schedule I.

Applicable Maturity Date” has the meaning set forth in Section 3.01(a).

Asset Distribution” has the meaning set forth on Schedule I.

Assets” means all assets, properties and rights (including goodwill), other than any relating to Taxes, wherever located (including in the possession of vendors or other third-parties or elsewhere), whether real, personal or mixed, tangible or intangible, or accrued or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following:

(a) all accounting and other books, records and files, whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form;


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(b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, furniture, office and other equipment, including hardware systems, circuits and other computer and telecommunication assets and equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property;

(c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products;

(d) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;

(e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; all other investments in securities of any Person; and all rights as a partner, joint venturer or participant;

(f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments and all rights arising thereunder;

(g) all deposits, letters of credit, performance bonds and other surety bonds;

(h) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals and materials and analyses prepared by consultants and other third-parties;

(i) all United States, state, multinational and foreign intellectual property, including patents, copyrights, trade names, trademarks, service marks, slogans, logos, trade dresses and other source indicators and the goodwill of the business symbolized thereby; all registrations, applications, recordings, disclosures, renewals, continuations, continuations-in-part, divisions, reissues, reexaminations, foreign counterparts, and other legal protections and rights related to any of the foregoing; mask works, trade secrets, inventions and other proprietary information, including know-how, processes, formulae, techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals, discoveries, inventions, licenses from third-parties granting the right to use any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium;

(j) all computer applications, programs, software and other code (in object and source code form), including operating software, network software, firmware, middleware, design software, design tools, systems documentation, instructions, ASP, HTML, DHTML, SHTML and XML files, cgi and other scripts, APIs, web widgets, algorithms, models, methodologies, files, documentation related to any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium;


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(k) all Internet URLs and domain names;

(l) all websites, databases, content, text, graphics, images, audio, video, data and other copyrightable works or other works of authorship including all translations, adaptations, derivations and combinations thereof;

(m) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, subscriber, customer and vendor data, correspondence and lists, product literature and other advertising and promotional materials, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, server and traffic logs, quality records and reports and other books, records, studies, surveys, reports, plans, business records and documents;

(n) all prepaid expenses, trade accounts and other accounts and notes receivable (whether current or non-current);

(o) all claims or rights against any Person arising from the ownership of any other Asset, all rights in connection with any bids or offers, all claims, causes in action, lawsuits, judgments or similar rights, all rights under express or implied warranties, all rights of recovery and all rights of setoff of any kind and demands of any nature, in each case whether accrued or contingent, whether in tort, contract or otherwise and whether arising by way of counterclaim or otherwise;

(p) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;

(q) all licenses (including radio and similar licenses), permits, approvals and authorizations that have been issued by any Governmental Authority and all pending applications therefor;

(r) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements;

(s) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements; and

(t) all goodwill as a going concern and other intangible properties.

Assignment and Assumption Agreement” means the Assignment and Assumption Agreement between TWX, AOL and AOL LLC to be dated as of the date of the Asset Distribution.

Cash” means cash, cash equivalents, bank deposits and marketable securities, whether denominated in United States dollars or otherwise.

Code” means the Internal Revenue Code of 1986, as amended.

Commission” means the Securities and Exchange Commission.


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Consents” means any consents, waivers or approvals from, or notification requirements to, any Person other than a member of either Group.

Covered Employees” has the meaning set forth in Section 6.04.

Credit Support Instruments” has the meaning set forth in Section 3.01(a).

D&O Policies” has the meaning set forth in Section 8.01(e).

Deferred Compensation Payable” has the meaning ascribed thereto in the EMA.

Distribution” means the distribution, on a pro rata basis, by TWX to the Record Holders of all the outstanding shares of AOL Common Stock owned by TWX on the Distribution Date.

Distribution Date” means the date, determined by TWX in accordance with Section 5.03, on which the Distribution occurs.

DLLC Act” has the meaning set forth on Schedule I.

EMA” means the Employee Matters Agreement dated as of the date of this Agreement by and among TWX, AOL and AOL LLC.

Escrow Account” means the account established by the Escrow Agreement between TWX and Deutsche Bank Trust Company Americas, dated as of December 21, 2005.

Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

Existing AOL Inc. Name Change” has the meaning set forth on Schedule I.

First AOL LLC Distribution” has the meaning set forth on Schedule I.

Form 10” means the registration statement on Form 10 filed by AOL with the Commission to effect the registration of AOL Common Stock pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time.

Google Buyout” has the meaning set forth in the recitals.

Governmental Approvals” means any notices, reports or other filings to be given to or made with, or any Consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority.

Governmental Authority” means any Federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other legislative, judicial, regulatory, administrative or governmental authority.

Group” means either the TWX Group or the AOL Group, as the context requires.


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Identified Credit Support Instruments” has the meaning set forth in Section 3.01(a).

Indemnifying Party” has the meaning set forth in Section 6.05(a).

Indemnitee” has the meaning set forth in Section 6.05(a).

Indemnity Payment” has the meaning set forth in Section 6.05(a).

Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product) and other technical, financial, employee or business information or data.

Information Statement” means the Information Statement to be sent to each holder of TWX Common Stock in connection with the Distribution, as such Information Statement may be amended from time to time.

Insurance Proceeds” means those moneys:

(a) received by an insured (or its successor-in-interest) from an insurance carrier;

(b) paid by an insurance carrier on behalf of the insured (or its successor-in-interest); or

(c) received (including by way of set-off) from any third-party in the nature of insurance, contribution or indemnification in respect of any Liability;

in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.

Intended Tax Treatment” has the meaning ascribed thereto in the TMA.

Intercompany Accounts” has the meaning set forth in Section 2.03(a).

Interim Credit Facility” means the credit facility to be established pursuant to the credit agreement expected to be entered into prior to the Distribution among AOL as borrower, Bank of America, N.A., as administrative agent for the other lenders party thereto, Banc of America Securities LLC and Deutsche Bank Securities Inc., as joint lead arrangers and joint bookrunners, and TWX, as guarantor.

Internal Distribution” has the meaning set forth on Schedule I.


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Internal Transactions” means the TWA Conversion, the Existing AOL Inc. Name Change, the AOL Conversion, the Asset Distribution, the AOL Online Transfer, the First AOL LLC Distribution, the Second AOL LLC Distribution, the AOL LLC Name Change, the Internal Distribution, the Payables Transactions and the Recapitalization, each as described on Schedule I.

IPA” means the Intellectual Property Cross-License Agreement dated as of the date of this Agreement by and between TWX and AOL.

Law” means any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, government approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereinafter in effect and, in each case, as amended.

Liabilities” means any and all claims, debts, demands, actions, causes of action, suits, damages, obligations, accruals, accounts payable, reckonings, bonds, indemnities and similar obligations, agreements, promises, guarantees, make whole agreements and similar obligations, and other liabilities and requirements, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action, order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. For the avoidance of doubt, Liabilities (i) shall include attorneys’ fees, the costs and expenses of all assessments, judgments, settlements and compromises, and any and all other costs and expenses whatsoever reasonably incurred in connection with anything contemplated by the preceding sentence and (ii) shall not include liabilities or requirements related to Taxes.

NYSE” means the New York Stock Exchange.

Party” means either party hereto, and “Parties” shall mean both parties hereto.

Payables Transactions” means the intercompany payables transactions set forth on Schedule IV to be settled as of the close of business on the business day immediately prior to the Distribution Date.

Person” means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability company, any other entity and any Governmental Authority.

Pre-Separation Claims-Based Insurance Claim” means any claim made against the AOL Group or TWX Group and reported to the applicable insurer(s) on or prior to the Distribution Date in respect of a Liability occurring on or prior to the Distribution Date under a


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“claims-made-based” insurance policy of any member of the TWX Group in effect on or prior to the Distribution Date.

Pre-Separation Insurance Claim” means a Pre-Separation Claims-Based Insurance Claim or any Action (whether made prior to, on or following the Distribution Date) in respect of a Liability occurring on or prior to the Distribution Date under an “occurrence-based” insurance policy of any member of the TWX Group in effect on or prior to the Distribution Date.

Qualified Intercompany Accounts” has the meaning set forth on Schedule IV.

Recapitalization” has the meaning set forth on Schedule I.

Record Date” means the close of business on the date to be determined by the TWX board of directors as the record date for determining the shares of TWX Common Stock in respect of which shares of AOL Common Stock will be distributed pursuant to the Distribution.

Record Holders” has the meaning set forth in Section 5.01(b).

Second AOL LLC Distribution” has the meaning set forth on Schedule I.

Security Interest” means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.

Separation” means (a) the Internal Transactions, (b) any actions to be taken pursuant to Article II and (c) any other transfers of Assets and assumptions of Liabilities, in each case, between a member of one Group and a member of the other Group, provided for in this Agreement or the Assignment and Assumption Agreement.

Subsidiary” of any Person means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that (i) no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person and (ii) AOL and its Subsidiaries (including AOL LLC) shall not be considered Subsidiaries of TWX prior to the Distribution.

Taxes” has the meaning set forth in the TMA.

Third-Party Claim” means any assertion by a Person (including any Governmental Authority) who is not a member of the TWX Group or the AOL Group of any claim, or the commencement by any such Person of any Action, against any member of the TWX Group or the AOL Group.

Third-Party Proceeds” has the meaning set forth in Section 6.05(a).


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TMA” means the Second Tax Matters Agreement dated as of the date of this Agreement by and between TWX and AOL.

Transition Services Agreement” means the Transition Services Agreement dated as of the date of this Agreement between TWX and AOL.

Transactions” means the Internal Transactions and the Distribution.

TWA” has the meaning set forth in the recitals.

TWA Conversion” has the meaning set forth on Schedule I.

TWA LLC” has the meaning set forth in the recitals.

TW Coverage Amount” has the meaning set forth in Section 6.04.

TWX” has the meaning set forth in the preamble.

TWX Business” means (a) the businesses and operations of the TWX Group and (b) except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations of the TWX Group (other than the businesses and operations to be divested by the TWX Group pursuant to this Agreement); provided, however, that the TWX Business shall not include the businesses and operations, or any discontinued businesses and operations, of AOL LLC prior to the Distribution.

TWX Credit Support Instruments” has the meaning set forth in Section 3.01(a).

TWX Credit Support Termination Date” has the meaning set forth in Section 3.01(a).

TWX Common Stock” means the common stock, $0.01 par value per share, of TWX.

TWX Disclosure Sections” means all information set forth in or omitted from the Form 10 or Information Statement to the extent relating to (a) the TWX Group, (b) the TWX Liabilities, (c) the TWX Retained Assets or (d) the substantive disclosure set forth in the Form 10 relating to (i) TWX’s repurchase of Google’s interest in AOL, including the section entitled “AOL-Google Alliance” within the “Recent Developments” section, (ii) TWX’s board of directors’ consideration of the Separation and the Transactions, including the section entitled “Reasons for the Spin-Off” and (iii) the description relating to the solicitation of consents from the holders of certain outstanding public debt of TWX or its subsidiaries guaranteed by AOL LLC.

“TWX Equity Award Payable” has the meaning ascribed thereto in the EMA.

TWX Group” means TWX and each of its controlled Affiliates.

TWX Indemnitees” has the meaning set forth in Section 6.02.


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TWX Liabilities” means the Liabilities of the TWX Group, including the TWX Retained Liabilities and the Liabilities assumed by or assigned to the TWX Group pursuant to this Agreement, but excluding the AOL LLC Liabilities.

TWX Retained Assets” means the Assets to be retained by TWX, as listed in Schedule II.

TWX Retained Liabilities” means the Liabilities to be retained by TWX, as listed in Schedule III.

ARTICLE II

The Separation

SECTION 2.01. Transfer of Assets and Assumption of Liabilities. (a) Prior to the Distribution, the Parties shall cause the Internal Transactions to be completed.

(b) In the event that it is discovered after the Distribution that there was an omission of the transfer or conveyance by one Party (or any other member of its Group) to, and the acceptance or assumption by, the other Party (or any other member of its Group) of any Asset or Liability that, had the Parties given specific consideration to such Asset or Liability prior to the Distribution, would have otherwise been so transferred or conveyed pursuant to this Agreement or the Assignment and Assumption Agreement, the Parties shall use reasonable best efforts to promptly effect such transfer or conveyance of such Asset or Liability. Any transfer or conveyance made pursuant to this Section 2.01(b) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Distribution.

(c) In the event that it is discovered after the Distribution that there was a transfer or conveyance by one Party (or any other member of its Group) to, and the acceptance or assumption by, the other Party (or any other member of its Group) of any Asset or Liability that was intended to be retained by the transferring or conveying Party pursuant to this Agreement or the Assignment and Assumption Agreement, the Parties shall use reasonable best efforts to promptly transfer or convey such Asset or Liability back to the transferring or conveying Party. Any transfer or conveyance made pursuant to this Section 2.01(c) shall be treated by the Parties for all purposes as if such Asset or Liability had never been originally transferred or conveyed.

(d) To the extent that any transfer or conveyance of any Asset or acceptance or assumption of any Liability required by this Agreement or the Assignment and Assumption Agreement to be so transferred, conveyed, accepted or assumed shall not have been completed prior to the Distribution, the Parties shall use reasonable best efforts to effect such transfer, conveyance, acceptance or assumption as promptly following the Distribution as shall be practicable. Nothing in this Agreement shall be deemed to require the transfer or conveyance of any Assets or the acceptance or assumption of any Liabilities which by their terms or operation of law cannot be so transferred, conveyed, accepted or assumed; provided, however, that the Parties shall use reasonable best efforts to obtain any necessary Consents for the transfer, conveyance, acceptance or assumption (as applicable) of all Assets and Liabilities required by this Agreement or the Assignment and Assumption Agreement to be so transferred, conveyed,


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accepted or assumed. In the event that any such transfer, conveyance, acceptance or assumption (as applicable) has not been completed effective as of and after the Distribution, the Party retaining such Asset or Liability shall thereafter hold such Asset for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and retain such Liability for the account, and at the expense, of the Party by whom such Liability should have been assumed or accepted pursuant to this Agreement or the Assignment and Assumption Agreement, and take such other action as may be reasonably requested by the Party to which such Asset should have been transferred or conveyed, or by whom such Liability should have been assumed or accepted, as the case may be, in order to place such Party, insofar as reasonably possible, in the same position as would have existed had such Asset or Liability been transferred, conveyed, accepted or assumed (as applicable) as contemplated by this Agreement or the Assignment and Assumption Agreement. As and when any such Asset or Liability becomes transferable, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption (as applicable). Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.01(d) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Distribution.

(e) After the First AOL LLC Distribution and until the Distribution, TWX shall cause AOL LLC not to engage in any business or conduct any activities unrelated to the Separation or the Distribution, and during such period TWX shall not, and shall cause TWA LLC not to, take any affirmative action to change or remove any officers or directors of AOL LLC, in each case unless AOL consents (such consent not to be unreasonably withheld).

SECTION 2.02. Certain Matters Governed Exclusively by Ancillary Agreements. Each of TWX and AOL agrees on behalf of itself and its Subsidiaries that, except as explicitly provided in this Agreement or any Ancillary Agreement, (i) the TMA shall exclusively govern all matters relating to Taxes between such parties, (ii) the EMA shall exclusively govern the allocation of Assets and Liabilities related to employee and employee benefits-related matters (except for those matters involving the Payables Transactions which are governed by Schedule IV hereto), including the existing equity plans with respect to employees and former employees of members of both the TWX Group and the AOL Group, (iii) the Transition Services Agreement shall exclusively govern all matters relating to the provision of certain services identified therein to be provided by each Party to the other on a transitional basis following the Distribution, and (iv) the IPA shall exclusively govern all matters relating to the mutual licensing of certain intellectual property identified therein between members of the TWX Group and the AOL Group.

SECTION 2.03. Termination of Agreements. (a) Except as set forth in Section 2.03(b) or as otherwise provided by the steps constituting the Internal Transactions, in furtherance of the releases and other provisions of Section 6.01, effective as of the Distribution, AOL and each other member of the AOL Group, on the one hand, and TWX and each other member of the TWX Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments and understandings, oral or written, including all intercompany accounts payable or accounts receivable (“Intercompany Accounts”), between such parties and in effect or accrued as of the Distribution. No such terminated Intercompany Account, agreement, arrangement, commitment or understanding (including any provision thereof that purports to survive termination) shall be of any further force or effect after the Distribution Date. Each


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Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

(b) The provisions of Section 2.03(a) shall not apply to any of the following agreements, arrangements, commitments, understandings or Intercompany Accounts (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other agreement, arrangement, commitment, understanding or Intercompany Account expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by either Party or any other member of its Group), (ii) any existing written agreements, arrangements, commitments or understandings to provide services between a member of the AOL Group, on the one hand, and a member of the TWX Group, on the other hand, that have been entered into in the ordinary course of business on an arm’s-length basis, including outstanding operational intercompany trade receivables or payables incurred on such basis but excluding Qualified Intercompany Accounts and (iii) any other agreements, arrangements, commitments, understandings or Intercompany Accounts that this Agreement or any Ancillary Agreement expressly contemplates will survive the Distribution Date.

SECTION 2.04. Disclaimer of Representations and Warranties. Each of TWX (on behalf of itself and each other member of the TWX Group) and AOL (on behalf of itself and each other member of the AOL Group) understands and agrees that, except as expressly set forth herein, no Party to this Agreement or any other agreement or document contemplated by this Agreement is representing or warranting in any way as to any Assets, businesses or Liabilities transferred or assumed as contemplated hereby or thereby, as to any consents or approvals required in connection therewith, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets of such Party, or as to the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other Asset, including any accounts receivable, of any such Party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth herein, any such Assets are being transferred on an “as is,” “where is” basis and the respective transferees shall bear the economic and legal risks that (a) any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest, and (b) any necessary Governmental Approvals or other Consents are not obtained or that any requirements of laws or judgments are not complied with.

ARTICLE III

Credit Facilities

SECTION 3.01. Replacement of Credit Support. (a) AOL shall use reasonable best efforts to arrange, at its sole cost and expense and effective as early as possible prior to the Distribution Date, the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances or credit support (“Credit Support Instruments”) provided by or through TWX or any other member of the TWX Group for the benefit of AOL or any other member of the AOL Group (“TWX Credit Support Instruments”) with alternate arrangements that do not require any credit support from TWX or any other member of the TWX Group, and shall use reasonable best efforts to obtain from the beneficiaries of such Credit Support


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Instruments written releases (which in the case of a letter of credit or bank guarantee would be effective upon surrender of the original TWX Credit Support Instrument to the originating bank and such bank’s confirmation to TWX of cancelation thereof) indicating that TWX or such other member of the TWX Group will, effective upon the consummation of the Distribution, have no liability with respect to such Credit Support Instruments, in each case reasonably satisfactory to TWX; provided, however, that in the event that AOL shall not have obtained all such releases on or prior to the Distribution Date, AOL shall provide TWX, prior to the Distribution Date, with written notice of (x) all TWX Credit Support Instruments outstanding as of the Distribution Date and (y) for each such outstanding TWX Credit Support Instrument, the underlying contractual obligation and the maturity date of such obligation (each, the “Applicable Maturity Date”) (those TWX Credit Support Instruments for which AOL provides to TWX such written notice with the information in the foregoing clauses (x) and (y), the “Identified Credit Support Instruments”) and shall, as soon as practicable using reasonable best efforts but in any event on or prior to the earlier of (i) the date that is 24 months after the Distribution Date and (ii) the date that is thirty 30 days after the date on which funds become available for borrowing under AOL’s permanent post-Distribution financing facility (which, for the avoidance of doubt, shall not include the Interim Credit Facility) (the earlier of the dates referenced in the immediately foregoing clauses (i) and (ii), the “TWX Credit Support Termination Date”), obtain the full release of all such outstanding Credit Support Instruments (which in the case of a letter of credit or bank guarantee would be effective upon surrender of the original TWX Credit Support Instrument to the originating bank and such bank’s confirmation to TWX of cancelation thereof), or (in the case of those Credit Support Instruments with respect to which such release has not been obtained) provide TWX with letters of credit or guarantees, in each case issued by a bank reasonably acceptable to TWX, against losses arising from such Credit Support Instruments or otherwise cash collateralize the full amount thereof for the benefit of TWX; provided, further, that through the TWX Credit Support Termination Date, (I) TWX shall maintain and shall not take any action to terminate (other than at the request of AOL), and shall cause any other applicable member of the TWX Group to maintain and not take any action to terminate (other than at the request of AOL), the Identified Credit Support Instruments and (II) TWX shall, and shall cause any other applicable member of the TWX Group to, at AOL’s reasonable request, renew or extend such Credit Support Instruments up to the earlier of the Applicable Maturity Date and the TWX Credit Support Termination Date. TWX shall use reasonable best efforts to assist AOL in obtaining from the beneficiaries of such Credit Support Instruments those written releases in favor of TWX.

(b) TWX shall use reasonable best efforts to arrange, at its sole cost and expense and effective on or prior to the Distribution Date, the replacement of all Credit Support Instruments provided by AOL or any other member of the AOL Group for the benefit of TWX or any other member of the TWX Group with alternate arrangements that do not require any credit support from AOL or any other member of the AOL Group, and shall use reasonable best efforts to obtain from the beneficiaries of such Credit Support Instruments written releases indicating that AOL or such other member of the AOL Group will, effective upon the consummation of the Distribution, have no liability with respect to such Credit Support Instruments, in each case reasonably satisfactory to AOL; provided, however, that in the event that TWX shall not have obtained all such releases on or prior to the Distribution Date, TWX shall provide AOL with letters of credit or guarantees, in each case issued by a bank reasonably acceptable to AOL, against losses arising from all such Credit Support Instruments, or if AOL agrees in writing, cash


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collateralize the full amount of any outstanding Credit Support Instrument with respect to which such release has not been obtained. AOL shall use reasonable best efforts to assist TWX in obtaining from the beneficiaries of such Credit Support Instruments those written releases in favor of AOL.

(c) TWX and AOL shall provide each other with written notice of all Credit Support Instruments a reasonable period prior to the Distribution.

ARTICLE IV

Actions Pending the Distribution

SECTION 4.01. Actions Prior to the Distribution. (a) Subject to the conditions specified in Section 4.02 and subject to Section 5.03, TWX and AOL shall use reasonable best efforts to consummate the Distribution. Such actions shall include those specified in this Section 4.01.

(b) Prior to the Distribution, TWX shall mail the Information Statement to the holders of TWX Common Stock as of the Record Date.

(c) AOL shall prepare, file with the Commission and use its reasonable best efforts to cause to become effective any registration statements or amendments thereto required to effect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements.

(d) TWX and AOL shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Distribution.

(e) AOL shall prepare and file, and shall use reasonable best efforts to have approved prior to the Distribution, an application for the listing of the AOL Common Stock to be distributed in the Distribution on the NYSE, subject to official notice of distribution.

(f) Prior to the Distribution, the existing directors of AOL shall duly elect the individuals listed as members of the AOL board of directors in the Information Statement, and such individuals shall be the members of the AOL board of directors effective as of immediately after the Distribution; provided, however, that to the extent required by any Law or requirement of the NYSE or any other national securities exchange, as applicable, one independent director shall be appointed by the existing board of directors of AOL and begin his or her term prior to the Distribution and shall serve on AOL’s audit committee.

(g) Prior to the Distribution, TWX shall deliver or cause to be delivered to AOL resignations, effective as of immediately after the Distribution, of each individual who will be an employee of any member of the TWX Group after the Distribution and who is an officer or director of any member of the AOL Group immediately prior to the Distribution.


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(h) Immediately prior to the Distribution, the Amended and Restated Certificate of Incorporation and Amended and Restated By-laws of AOL, each in substantially the form filed as an exhibit to the Form 10, shall be in effect.

(i) Prior to the Distribution, AOL shall make capital and other expenditures and operate its cash management, accounts payable and receivables collection systems in the ordinary course consistent with prior practice; provided, however, that AOL may take such actions as AOL deems appropriate to cause any excess Cash held by any non-U.S. Subsidiary of AOL to be transferred to AOL or any Subsidiary of AOL.

(j) TWX and AOL shall, subject to Section 5.03, take all reasonable steps necessary and appropriate to cause the conditions set forth in Section 4.02 to be satisfied and to effect the Distribution on the Distribution Date.

SECTION 4.02. Conditions Precedent to Consummation of the Distribution. Subject to Section 5.03, as soon as practicable after the date of this Agreement, the Parties shall use reasonable best efforts to satisfy the following conditions prior to the consummation of the Distribution. The obligations of the Parties to consummate the Distribution shall be conditioned on the satisfaction, or waiver by TWX, of the following conditions:

(a) The board of directors of TWX shall have authorized and approved the Separation and Distribution and not withdrawn such authorization and approval, and shall have declared the dividend of AOL Common Stock to TWX shareholders.

(b) Each Ancillary Agreement shall have been executed by each party thereto.

(c) The Form 10 shall have been declared effective by the Commission, no stop order suspending the effectiveness of the Form 10 shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission.

(d) The AOL Common Stock shall have been accepted for listing on the NYSE or another national securities exchange approved by TWX, subject to official notice of issuance.

(e) TWX shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that each of the Transactions will qualify for its Intended Tax Treatment.

(f) The Internal Transactions shall have been completed.

(g) No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution shall be in effect, and no other event outside the control of TWX shall have occurred or failed to occur that prevents the consummation of the Distribution.

(h) No other events or developments shall have occurred prior to the Distribution that, in the judgment of the board of directors of TWX, would result in the Distribution having a material adverse effect on TWX or the shareholders of TWX.


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(i) The actions set forth in Sections 4.01(b), (f), (g) and (h) shall have been completed.

(j) AOL shall have delivered to TWX a certificate signed by the Chief Financial Officer of AOL, dated as of the Distribution Date, certifying that AOL has complied with Section 4.01(i).

The foregoing conditions are for the sole benefit of TWX and shall not give rise to or create any duty on the part of TWX or the TWX board of directors to waive or not waive such conditions or in any way limit the right of TWX to terminate this Agreement as set forth in Article X or alter the consequences of any such termination from those specified in such Article. Any determination made by the TWX board of directors prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 4.02 shall be conclusive.

ARTICLE V

The Distribution

SECTION 5.01. The Distribution. (a) AOL shall cooperate with TWX to accomplish the Distribution and shall, at the direction of TWX, use its reasonable best efforts to promptly take any and all actions necessary or desirable to effect the Distribution. TWX shall select any investment bank or manager in connection with the Distribution, as well as any financial printer, distribution agent and financial, legal, accounting and other advisors for TWX. TWX or AOL, as the case may be, will provide, or cause the applicable member of its Group to provide, to the Agent all share certificates and any information required in order to complete the Distribution.

(b) Subject to the terms and conditions set forth in this Agreement, (i) on or prior to the Distribution Date, for the benefit of and distribution to the holders of TWX Common Stock (other than shares of restricted stock issued pursuant to TWX equity plans) as of the Record Date (“Record Holders”), TWX will deliver to the Agent all of the issued and outstanding shares of AOL Common Stock then owned by TWX or any other member of the TWX Group and book-entry authorizations for such shares and (ii) on the Distribution Date, TWX shall instruct the Agent to distribute, by means of a pro rata dividend, to each Record Holder (or such Record Holder’s bank or brokerage firm on such Record Holder’s behalf) electronically, by direct registration in book-entry form, the number of shares of AOL Common Stock to which such Record Holder is entitled based on a distribution ratio to be determined by TWX in its sole discretion. The Distribution shall be effective at 11:59 p.m. New York City time on the Distribution Date. On or as soon as practicable after the Distribution Date, the Agent will mail an account statement indicating the number of shares of AOL Common Stock that have been registered in book-entry form in the name of each Record Holder.

SECTION 5.02. Fractional Shares. The Agent and TWX shall, as soon as practicable after the Distribution Date, (a) determine the number of whole shares and fractional shares of AOL Common Stock allocable to each Record Holder, (b) aggregate all such fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions


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at then prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests and (c) distribute to each such holder, or for the benefit of each beneficial owner, such holder’s or owner’s ratable share of the net proceeds of such sale, based upon the average gross selling price per share of AOL Common Stock after making appropriate deductions for any amount required to be withheld under applicable Tax Law and less any brokers’ charges, commissions or transfer Taxes. The Agent, in its sole discretion, will determine the timing and method of selling such fractional shares, the selling price of such fractional shares and the broker-dealer to which such fractional shares will be sold; provided, however, that the designated broker-dealer is not an Affiliate of TWX or AOL. Neither TWX nor AOL will pay any interest on the proceeds from the sale of fractional shares.

SECTION 5.03. Sole Discretion of TWX. TWX shall, in its sole and absolute discretion, determine the Record Date, the Distribution Date and all terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition and notwithstanding anything to the contrary set forth below, TWX may at any time and from time to time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.

ARTICLE VI

Mutual Releases; Indemnification

SECTION 6.01. Release of Pre-Distribution Claims. (a) Except as provided in Section 6.01(c) or elsewhere in this Agreement or the Ancillary Agreements, effective as of the Distribution, AOL does hereby, for itself and each other member of the AOL Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Distribution Date have been shareholders, directors, officers, agents or employees of any member of the AOL Group (in each case, in their respective capacities as such), remise, release and forever discharge TWX and the other members of the TWX Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Distribution Date have been shareholders, directors, officers, agents or employees of any member of the TWX Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all AOL Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Date, including in connection with the transactions and all other activities to implement the Separation or the Distribution. This Section 6.01(a) shall not affect TWX’s indemnification obligations under Article VI of its Bylaws, as in effect on the date on which the event or circumstances giving rise to such indemnification obligation occur.

(b) Except as provided in Section 6.01(c) or elsewhere in this Agreement or the Ancillary Agreements, effective as of the Distribution, TWX does hereby, for itself and each other member of the TWX Group, their respective Affiliates, successors and assigns, and all


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Persons who at any time on or prior to the Distribution Date have been shareholders, directors, officers, agents or employees of any member of the TWX Group (in each case, in their respective capacities as such), remise, release and forever discharge AOL, the other members of the AOL Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Distribution Date have been shareholders, directors, officers, agents or employees of any member of the AOL Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all TWX Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Date, including in connection with the transactions and all other activities to implement the Separation or the Distribution.

(c) Nothing contained in Section 6.01(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.03(b) not to terminate as of the Distribution, in each case in accordance with its terms. Nothing contained in Section 6.01(a) or (b) shall release any Person from:

(i) any Liability provided in or resulting from any agreement among any members of the TWX Group or the AOL Group that is specified in Section 2.03(b) as not to terminate as of the Distribution, or any other Liability specified in such Section 2.03(b) as not to terminate as of the Distribution;

(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;

(iii) any Liability provided in or resulting from any other agreement or understanding that is entered into after the Distribution between one Party (and/or a member of such Party’s Group), on the one hand, and the other Party (and/or a member of such Party’s Group), on the other hand;

(iv) any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement for claims brought against the Parties, the members of their respective Groups or any of their respective directors, officers, employees or agents, by third Persons, which Liability shall be governed by the provisions of this Article VI or, if applicable, the appropriate provisions of the relevant Ancillary Agreement;

(v) in the case of AOL, any AOL LLC Liability; or

(vi) any Liability the release of which would result in the release of any Person not otherwise intended to be released pursuant to this Section 6.01.


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(d) AOL shall not make, and shall not permit any other member of the AOL Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against TWX or any other member of the TWX Group, or any other Person released pursuant to Section 6.01(a), with respect to any AOL Liabilities released pursuant to Section 6.01(a). TWX shall not make, and shall not permit any other member of the TWX Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against AOL or any other member of the AOL Group, or any other Person released pursuant to Section 6.01(b), with respect to any TWX Liabilities released pursuant to Section 6.01(b).

(e) It is the intent of each of TWX and AOL, by virtue of the provisions of this Section 6.01, to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Distribution Date, between or among AOL or any other member of the AOL Group, on the one hand, and TWX or any other member of the TWX Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Distribution Date), except as set forth in Section 6.01(c) or elsewhere in this Agreement. At any time, at the request of the other Party, each Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof.

                SECTION 6.02. Indemnification by AOL. Subject to Section 6.05 and the exception in Section 6.02(d), AOL shall indemnify, defend and hold harmless TWX, each other member of the TWX Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “TWX Indemnitees”), from and against any and all Liabilities of the TWX Indemnitees relating to, arising out of or resulting from any of the following items (without duplication):

(a) the AOL Business, including the failure of AOL or any other member of the AOL Group or any other Person to pay, perform or otherwise promptly discharge any Liability relating to or arising out of or resulting from the AOL Business in accordance with its terms, whether prior to or after the Distribution (but not including the TWX Retained Assets and TWX Retained Liabilities);

(b) the AOL Liabilities;

(c) any breach by AOL or any other member of the AOL Group of this Agreement; and

(d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the Form 10 and any other documents filed with the Commission in connection with the Transactions or as contemplated by this Agreement, other than with respect to the TWX Disclosure Sections.


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SECTION 6.03. Indemnification by TWX. Subject to Section 6.05, TWX shall indemnify, defend and hold harmless AOL, each other member of the AOL Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “AOL Indemnitees”), from and against any and all Liabilities of the AOL Indemnitees relating to, arising out of or resulting from any of the following items (without duplication):

(a) the TWX Business, including the failure of TWX or any other member of the TWX Group or any other Person to pay, perform or otherwise promptly discharge any Liability relating to, arising out of or resulting from the TWX Business in accordance with its terms, whether prior to or after the Distribution;

(b) the TWX Retained Assets;

(c) the TWX Liabilities;

(d) any breach by TWX or any other member of the TWX Group of this Agreement; and

(e) the waiver by TWX of any conditions in Section 4.02.

SECTION 6.04 Indemnification of AOL Directors, Officers and Employees. AOL LLC will retain as TWX Retained Liabilities any obligation to indemnify or advance funds, consistent with Delaware law, to any person who is or was a director, officer, or employee of the AOL Group (“Covered Employees”) for liabilities arising out of the AOL Actions and Investigations. Notwithstanding the foregoing, AOL LLC and TWX shall not be required to make indemnification payments or advance funds to the Covered Employees in excess of (i) the amount of funds in the Escrow Account as of the Distribution, less (ii) any funds distributed from the Escrow Account after the Distribution Date to individuals who are not Covered Employees (such difference, the “TW Coverage Amount”). AOL shall indemnify, defend and hold harmless TWX from any obligation to indemnify or advance funds to any person who is or was a director, officer or employee of the AOL Group for liabilities arising out of the AOL Actions and Investigations in excess of the TW Coverage Amount. AOL LLC will retain as TWX Retained Assets the agreements entered into by AOL LLC with Covered Employees with respect to the obligation of such Covered Employees to repay amounts advanced on their behalf if indemnification is not approved by the AOL LLC Board of Managers.

SECTION 6.05. Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds. (a) The Parties intend that any Liability subject to indemnification or reimbursement pursuant to this Agreement will be net of (i) Insurance Proceeds that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability or (ii) other amounts recovered from any third-party that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability (“Third-Party Proceeds”). Accordingly, the amount that either Party (an “Indemnifying Party”) is required to pay to any Person entitled to indemnification or reimbursement pursuant to this Agreement (an “Indemnitee”) will be reduced by any Insurance Proceeds or Third-Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee from a third-party in respect of the related Liability. If an


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Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Liability (an “Indemnity Payment”) and subsequently receives Insurance Proceeds or Third-Party Proceeds in respect of such Liability, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if such Insurance Proceeds or Third-Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.

(b) An insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or have any subrogation rights with respect thereto by virtue of the indemnification provisions hereof, it being expressly understood and agreed that no insurer or any other third-party shall be entitled to a “wind-fall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Each member of the TWX Group and AOL Group shall use reasonable best efforts to seek to collect or recover any Insurance Proceeds and any Third-Party Proceeds to which such Person is entitled in connection with any Liability for which such Person seeks indemnification pursuant to this Article VI; provided, however, that such Person’s inability to collect or recover any such Insurance Proceeds or Third-Party Proceeds shall not limit the Indemnifying Party’s obligations hereunder.

(c) The calculation of any Indemnity Payments required by this Agreement shall be subject to Section 6.04 of the TMA.

SECTION 6.06. Procedures for Indemnification of Third-Party Claims. (a) If an Indemnitee shall receive notice or otherwise learn of a Third-Party Claim with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to this Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as reasonably practicable, but no later than 30 days after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 6.06(a) shall not relieve the related Indemnifying Party of its obligations under this Article VI, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice.

(b) An Indemnifying Party may elect to defend, at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel, any Third-Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 6.06(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election as to whether the Indemnifying Party will assume responsibility for defending such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee, except that the Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnitee (i) for any period during which the Indemnifying Party has not assumed the defense of such Third-Party Claim (other than during any period in which the Indemnitee shall have failed to give notice of the Third-Party Claim in accordance with


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Section 6.06(a)) or (ii) to the extent that such engagement of counsel is as a result of a conflict of interest, as reasonably determined by the Indemnitee acting in good faith.

(c) If an Indemnifying Party elects not to assume responsibility for defending a Third-Party Claim, or fails to notify an Indemnitee of its election as provided in Section 6.06(b), such Indemnitee may defend such Third-Party Claim at the cost and expense of the Indemnifying Party.

(d) If an Indemnifying Party elects to assume the defense of a Third-Party Claim in accordance with the terms of this Agreement, the Indemnitee(s) shall, subject to the terms of this Agreement, cooperate with the Indemnifying Party with respect to the defense of such Third-Party Claim.

(e) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of any Third-Party Claim without the consent of the applicable Indemnitee or Indemnitees; provided, however, that such Indemnitee(s) shall be required to consent to such entry of judgment or to such settlement that the Indemnifying Party may recommend if the judgment or settlement (i) contains no finding or admission of any violation of Law or any violation of the rights of any Person, (ii) involves only monetary relief which the Indemnifying Party has agreed to pay and (iii) includes a full and unconditional release of the Indemnitee. Notwithstanding the foregoing, in no event shall an Indemnitee be required to consent to any entry of judgment or settlement if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee.

(f) Whether or not the Indemnifying Party assumes the defense of a Third-Party Claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the Indemnifying Party’s prior written consent (such consent not to be unreasonably withheld or delayed).

SECTION 6.07. Additional Matters. (a) Any claim on account of a Liability that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Party as contemplated by this Agreement.

(b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable


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manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

(c) In the event of an Action relating to a Liability that has been allocated to an Indemnifying Party pursuant to the terms of this Agreement or any Ancillary Agreement in which the Indemnifying Party is not a named defendant, if the Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant or add the Indemnifying Party as an additional named defendant, if at all practicable. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section, the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts, fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement.

SECTION 6.08. Remedies Cumulative. The remedies provided in this Article VI shall be cumulative and, subject to the provisions of Article IX, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

SECTION 6.09. Survival of Indemnities. The rights and obligations of each of TWX and AOL and their respective Indemnitees under this Article VI shall survive the sale or other transfer by any Party or its Affiliates of any Assets or businesses or the assignment by it of any Liabilities.

SECTION 6.10. Limitation on Liability. Except as may expressly be set forth in this Agreement, none of TWX, AOL or any other member of either Group shall in any event have any Liability to the other or to any other member of the other’s Group, or to any other TWX Indemnitee or AOL Indemnitee, as applicable, under this Agreement (i) with respect to any matter to the extent that such Party seeking indemnification has engaged in any knowing violation of Law or fraud in connection therewith or (ii) for any indirect, special, punitive or consequential damages, whether or not caused by or resulting from negligence or breach of obligations hereunder and whether or not informed of the possibility of the existence of such damages; provided, however, that the provisions of this Section 6.10(ii) shall not limit an Indemnifying Party’s indemnification obligations hereunder with respect to any Liability any Indemnitee may have to any third-party not affiliated with any member of the TWX Group or the AOL Group for any indirect, special, punitive or consequential damages.

ARTICLE VII

Access to Information; Confidentiality

SECTION 7.01. Agreement for Exchange of Information; Archives. (a) Except in the case of an adversarial Action or threatened adversarial Action by either TWX or AOL or a Person or Persons in its Group against the other Party or a Person or Persons in its Group, and subject to Section 7.01(b), each of TWX and AOL, on behalf of its respective Group, shall provide, or cause to be provided, to the other Party, at any time before or after the Distribution,


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as soon as reasonably practicable after written request therefor, any Information relating to time periods on or prior to the Distribution Date in the possession or under the control of such respective Group, which TWX or AOL, or any member of its respective Group, as applicable, reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on TWX or AOL, or any member of its respective Group, as applicable (including under applicable securities laws), by any national securities exchange or any Governmental Authority having jurisdiction over TWX or AOL, or any member of its respective Group, as applicable, (ii) for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, regulatory, litigation or other similar requirements or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement. The receiving Party shall use any Information received pursuant to this Section 7.01(a) solely to the extent reasonably necessary to satisfy the applicable obligations or requirements described in clause (i), (ii) or (iii) of the immediately preceding sentence.

(b) In the event that either TWX or AOL determines that the exchange of any Information pursuant to Section 7.01(a) could be commercially detrimental, violate any Law or agreement or waive or jeopardize any attorney-client privilege or attorney work product protection, such Party shall not be required to provide access to or furnish such Information to the other Party; provided, however, that both TWX and AOL shall take all commercially reasonable measures to permit the compliance with Section 7.01(a) in a manner that avoids any such harm or consequence. Both TWX and AOL intend that any provision of access to or the furnishing of Information pursuant to this Section 7.01 that would otherwise be within the ambit of any legal privilege shall not operate as waiver of such privilege.

(c) TWX and AOL each agree that it will only process personal data (as defined by EU Directive 95/46/EC of 24 October 1995) provided to it by the other Group in accordance with all applicable privacy and data protection law obligations and will implement and maintain at all times appropriate technical and organizational measures to protect such personal data against unauthorized or unlawful processing and accidental loss, destruction, damage, alteration and disclosure. In addition, each Party agrees to provide reasonable assistance to the other Party in respect of any obligations under privacy and data protection legislation affecting the disclosure of such personal data to the other Party and will not knowingly process such personal data in such a way to cause the other Party to violate any of its obligations under any applicable privacy and data protection legislation.

SECTION 7.02. Ownership of Information. Any Information owned by one Group that is provided to the requesting Party hereunder shall be deemed to remain the property of the providing Party. Except as specifically set forth herein, nothing herein shall be construed as granting or conferring rights of license or otherwise in any such Information.

SECTION 7.03. Compensation for Providing Information. TWX and AOL shall reimburse each other for the reasonable costs, if any, in complying with a request for Information pursuant to this Article VII. Except as may be otherwise specifically provided elsewhere in this Agreement, such costs shall be computed in accordance with AOL’s or TWX’s, as applicable, standard methodology and procedures.


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SECTION 7.04. Record Retention. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement, each of TWX and AOL shall use its reasonable best efforts to retain all Information in accordance with its respective record retention policy as in effect on the date hereof.

SECTION 7.05. Accounting Information. Without limiting the generality of Section 7.01 but subject to Section 7.01(b):

(a) Until the end of the first full fiscal year occurring after the Distribution Date (and for a reasonable period of time afterwards as required by Law for TWX to prepare consolidated financial statements or complete a financial statement audit for any period during which the financial results of the AOL Group were consolidated with those of TWX), AOL shall use its reasonable best efforts to enable TWX to meet its timetable for dissemination of its financial statements and to enable TWX’s auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) AOL shall authorize and direct its auditors to make available to TWX’s auditors, within a reasonable time prior to the date of TWX’s auditors’ opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of AOL and (y) work papers related to such annual audits and quarterly reviews, to enable TWX’s auditors to perform any procedures they consider reasonably necessary to take responsibility for the work of AOL’s auditors as it relates to TWX’s auditors’ opinion or report and (ii) until all governmental audits are complete, AOL shall provide reasonable access during normal business hours for TWX’s internal auditors, counsel and other designated representatives to (x) the premises of AOL and its Subsidiaries and all Information (and duplicating rights) within the knowledge, possession or control of AOL and its Subsidiaries and (y) the officers and employees of AOL and its Subsidiaries, so that TWX may conduct reasonable audits relating to the financial statements provided by AOL and its Subsidiaries; provided, however, that such access shall not be unreasonably disruptive to the business and affairs of the AOL Group.

(b) Until the end of the first full fiscal year occurring after the Distribution Date (and for a reasonable period of time afterwards or as required by Law), TWX shall use its reasonable best efforts to enable AOL to meet its timetable for dissemination of its financial statements and to enable AOL’s auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) TWX shall authorize and direct its auditors to make available to AOL’s auditors, within a reasonable time prior to the date of AOL’s auditors’ opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of TWX and (y) work papers related to such annual audits and quarterly reviews, to enable AOL’s auditors to perform any procedures they consider reasonably necessary to take responsibility for the work of TWX’s auditors as it relates to AOL’s auditors’ opinion or report and (ii) until all governmental audits are complete, TWX shall provide reasonable access during normal business hours for AOL’s internal auditors, counsel and other designated representatives to (x) the premises of TWX and its Subsidiaries and all Information (and duplicating rights) within the knowledge, possession or control of TWX and its


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Subsidiaries and (y) the officers and employees of TWX and its Subsidiaries, so that AOL may conduct reasonable audits relating to the financial statements provided by TWX and its Subsidiaries; provided, however, that such access shall not be unreasonably disruptive to the business and affairs of the TWX Group.

(c) In order to enable the principal executive officer(s) and principal financial officer(s) (as such terms are defined in the rules and regulations of the Commission) of TWX to make any certifications required of them under Section 302 or 906 of the Sarbanes-Oxley Act of 2002, AOL shall, within a reasonable period of time following a request from TWX in anticipation of filing such reports, cause its principal executive officer(s) and principal financial officer(s) to provide TWX with certifications of such officers in support of the certifications of TWX’s principal executive officer(s) and principal financial officer(s) required under Section 302 or 906 of the Sarbanes-Oxley Act of 2002 with respect to TWX’s Quarterly Report on Form 10-Q filed with respect to the fiscal quarter during which the Distribution Date occurs (unless such quarter is the fourth fiscal quarter), each subsequent fiscal quarter through the third fiscal quarter of the year in which the Distribution Date occurs and TWX’s Annual Report on Form 10-K filed with respect to the fiscal year during which the Distribution Date occurs. Such certifications shall be provided in substantially the same form and manner as such AOL officers provided prior to the Distribution (reflecting any changes in certifications necessitated by the Separation, the Distribution or and any other transactions related thereto) or as otherwise agreed upon between TWX and AOL.

SECTION 7.06. Limitations of Liability. Neither TWX nor AOL shall have any Liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or that is based on an estimate or forecast, is found to be inaccurate in the absence of wilful misconduct by the providing Person. Neither TWX nor AOL shall have any Liability to the other Party if any Information is destroyed after reasonable best efforts by AOL or TWX, as applicable, to comply with the provisions of Section 7.04.

SECTION 7.07. Production of Witnesses; Records; Cooperation. (a) After the Distribution Date and until the third anniversary thereof, except in the case of an adversarial Action or threatened adversarial Action by either TWX or AOL or a Person or Persons in its Group against the other Party or a Person or Persons in its Group, each of TWX and AOL shall take all reasonable steps to make available, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the Persons in its respective Group (whether as witnesses or otherwise) and any books, records or other documents within its control or that it otherwise has the ability to make available, to the extent that such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action or threatened or contemplated Action (including preparation for such Action) in which TWX or AOL, as applicable, may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all reasonable out-of-pocket costs and expenses in connection therewith.


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(b) Without limiting the foregoing, TWX and AOL shall use their reasonable best efforts to cooperate and consult to the extent reasonably necessary with respect to any Actions or threatened or contemplated Actions, other than an adversarial Action against the other Group.

(c) The obligation of TWX and AOL to make available former, current and future directors, officers, employees and other personnel and agents or provide witnesses and experts pursuant to this Section 7.07 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to make available employees and other officers without regard to whether such individual or the employer of such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 7.07(a)). Without limiting the foregoing, each of TWX and AOL agrees that neither it nor any Person or Persons in its respective Group will take any adverse action against any employee of its Group based on such employee’s provision of assistance or information to each other pursuant to this Section 7.07.

(d) Upon the reasonable request of TWX or AOL, in connection with any Action contemplated by this Article VII, TWX and AOL will enter into a mutually acceptable common interest agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of either Group.

SECTION 7.08. Confidential Information. (a) Each of TWX and AOL, on behalf of itself and each Person in its respective Group, shall hold, and cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, but no less than a reasonable degree of care, that it applies to its own confidential and proprietary information pursuant to policies in effect as of the Distribution Date, all Information concerning the other Group or its business that is either in its possession (including Information in its possession prior to the Distribution) or furnished by the other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, except, in each case, to the extent that such Information is (i) in the public domain through no fault of any member of the TWX Group or the AOL Group, as applicable, or any of its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by any of TWX, AOL or its respective Group, employees, directors or agents, accountants, counsel and other advisors and representatives, as applicable, which sources are not themselves bound by a confidentiality obligation to the knowledge of any of TWX, AOL or Persons in its respective Group, as applicable, (iii) independently generated without reference to any proprietary or confidential Information of the TWX Group or the AOL Group, as applicable, or (iv) required to be disclosed by Law; provided, however, that the Person required to disclose such Information gives the applicable Person prompt, and to the extent reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use commercially reasonable efforts to cooperate, at the expense of the requesting Person, in seeking any reasonable protective arrangements requested by such Person. In the event that such appropriate protective order or other remedy is not obtained, the Person that is required to disclose such Information shall furnish, or cause to be furnished, only that portion of such Information that is legally required to be disclosed and shall take commercially


29

 

reasonable steps to ensure that confidential treatment is accorded such Information. Notwithstanding the foregoing, each of TWX and AOL may release or disclose, or permit to be released or disclosed, any such Information concerning the other Group (x) to their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of the obligations hereunder with respect to such Information), and (y) to any nationally recognized statistical rating agency as it reasonably deems necessary, solely for the purpose of obtaining a rating of securities upon normal terms and conditions; provided, however, that the Party whose Information is being disclosed or released to such rating agency is promptly notified thereof.

(b) Without limiting the foregoing, when any Information concerning the other Group or its business is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each of TWX and AOL will, promptly after request of the other Party, either return all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party, as applicable, that it has destroyed such Information (and used commercially reasonable efforts to destroy all such Information electronically preserved or recorded within any computerized data storage device or component (including any hard-drive or database)).

SECTION 7.09. AOL LLC Corporate Records. Prior to the Distribution Date, AOL shall deliver, or cause to be delivered, to TWX original copies of all of AOL LLC’s corporate records; provided, however, that AOL may retain copies of such records and, to the extent it does not keep copies, shall have the right to request access to such corporate records in accordance with the provisions of this Article VII.

ARTICLE VIII

Insurance

SECTION 8.01. Insurance. (a) Until and including the Distribution Date, TWX shall (i) cause the members of the AOL Group and their respective employees, officers and directors to continue to be covered as insured parties under TWX’s policies of insurance in a manner which is no less favorable than the coverage provided for the TWX Group and (ii) permit the members of the AOL Group and their respective employees, officers and directors to submit claims arising from or relating to facts, circumstances, events or matters that occurred at or prior to the Distribution Date to the extent permitted under such policies. With respect to policies currently procured by AOL for the sole benefit of the AOL Group, AOL shall continue to maintain such insurance coverage through the Distribution Date in a manner no less favorable than currently provided. Without limiting any of the rights or obligations of the parties pursuant to Section 8.01(b), TWX and AOL acknowledge that, as of immediately after the Distribution Date, TWX intends to take such action as it may deem necessary or desirable to remove the members of the AOL Group and their respective employees, officers and directors as insured parties under any policy of insurance issued to any member of the TWX Group by any insurance carrier effective immediately following the Distribution Date, and that the AOL Group will not be entitled following the Distribution Date, absent mutual agreement otherwise, to make any claims for insurance thereunder to the extent such claims are based upon facts, circumstances, events or matters occurring after the Distribution Date or to the extent any claims are made


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pursuant to any TWX claims-made policies. No member of the TWX Group shall be deemed to have made any representation or warranty as to the availability of any coverage under any such insurance policy. Notwithstanding the foregoing, TWX shall, and shall cause the other members of the TWX Group to, use reasonable best efforts to take such actions as are necessary to cause all insurance policies of the TWX Group that immediately prior to the Distribution provide coverage to or with respect to the members of the AOL Group and their respective employees, officers and directors to continue to provide such coverage with respect to acts, omissions and events occurring prior to the Distribution in accordance with their terms as if the Distribution had not occurred; provided, however, that in no event shall TWX be required to extend or maintain coverage under claims-made policies with respect to any claims first made against a member of the AOL Group or first reported to the insurer after the Distribution Date.

(b) After the Distribution Date, the members of each of the TWX Group and the AOL Group shall have the right to assert Pre-Separation Insurance Claims and the members of the AOL Group shall have the right to participate with TWX to resolve Pre-Separation Insurance Claims under the applicable TWX insurance policies up to the full extent of the applicable and available limits of Liability of such policy. TWX or AOL, as the case may be, shall have primary control over those Pre-Separation Insurance Claims for which the TWX Group or the AOL Group, respectively, bears the underlying loss, subject to the terms and conditions of the relevant policy of insurance governing such control. If a member of the AOL Group is unable to assert a Pre-Separation Insurance Claim because it is no longer an “insured” under a TWX insurance policy, then TWX shall assert such claim in its own name and deliver the Insurance Proceeds to AOL. Any Insurance Proceeds received by the TWX Group for members of the AOL Group shall be for the benefit of the AOL Group. Any Insurance Proceeds received for the benefit of both the TWX Group and the AOL Group shall be distributed pro rata based on the respective share of the underlying loss.

(c) With respect to Pre-Separation Insurance Claims, whether or not known or reported on or prior to the Distribution Date, AOL shall, or shall cause the applicable member of the AOL Group to, report as soon as practicable such claims arising from the AOL Business directly to the applicable insurer(s) and to TWX, and AOL shall, or shall cause the applicable member of AOL Group to, individually, and not jointly, assume and be responsible for the reimbursement Liability (i.e., deductible or retention) related to its portion of the Liability and/or any retrospective premium charges associated with the workers compensation, automobile and general liability claims so submitted by it to the extent such amounts payable by TWX after the Distribution Date are greater than they otherwise would have been, if such amounts had been based on the claim reserves established for such claims immediately prior to the Distribution, unless otherwise agreed in writing by TWX. TWX shall, and shall cause each member of the TWX Group to, cooperate and assist the applicable member of the AOL Group with respect to such claims and shall arrange for the applicable member of the AOL Group to post any such collateral in respect of the reimbursement obligations as may reasonably be requested by the insurers. TWX agrees that Pre-Separation Insurance Claims of members of the AOL Group shall receive the same priority as Pre-Separation Insurance Claims of members of the TWX Group and be treated equitably in all respects, including in connection with deductibles, retentions, coinsurance and retrospective premium charges.


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(d) TWX shall not be liable to AOL for claims, or portions of claims, not reimbursed by insurers under any policy for any reason, including coinsurance provisions, deductibles, quota share deductibles, self-insured retentions, bankruptcy or insolvency of any insurance carrier(s), policy limitations or restrictions (including exhaustion of limits), any coverage disputes, any failure to timely file a claim by any member of the TWX Group or any member of the AOL Group or any defect in such claim or its processing. In the event that insurable claims of both TWX and AOL (or the members of their respective Groups) exist relating to the same occurrence, the Parties shall jointly defend and waive any conflict of interest necessary to the conduct of the joint defense and shall not settle or compromise any such claim without the consent of the other (which consent shall not be unreasonably withheld or delayed subject to the terms and conditions of the applicable insurance policy). Nothing in this Section 8.01 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of Law or otherwise.

(e) After the Distribution Date, to the extent that any claims have been duly reported on or before the Distribution Date under the directors and officers liability insurance policies or fiduciary liability insurance policies (collectively, “D&O Policies”) maintained by members of the TWX Group, TWX shall not, and shall cause the members of the TWX Group not to, take any action that would limit the coverage of the individuals who acted as directors or officers of AOL (or members of the AOL Group) on or prior to the Distribution Date under any D&O Policies maintained by the members of the TWX Group. TWX shall, and shall cause members of the TWX Group to, reasonably cooperate with the individuals who acted as directors and officers of AOL (or members of the AOL Group) on or prior to the Distribution Date in their pursuit of any coverage claims under such D&O Policies which could inure to the benefit of such individuals. TWX shall, and shall cause members of the TWX Group to, allow AOL and its agents and representatives, upon reasonable prior notice and during regular business hours, to examine and make copies of the relevant D&O Policies maintained by TWX and members of the TWX Group pursuant to this Section 8.01(e). TWX shall provide, and shall cause other members of the TWX Group to provide, such cooperation as is reasonably requested by AOL in order for AOL to have in effect after the Distribution Date such new D&O Policies as AOL deems appropriate with respect to claims reported after the Distribution Date.

(f) The parties shall use reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Section 8.01.

ARTICLE IX

Further Assurances and Additional Covenants

SECTION 9.01. Further Assurances. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall, subject to Section 5.03, use reasonable best efforts, prior to, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement.


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(b) Without limiting the foregoing, prior to, on and after the Distribution Date, each Party shall cooperate with the other Party, without any further consideration, but at the expense of the requesting Party, (i) to execute and deliver, or use reasonable best efforts to execute and deliver, or cause to be executed and delivered, all instruments, including any instruments of conveyance, assignment and transfer as such Party may reasonably be requested to execute and deliver by the other Party, (ii) to make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument, (iii) to obtain, or cause to be obtained, any Governmental Approvals or other Consents required to effect the Separation or the Distribution and (iv) to take, or cause to be taken, all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and any transfers of Assets or assignments and assumptions of Liabilities hereunder and the other transactions contemplated hereby.

(c) On or prior to the Distribution Date, TWX and AOL, in their respective capacities as direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by AOL or any other Subsidiary of TWX, as the case may be, to effectuate the transactions contemplated by this Agreement.

(d) Prior to the Distribution, if either Party identifies any commercial or other service that is needed to ensure a smooth and orderly transition of its business in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement or any Ancillary Agreement, the Parties will cooperate in determining whether there is a mutually acceptable arm’s-length basis on which the other Party will provide such service.

(e) As soon as reasonably possible following the Distribution Date, the Parties agree to determine and settle the final amounts of the Payables Transactions to the extent such amounts have not previously been settled.

ARTICLE X

Termination

SECTION 10.01. Termination. This Agreement may be terminated by TWX at any time, in its sole discretion, prior to the Distribution.

SECTION 10.02. Effect of Termination. In the event of any termination of this Agreement prior to the Distribution, neither Party (nor any of its directors or officers) shall have any Liability or further obligation to the other Party under this Agreement or the Ancillary Agreements.


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ARTICLE XI

Miscellaneous

SECTION 11.01. Counterparts; Entire Agreement; Corporate Power. (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party hereto and delivered to the other Party.

(b) This Agreement, the Ancillary Agreements and the exhibits, schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein.

(c) TWX represents on behalf of itself and each other member of the TWX Group, and AOL represents on behalf of itself and each other member of the AOL Group, as follows:

(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and

(ii) this Agreement and each Ancillary Agreement to which it is a party has been (or, in the case of any Ancillary Agreement, will be on or prior to the Distribution Date) duly executed and delivered by it and constitutes, or will constitute, a valid and binding agreement of it enforceable in accordance with the terms thereof.

SECTION 11.02. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the Laws of Delaware or any other jurisdiction are mandatorily applicable to any of the transactions contemplated by this Agreement. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.

SECTION 11.03. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties


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and their respective successors and assigns. Notwithstanding the preceding sentence, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Party’s Assets, or (b) upon the sale of all or substantially all of such Party’s Assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 11.03 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

SECTION 11.04. Third-Party Beneficiaries. Except for the indemnification rights under this Agreement of any TWX Indemnitee or AOL Indemnitee in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the parties hereto and are not intended to confer upon any Person except the parties hereto any rights or remedies hereunder and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

SECTION 11.05. Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) sent by telecopier (except that, if not sent during normal business hours for the recipient, then at the opening of business on the next business day for the recipient) to the fax numbers set forth below or (c) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

If to TWX, to:

Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attn: General Counsel

Facsimile: (212) 484-7167

with a copy to:

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attn: Eric Schiele

Facsimile: (212) 474-3700

If to AOL to:

AOL Inc.

770 Broadway

New York, NY 10003

 


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Attn: General Counsel

Facsimile: (703) 265-7404

Either Party may, by notice to the other Party, change the address to which such notices are to be given.

SECTION 11.06. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the Parties.

SECTION 11.07. Force Majeure. Neither Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

SECTION 11.08. Publicity. Each of TWX and AOL shall consult with the other prior to issuing, and shall, subject to the requirements of Section 7.08, provide the other Party the opportunity to review and comment upon, any press releases or other public statements in connection with the Distribution or any of the other transactions contemplated hereby and prior to making any filings with any Governmental Authority or national securities exchange with respect thereto (including the Parties’ respective Quarterly Reports on Form 10-Q filed with respect to the fiscal quarter during which the Distribution Date occurs, or if such quarter is the fourth fiscal quarter, the Parties’ respective Annual Reports on Form 10-K filed with respect to the fiscal year during which the Distribution Date occurs (each such Quarterly Report on Form 10-Q or Annual Report on Form 10-K, a “First Post-Distribution Report”)). Each Party’s obligations pursuant to this Section 11.08 shall terminate on the date on which such Party’s First Post-Distribution Report is filed with the Commission.

SECTION 11.09. Expenses. Except as expressly set forth in this Agreement or in any Ancillary Agreement, all third-party fees, costs and expenses paid or incurred in connection with the Separation and the Distribution will be paid by the Party incurring such fees or expenses, whether or not the Distribution is consummated, or as otherwise agreed by the Parties. For the avoidance of doubt, TWX shall bear the costs and expenses directly related to the mailing of the Information Statement to TWX shareholders and the fees and expenses of the Agent in connection with the Distribution.


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SECTION 11.10. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

SECTION 11.11. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall survive each of the Separation and the Distribution and shall remain in full force and effect.

SECTION 11.12. Waivers of Default. Waiver by any Party hereto of any default by the other Party hereto of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.

SECTION 11.13. Specific Performance. Subject to Section 5.03 and notwithstanding the procedures set forth in Article IX, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief. The Parties to this Agreement agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.

SECTION 11.14. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party hereto, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.

SECTION 11.15. Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules, exhibits and appendices hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, Schedule and Appendix references are to the articles, sections, exhibits, schedules and appendices of or to this Agreement unless otherwise specified. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 11.14. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.


IN WITNESS WHEREOF, the Parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives.

 

TIME WARNER INC.,
  by  

 

 

      Name:
      Title:
AOL INC.,
  by  

 

 

      Name:
      Title:

 


Schedule I

Internal Transactions

The Internal Transactions will take place in the following steps, all of which have occurred or will occur prior to the Distribution in the following order, unless otherwise determined by the Parties:

Step 1: Conversion of TWA to a Limited Liability Company. On             , 2009, TWA filed with the Virginia Secretary of State, pursuant to Section 13.1-722.9 of the Virginia Code, the documentation necessary to become a Virginia limited liability company named TW AOL Holdings LLC (the “TWA Conversion”).

Step 2: Existing AOL Inc. Name Change. On             , 2009, AOL Inc., a direct wholly owned Subsidiary of AOL LLC, filed with the Delaware Secretary of State, pursuant to Section 242 of the Delaware General Corporate Law, the documentation necessary to change its name to “Original AOL Inc.” (the “Existing AOL Inc. Name Change”).

Step 3: Conversion of AOL Holdings to a Corporation. On             , 2009, AOL Holdings filed with the Delaware Secretary of State, pursuant to Section 18-216 of the Delaware Limited Liability Company Act (the “DLLC Act”), the documentation necessary to convert to a Delaware corporation and to change its name to AOL Inc. (the “AOL Conversion”).

Step 4: Distribution of AOL LLC Assets and Assumption of Liabilities. AOL LLC will transfer the AOL Assets to AOL (the “Asset Distribution”), and AOL shall assume the AOL LLC Liabilities, pursuant to the Assignment and Assumption Agreement. Notwithstanding the foregoing, TWX may determine not to have AOL LLC transfer its shares in AOL Online India Private Limited (the “AOL Online Shares”) in the Asset Distribution.

Step 4A: Transfer of AOL Online Shares. If the AOL Online Shares are not distributed to AOL prior or pursuant to the Asset Distribution, following the Asset Distribution, AOL LLC will transfer the AOL Online Shares to AOL Mauritius Services Ltd. (the “AOL Online Transfer”).

Step 5: AOL LLC Name Change. AOL LLC will file with the Delaware Secretary of State, pursuant to Sections 18-103 and 18-202 of the DLLC Act, the documentation necessary to change its name to “Historic AOL LLC” (the “AOL LLC Name Change”).

Step 6: First AOL LLC Distribution. AOL will transfer all of the membership interests in AOL LLC to TWX and TWA LLC, on a pro rata basis in respect of the AOL Common Stock held by TWX and TWA LLC, respectively (the “First AOL LLC Distribution”).

Step 7: Second AOL LLC Distribution. TWA LLC will transfer all of its membership interests in AOL LLC to TWX in respect of the membership interests of TWA LLC held by TWX (the “Second AOL LLC Distribution”).


2

 

Step 8: Internal Distribution. TWA LLC will transfer all of the AOL Common Stock that it owns to TWX in respect of the membership interests of TWA LLC held by TWX (the “Internal Distribution”).

Step 9: Payables Transactions. TWX and AOL shall settle the Payables Transactions.

Step 10: AOL Share Recapitalization. Whether before, after or simultaneously with Step 9 above, TWX will cause the recapitalization of AOL so that the number of outstanding shares of AOL Common Stock will be equal to the number of shares that will be distributed in the Distribution (the “Recapitalization”).


Schedule II

TWX Retained Assets

 

1. Funding Agreement between TWX and AOL LLC relating to the guarantees by AOL LLC of the existing public and bank debt of TWX and its Affiliates.

 

2. Those domain names listed on Schedule II-A attached hereto.

 

3. The following United States patents and patent applications:

 

Patent/Application No.    Title

6,351,776

6,985,927

  

Shared Internet Storage Resource, User Interface System,

And Method (5 patents)

7,171,472

    

7,337,207

    

7,496,578

    

6,496,855

  

Web Site Registration Proxy System

7,237,024

  

Cross-Site Timed Out Authentication Management

7,415,500

  

Facilitating Negotiations Between Users Of A Computer

Network Through Messaging Communications Enabling

User Interaction

7,415,718

  

Receiving and Processing Vertical Blanking Interval Data

7,571,234

  

Authentication Of Electronic Data

11/019,124

  

System And Method For Using A Streaming Protocol

 

4. AOL LLC’s undivided percentage interest in the following aircrafts:

 

FAA

Registration

No.

 

Manufacturer

Serial No.

   Manufacturer/Model    Installed Engines

N73RP

 

529

  

Gulfstream Aerospace

G-V

  

2x BMW Rolls Royce BR

700 Series Engines

N74RP

 

5058

  

Gulfstream Aerospace

G550

  

2x Rolls Royce BR 700

Series Engines

N75RP

 

528

  

Gulfstream Aerospace

G-V

  

2x BMW Rolls Royce BR

700 Series Engines

 

5.

AOL LLC’s 2.882% undivided interest in one 2001 Raytheon Hawker 800XP aircraft bearing manufacturer’s serial number 258543, together with two Garrett TFE 731-5BR engines bearing manufacturer’s serial numbers P107629 and P107631 (collectively, the “Aircraft”), which is managed and operated within the fractional ownership program of


2

 

 

Flight Options, LLC and subject to common agreements governing a consolidated undivided 37.5% interest in the Aircraft held

  by TWX, Time Inc., Warner Bros. Entertainment Inc., Time Warner Cable Inc. and AOL LLC.

 

6. AOL LLC’s interests in those securities that were distributed by AOL LLC to its then sole member, TW AOL Holdings Inc., on April 4, 2006 (the “Minority Investments”), and any and all rights and benefits of AOL LLC under any and all agreements relating thereto (the “Investment Agreements”). For the avoidance of doubt, Minority Investments shall not include AOL LLC’s interests in Brightcove, Inc., 360 Intellectual Equity, LLC, Kayak Software Corporation, Lat34, LLC (f/k/a Fusion Entertainment, LLC), Advanced Commerce Strategies, Inc. (ACSI), Orb Networks, Inc., Cranberry Properties, LLC, Jonas-MGX JV and Advertising.com Kabushiki-Kiasha.

 

7. AOL LLC’s rights and benefits under:

(a) Sublease: Historic TW Inc. and AOL LLC

(i) Sublease Agreement, dated as of October 8, 2004, between Historic TW Inc. and America Online, Inc. for floors 3, 4, 5, 6, 10 and 11 at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019;

(ii) First Amendment of Sublease, dated as of January 25, 2005, between Historic TW Inc. and America Online, Inc. for a portion of the sub-concourse level and a portion of the concourse level at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019;

(iii) Second Amendment of Sublease, dated as of April 26, 2005, between Historic TW Inc. (as successor to Time Warner Companies, Inc.) and America Online, Inc. for a portion of the 8th floor (the screening room) and a portion of the 9th floor (the control room) at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019; and

(iv) Third Amendment of Sublease, dated as of January 20, 2006, between Historic TW Inc. (as successor to Time Warner Companies, Inc.) and America Online, Inc. floors 24 and 25 at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019,

(collectively, the “75 Rock Sublease”)

(b) Sub-Sublease: AOL LLC and NBC Universal, Inc.

(i) Agreement of Sub-Sublease, dated January 30, 2008, between AOL LLC and NBC Universal, Inc. for floors 5 and 6 at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019;

(ii) First Amendment to Sub-Sublease, dated September 2008, between AOL LLC and NBC Universal, Inc. for floors 3, 4, portion of 8, portion of 9,10,


3

 

11, 24 and 25 and a portion of the concourse level at the building known by the street numbers 75 Rockefeller Plaza and 15 West 51st Street, NY, NY 10019;

(iii) That certain letter agreement by and between AOL LLC, NBC Universal, Inc. and Historic TW Inc. dated August 11, 2009 related to the modified uses to which the 8th floor studio may be used by NBC Universal, Inc.; and

(iv) That certain letter agreement by and between NBC Universal, Inc. and Historic TW Inc. dated August 11, 2009 related to the air intake filter maintenance that Historic TW Inc. agrees to perform at the building,

together with the related furniture, fixtures, equipment and improvements (collectively, the “75 Rock Sub-Sublease”).

 

8. As described in Section 6.04, agreements entered into by AOL LLC with Covered Employees with respect to the obligation of such Covered Employees to repay amounts advanced on their behalf under certain circumstances.


Schedule II-A

Domain Names

4aoltimewarner.com

4aoltw.com

amercanonlinetimewarner.com

amercanonline-timewarner.org

americanonline-timewarner.com

americanonline-timewarner.org

americaonlineroadrunner.com

americaonline-roadrunner.com

america-online-roadrunner.com

americaonlineroadrunner.net

americaonline-roadrunner.net

america-online-roadrunner.net

americaonlineroadrunner.org

americaonline-roadrunner.org

america-online-roadrunner.org

americaonlinerr.com

america-onlinerr.com

americaonline-rr.com

america-online-rr.com

americaonlinerr.net

america-onlinerr.net

americaonline-rr.net

america-online-rr.net

americaonlinerr.org

america-onlinerr.org

americaonline-rr.org

america-online-rr.org

americaonlinetime.com

americaonline-time.com

america-online-time.com

americaonlinetime.net

america-online-time.net

americaonlinetime.org

america-online-time.org

americaonlinetimewarner.com

americaonline-timewarner.com

america-online-timewarner.com

america-online-time-warner.com

america-on-line-time-warner.com

americaonlinetimewarner.com.br

americaonlinetimewarner.de

americaonlinetimewarner.net

 


2

 

americaonline-timewarner.net

americaonline-time-warner.net

america-online-time-warner.net

americaonlinetimewarner.org

americaonline-timewarner.org

america-online-time-warner.org

americaonlinewarner.com

americaonlinewarner.net

americaonlinewarner.org

americaonlinewarnerbros.com

americaonline-warnerbros.com

america-online-warner-bros.com

americaonlinewarnerbros.net

americaonline-warnerbros.net

america-online-warner-bros.net

americaonlinewarnerbros.org

americaonline-warnerbros.org

america-online-warner-bros.org

americaonlinewarnerbrothers.com

americaonline-warnerbrothers.com

america-online-warnerbrothers.com

america-online-warner-brothers.com

americaonlinewarnerbrothers.net

americaonline-warnerbrothers.net

america-online-warner-brothers.net

americaonlinewarnerbrothers.org

americaonline-warnerbrothers.org

america-online-warner-brothers.org

aolandtime.com

aolandtimewarner.com

aol-and-timewarner.com

aolandtw.net

aolbuyingtimewarner.com

aolcareertimewarner.com

aolcnn.com

aol-cnn.com

aolcnn.net

aol-cnn.net

aolcnn.org

aol-cnn.org

aolcnnfn.com

aolcnnsi.com

aolcoastalliving.com

aolfucktimewarner.com

aolistimewarner.com

aollooneytunes.com

 


3

 

aolmergetimewarner.com

aolntimewarner.com

aolpc-ew1.com

aolpc-ew2.com

aolpc-si1.com

aolpc-si2.com

aolpc-si3.com

aolpluslooneytunes.com

aolroadrunner.com

aol-roadrunner.com

aolroadrunner.net

aol-roadrunner.net

aolroadrunner.org

aol-roadrunner.org

aol-roadrunner-2-u.com

aol-roadrunner-4-u.com

aolrr.com

aol-rr.com

aolrr.net

aol-rr.net

aolrr.org

aol-rr.org

aolrrfinder.com

aolrrpics.com

aolsi.com

aolsi1.com

aol-southernliving.net

aoltime.com

aoltime2000.com

aoltimeb2b.com

aoltimedsl.com

aoltimeinc.com

aoltimeinc.net

aoltimeinc.org

aoltimekids.com

aoltimekids.net

aoltimekids.org

aoltimemedia.com

aoltimemerge2000.net

aoltimenet.com

aoltimenews.com

aoltimerwarner.com

aoltimeswarner.com

aol-timeswarner.com

aoltimeswarner.net

aol-timeswarner.net

 


4

 

aol-timeswarner.org

aoltimetv.com

aoltimeusa.com

aoltimew.com

aoltimewaner.com

aoltimewaner.net

aoltimewaner.org

aoltimewarneer.com

aoltimewarner.com

aol-timewarner.com

aoltime-warner.com

aol-time-warner.com

aol--time--warner.com

aol-timewarner.de

aoltimewarner.ne.jp

aoltimewarner.net

aol-timewarner.net

aoltime-warner.net

aol-time-warner.net

aoltimewarner.org

aol-timewarner.org

aoltime-warner.org

aol-time-warner.org

aoltimewarner200.com

aol-timewarner2000.com

aoltimewarner2000.net

aol-timewarner2000.net

aoltimewarner2000.org

aoltimewarner21.com

aoltimewarnerasia.com

aoltimewarnerbenefits.com

aoltimewarnerbooks.com

aol-timewarnerbroadband.com

aoltimewarnerbroadcast.com

aoltimewarnerbroadcasting.com

aol-timewarnercable.com

aol-time-warner-cable.com

aol-timewarnercable.net

aoltimewarnercareer.com

aoltimewarnercareers.com

aoltimewarnercareers.net

aoltimewarnercareers.org

aoltimewarnercartoons.com

aoltimewarnercenter.com

aol-timewarnercenter.com

aol-time-warnercenter.com

 


5

 

aol-time-warner-center.com

aoltimewarnercenter.net

aol-timewarnercenter.net

aol-time-warnercenter.net

aol-time-warner-center.net

aoltimewarnercenter.org

aol-timewarnercenter.org

aol-time-warnercenter.org

aol-time-warner-center.org

aoltimewarnercentre.com

aoltimewarnercentre.net

aoltimewarnercentre.org

aoltimewarnercnn.com

aoltimewarnerdvd.com

aoltimewarnerdvd.net

aoltimewarnerdvd.org

aol-timewarner-emi.com

aoltimewarneremployment.com

aoltimewarnereurope.com

aoltimewarnerfoundation.com

aoltimewarnerfoundation.net

aoltimewarnerfoundation.org

aoltimewarnerglobal.com

aoltimewarnergroup.com

aoltimewarnerhealthplan.com

aoltimewarnerhealthplans.com

aol-timewarnerinc.com

aol-timewarner-inc.com

aol-time-warner-inc.de

aol-timewarnerinc.net

aol-time-warner-inc.net

aol--time--warner--independent--news.com

aoltimewarnerinternet.com

aoltimewarnerjobs.com

aoltimewarnerjobs.net

aoltimewarnerjobs.org

aoltimewarnerlondonwc2.com

aoltimewarnermagazine.com

aoltimewarnermall.com

aoltimewarnermedia.com

aol-timewarnermedia.com

aoltimewarnermerge2000.com

aoltimewarnermerger.com

aol-timewarnermerger.com

aol-timewarner-merger.com

aoltimewarnermillennium.com


6

 

aoltimewarnermovie.com

aoltimewarnermovie.net

aoltimewarnermovie.org

aoltimewarnermoviefone.com

aoltimewarnermoviefone.net

aoltimewarnermoviefone.org

aoltimewarnermovies.com

aoltimewarnermovies.net

aoltimewarnermovies.org

aoltimewarnermusic.com

aoltimewarnermusic.net

aoltimewarnermusic.org

aoltimewarnernet.com

aoltimewarnernetwork.com

aoltimewarnernews.com

aol-timewarneronline.com

aol-timewarner-online.com

aoltimewarnerradio.com

aoltimewarnerroadrunne.com

aoltimewarnershop.com

aoltimewarnersucks.com

aol-timewarner-sucks.com

aol-timewarnertv.com

aoltimewarnerweb.com

aoltimewarnerwebtv.com

aoltimewarnerworldwide.com

aoltimewarneryahoo.com

aoltimewerner.com

aol-time-werner.com

aoltimwarner.com

aoltw.com

aol-t-w.com

aoltw.com.br

aoltw.de

aol-tw.net

aoltw.org

aol-tw.org

aoltw2000.com

aoltwaa.com

aoltwaa.net

aoltwaa.org

aoltwaadvantage.com

aoltwaadvantage.net

aoltwaadvantage.org

aoltwarner.com

aol-twarner.com


7

 

aol-twarner.net

aoltwarner.org

aoltwb.com

aoltwbusiness.com

aoltwc.com

aol-twc.com

aoltwc.net

aol-twc.net

aoltwc.org

aol-twc.org

aoltwcable.com

aoltwcenter.com

aoltwcenter.net

aoltwcenter.org

aoltwcentre.com

aoltwcentre.net

aoltwcentre.org

aoltwchina.com

aoltwcnn.com

aoltwcnyc.com

aoltwco.com

aoltwco.net

aol-twcorp.com

aoltwcorp.net

aoltwcorp.org

aoltwcorporate.com

aoltwcorporate.net

aoltwcorporate.org

aoltwdatabase.com

aoltwdotcom.com

aoltweb.com

aoltwemi.com

aoltwemi.net

aoltwemi.org

aoltwempire.com

aoltweurope.com

aoltwf.com

aoltwf.net

aoltwf.org

aoltwfilmfestival.org

aoltwfoundation.com

aoltwfoundation.net

aoltwfoundation.org

aoltwfree.com

aoltwhq.com

aoltwhq.net


8

 

aoltwhq.org

aoltwi.com

aol-twi.com

aoltwi.net

aoltwi.org

aoltwinc.com

aoltwinc.net

aoltwinc.org

aoltwindex.com

aoltwise.com

aoltwjapan.com

aoltwjapan.net

aoltwjobs.com

aoltw-jobs.com

aoltwjobs.net

aoltw-jobs.net

aoltwjobs.org

aoltw-jobs.org

aoltwkorea.com

aoltwmagazine.com

aoltwmall.com

aoltwmedia.com

aoltwmerger.net

aoltwmiles.com

aoltwmiles.net

aoltwmiles.org

aoltwmillennium.com

aoltwmillennium.net

aoltwmillennium.org

aoltwmovie.com

aoltwmovie.net

aoltwmovie.org

aoltwmovies.com

aoltwmovies.net

aoltwnet.com

aoltwnet.net

aoltwnetwork.com

aoltwnetworks.com

aol-twonline.com

aoltworld.com

aoltwrrvideo.com

aoltwservices.com

aoltwstock.com

aoltwtv.com

aol-twtv.com

aoltwtv.net


9

 

aoltwtx.com

aoltwtx.net

aoltwtx.org

aoltwventures.com

aoltwwise.com

aoltwworld.com

aoltwx.com

aol-twx.com

aoltwx.net

aoltwx.org

aoltwxemi.com

aoltwyahoo.com

aoltwyahoo.net

aoltwyahoo.org

aolwarner.com

aolwarner.de

aolwarner.net

aol-warner.net

aolwarner.org

aolwarnerbros.com

aol-warnerbros.com

aol-warner-bros.com

aolwarnerbros.net

aol-warnerbros.net

aol-warner-bros.net

aolwarnerbros.org

aol-warnerbros.org

aol-warner-bros.org

aolwarnerbrother.com

aolwarnerbrothers.com

aol-warnerbrothers.com

aol-warner-brothers.com

aolwarnerbrothers.net

aol-warnerbrothers.net

aol-warner-brothers.net

aolwarnerbrothers.org

aol-warnerbrothers.org

aol-warner-brothers.org

aol-warner-emi.com

aolwarnerfoundation.com

aolwarnerglobal.net

aolwarnerloans.com

aol-warner-time.com

aolwarnertv.com

aolwb.com

aolwb.net


10

 

aol-wb.net

aolwb.org

boycottaoltimewarner.com

cnnaol.com

cnn-aol.com

cnnaol.net

cnn-aol.net

cnnaol.org

cnn-aol.org

cnnbenelux.com

cnnetdns.net

cnnnederland.com

eamericaonlinetimewarner.com

eaoltimewarner.com

e-aoltimewarner.com

eca0ltw.com

ec-a0ltw.com

eca0ltw.net

ec-a0ltw.net

eca0ltw.org

ec-a0ltw.org

ecaoltw.com

ec-aoltw.com

ecaoltw.net

ecaoltw.org

ec-aoltw.org

etimewarneraol.com

fireaoltimewarner.com

futuresaoltimewarner.com

getaoltimewarner.com

harrypotterandtheorderofthephenix.com

harrypotterandtheorderofthephoneix.com

harrypotterandtheorderofthephonix.com

harrypotterlaordendelfenix.com

harrypotterpage.com

harrypotteryelprisionerodeaskaban.com

harrypotteryelprisionerodeazkaban.com

harrypotterylacamarasecreta.com

harrypotterylaordendelfenix.com

insideaoltimewarner.com

may-aol-timewarner.com

myamericaonlinetimewarner.com

myaoltimewarner.com

my-aoltimewarner.com

myaol-timewarner.com

myaoltw.com


11

 

myaoltw.net

not-aol-time-warner.com

not-aol-time-warner.net

notaoltw.com

notaoltw.net

peopleweddingssubmit.com

roadrunneramericaonline.com

roadrunner-americaonline.com

roadrunner-america-online.com

roadrunneramericaonline.net

roadrunner-americaonline.net

roadrunner-america-online.net

roadrunneramericaonline.org

roadrunner-americaonline.org

roadrunner-america-online.org

roadrunneraol.com

roadrunner-aol.com

roadrunneraol.net

roadrunner-aol.net

roadrunneraol.org

roadrunner-aol.org

rraol.com

rr-aol.com

rraol.net

rr-aol.net

rraol.org

rr-aol.org

si3-billing-aol.com

si-billing-aol.com

stopaoltimewarner.com

time2aol.com

timeamerciaol.com

timeamericaonline.com

time-americaonline.com

time-america-online.com

timeamericaonline.net

time-americaonline.net

time-america-online.net

timeamericaonline.org

time-americaonline.org

time-america-online.org

timeaol.org.uk

timesaol.com

timewaol.com

timewarneraadvantage.org

timewarneramericaonline.com


12

 

timewarner-americaonline.com

time-warner-america-online.com

timewarneramericaonline.net

timewarner-americaonline.net

time-warner-america-online.net

timewarneramericaonline.org

timewarner-americaonline.org

time-warner-america-online.org

timewarnerandaol.com

timewarnerandaol.net

timewarneraol.com

time-warneraol.com

timewarner-aol.com

time-warner-aol.com

timewarneraol.de

timewarner-aol.de

time-warner-aol.de

timewarneraol.net

timewarner-aol.net

time-warner-aol.net

timewarneraol.org

timewarner-aol.org

time-warner-aol.org

timewarneraolmerger.com

timewarneraolmoviefone.com

timewarneraolmoviefone.net

timewarneraolmoviefone.org

timewarnercenter.org

timewarnercentre.org

timewarner-emi-aol.com

timewarnerventures.org

twameicaonline.com

twamericaonline.com

twaol.com

twaol.com.br

twaol.net

twaol.org

tw-aol.org

twaolmerger.com

twaolmerger.net

twaoltv.com

twc-americaonline.com

twcaol.com

twc-aol.com

twcaol.net

twc-aol.net


13

 

twcaol.org

twc-aol.org

twem.com

twem.org

twlogistics.com

twlogistics.net

twlogistics.org

twxaol.com

warneco.com

warnerandaol.com

warneraol.com

warner-aol.com

warneraol.net

warner-aol.net

warneraol.org

warner-aol-time.com

warnerbrosamericaonline.com

warnerbros-americaonline.com

warner-bros-america-online.com

warnerbrosamericaonline.net

warnerbros-americaonline.net

warner-bros-america-online.net

warnerbrosamericaonline.org

warnerbros-americaonline.org

warner-bros-america-online.org

warnerbrosaol.com

warnerbros-aol.com

warner-bros-aol.com

warnerbrosaol.net

warnerbros-aol.net

warner-bros-aol.net

warnerbrosaol.org

warnerbros-aol.org

warner-bros-aol.org

warnerbroscom.com

warnerbrothersamericaonline.com

warnerbrothers-americaonline.com

warner-brothers-america-online.com

warnerbrothersamericaonline.net

warnerbrothers-americaonline.net

warner-brothers-america-online.net

warnerbrothersamericaonline.org

warnerbrothers-americaonline.org

warner-brothers-america-online.org

warnerbrothersaol.com

warnerbrothers-aol.com


14

 

warner-brothers-aol.com

warnerbrothersaol.net

warnerbrothers-aol.net

warnerbrothersaol.org

warnerbrothers-aol.org

warner-brothers-aol.org

warnerbrso.com

warnerchanel.com

wbaol.com

wb-aol.com

wbaol.net

wb-aol.net

wbaol.org

wb-aol.org

wwwaoltimerwarner.com

www-aoltimewarner.com

wwwaol-timewarner.com

www-aol-timewarner.com

 


Schedule III

TWX Retained Liabilities

 

1. Guarantees by AOL LLC of the existing public and bank debt of TWX and its Affiliates.

 

2. AOL LLC’s obligations under the Investment Agreements.

 

3. AOL LLC’s obligations under the 75 Rock Sublease and the 75 Rock Sub-Sublease.

 

4. To the extent required by Section 6.04, certain obligations to indemnify or advance funds to certain directors, officers and employees of AOL LLC.


 

Schedule IV

Payables Transactions

The Payables Transactions will take place in the following steps in such order as specified below, unless otherwise determined by the Parties:

 

1. Each of TWX and AOL shall, and shall cause their respective Affiliates to, take all necessary actions to remove each of AOL’s Qualified Foreign Subsidiaries from all Qualified Cash Pooling Arrangements to which it is a party, and clear any related overdrafts in connection therewith, in each case prior to the close of business on the business day immediately prior to the Distribution Date.

 

2. Each of TWX and AOL shall, and shall cause their respective Affiliates to, settle all Qualified Intercompany Loans by payment in full in Cash of all principal, interest, guarantee fees or other amounts outstanding in respect of such Qualified Intercompany Loans, and where applicable terminate the loan agreements governing such Qualified Intercompany Loans, in each case prior to the close of business on the business day immediately prior to the Distribution Date.

 

3. AOL shall (A) cause each of its Qualified Subsidiaries to (i) transfer to AOL all Cash of such Qualified Subsidiary and (ii) assign, dividend or otherwise transfer to AOL all of such Qualified Subsidiary’s right, title and interest in and to any Qualified Intercompany Accounts that are receivables owed by TWX or any Affiliate of TWX and (B) agree to discharge (whether by assumption, capital contribution or otherwise) all of its Qualified Subsidiaries’ Qualified Intercompany Accounts that are payables owed to TWX or any Affiliate of TWX, in each case as of the close of business on the business day immediately prior to the Distribution Date.

 

4. AOL shall loan to TWX pursuant to that certain Loan Agreement dated as of April 13, 2006, between AOL LLC, as lender, and TWA, as borrower (or each of their permitted successors and assigns), or TWX shall loan to AOL pursuant to that certain Loan Agreement dated as of April 13, 2006, between TWA, as lender, and AOL LLC, as borrower (or each of their permitted successors and assigns), as applicable, an amount of Cash such that the amount of Cash that will be left at the AOL Group as of the close of business on the business day immediately prior to the Distribution Date shall equal $100 million.

 

5. AOL shall cause all Qualified Intercompany Accounts of AOL or any of its Qualified Subsidiaries owed by or to TWX or any Affiliate of TWX outstanding as of the close of business on the business day immediately prior to the Distribution Date to be settled (whether by dividend to, or capital contribution or assumption by, TWX or any Affiliate of TWX or otherwise).


2

 

For purposes of this Schedule IV:

Qualified Cash Pooling Arrangement” shall mean all non-U.S. cash pooling arrangements to which TWX or its Affiliates is a party;

Qualified Foreign Subsidiaries” shall mean all non-U.S. Subsidiaries of AOL;

Qualified Intercompany Accounts” shall mean all intercompany accounts receivable and accounts payable (including (i) all accrued and unpaid expenses, (ii) the TWX Equity Award Payable and (iii) the Deferred Compensation Payable) other than any outstanding operational intercompany trade receivables or payables incurred in the ordinary course of business on an arm’s-length basis;

Qualified Intercompany Loans” shall mean all non-U.S. intercompany loans between certain TWX Affiliates and AOL or AOL’s Qualified Foreign Subsidiaries; and

Qualified Subsidiaries” shall mean all Subsidiaries of AOL other than: (i) any non-U.S. subsidiary of AOL and (ii) AOL LLC.

EX-3.1 3 dex31.htm EXHIBIT 3.1 EXHIBIT 3.1

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

AOL INC.

AOL Inc., a corporation organized and existing under the laws of the State of Delaware, DOES HEREBY CERTIFY AS FOLLOWS:

1.        The name of the corporation is AOL Inc. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on            , 2009.

2.        This Amended and Restated Certificate of Incorporation, which both amends and restates the provisions of the corporation’s Certificate of Incorporation, has been duly adopted in accordance with Section 245 of the Delaware General Corporation Law of the State of Delaware.

3.        The Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows:

ARTICLE I

The name of the corporation (hereinafter called the “Corporation”) is AOL Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of the Corporation’s registered agent at such address is Corporation Service Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).


ARTICLE IV

SECTION 1. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 660 million shares, consisting of (1) 60 million shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”), and (2) 600 million shares of Common Stock, par value $0.01 per share (“Common Stock”). The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of Preferred Stock or Common Stock voting separately as a class shall be required therefor.

SECTION 2. The Board is hereby expressly authorized, subject to any limitations prescribed by applicable law, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The voting powers, preferences and relative, participating, optional and other rights of each series of Preferred Stock, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

SECTION 3. (a) Each holder of Common Stock, as such, shall be entitled to one vote in person or by proxy for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) or pursuant to the DGCL.

(b) Except as otherwise required by applicable law, holders of a series of Preferred Stock shall be entitled only to such voting rights, if any, as shall expressly be granted thereto pursuant to this Article IV (including any certificate of designation relating to such series).

(c) Upon the dissolution, liquidation or winding up of the Corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of Common Stock, as such, shall be entitled to receive the assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them.

 

2


ARTICLE V

SECTION 1. The business and affairs of the Corporation shall be managed by or under the direction of the Board. Except as may otherwise be fixed pursuant to Article IV of this Amended and Restated Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock (including any certificate of designation relating to such series of Preferred Stock), the number of directors of the Corporation shall be fixed from time to time exclusively by the Board. The directors, other than those who may be elected by holders of any series of Preferred Stock voting separately pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation relating to such series of Preferred Stock), shall be elected by the stockholders entitled to vote thereon at each annual meeting of stockholders. Each director shall hold office until the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified, or until his or her earlier death, resignation, disqualification or removal from office. The election of directors need not be by written ballot. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.

SECTION 2. Except as may otherwise be fixed pursuant to Article IV of this Amended and Restated Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock (including any certificate of designation relating to such series of Preferred Stock), newly created directorships resulting from any increase in the number of directors and any vacancies in the Board resulting from death, resignation, disqualification or removal from office, shall, unless otherwise determined by the Board, be filled exclusively by a majority of the directors then in office (and not by stockholders), although less than a quorum, or by a sole remaining director.

SECTION 3. There shall be no limitation on the qualifications of any person to be a director or on the ability of any director to vote on any matter brought before the Board, except (i) as required by applicable law, (ii) as set forth in this Amended and Restated Certificate of Incorporation or (iii) solely with respect to the qualifications of a person to be a director, as stated in the Amended and Restated By-laws of the Corporation.

SECTION 4. Subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, any director or the entire Board may be removed, with or without cause, such removal to require the affirmative vote of shares representing at least a majority of the votes entitled to be cast by the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote on the election of the directors of the Corporation.

ARTICLE VI

Subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by consent in writing by such stockholders. Except as otherwise required by applicable law or permitted by the Amended and Restated

 

3


By-laws of the Corporation and subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, special meetings of stockholders of the Corporation may not be called by the stockholders.

ARTICLE VII

In furtherance of the powers conferred upon it by applicable law, the Board is expressly authorized to adopt, repeal, alter or amend the Amended and Restated By-laws of the Corporation. In addition to any requirements of law and any other provision of this Amended and Restated Certificate of Incorporation or any resolution or resolutions of the Board adopted pursuant to Article IV of this Amended and Restated Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law or any such resolution or resolutions), the affirmative vote of the holders of not less than a majority of the combined voting power of the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote on the election of the directors of the Corporation (the “Voting Stock”), voting together as a single class, shall be required for stockholders to adopt, amend, alter or repeal any provision of the Amended and Restated By-laws of the Corporation.

ARTICLE VIII

In addition to any requirements of applicable law and any other provisions of this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of not less than a majority of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Amended and Restated Certificate of Incorporation.

ARTICLE IX

SECTION 1. To the fullest extent that the DGCL or any other law of the State of Delaware as it exists or as it may hereafter be amended permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to or repeal of this Article IX shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to the date of such amendment or repeal.

SECTION 2. To the fullest extent that the DGCL or any other law of the State of Delaware as it exists or as it may hereafter be amended permits, the Corporation may (i) 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,

 

4


whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding and, in all cases, otherwise on such terms and conditions as the Board may determine and (ii) advance all costs and expenses (including reasonable attorneys’ fees and expenses) incurred by any current or former director or officer, with respect to any one or more actions, suits or proceedings, whether civil or criminal, administrative or investigative, on such terms and conditions as the Board may determine.

 

5

EX-8.1 4 dex81.htm EXHIBIT 8.1 EXHIBIT 8.1

Exhibit 8.1

[Letterhead of]

CRAVATH, SWAINE & MOORE LLP

[New York Office]

[November 12], 2009

Tax Opinion Regarding the AOL Separation

Ladies and Gentlemen:

We have acted as counsel for Time Warner Inc., a Delaware corporation (“TWX”), in connection with the Separation and Distribution Agreement, dated as of [November 12], 2009 (together with all exhibits and schedules thereto, the “Separation Agreement”), by and between TWX and AOL Inc., a Delaware corporation (“AOL”). All capitalized terms used but not defined in this opinion shall have the meanings set forth in the Second Tax Matters Agreement, dated as of [November 12], 2009 (the “TMA”), by and between TWX and AOL. All Section references are to the Code, unless otherwise specified.

At your request, and in connection with Section 4.02(e) of the Separation Agreement, we are rendering our opinion concerning certain U.S. Federal income tax consequences of the Transactions.

Prior to the Google Buyout and the Transactions:

(i) TWX directly owned all of the outstanding shares of stock of TW AOL Holdings Inc., a Virginia corporation (“TWA”);

(ii) TWX, TWA and Google, Inc., a Delaware corporation, each directly owned 2.5%, 92.5% and 5%, respectively, by vote and value, of the outstanding membership interests in AOL Holdings LLC, a Delaware limited liability company that is classified as a corporation for U.S. Federal income tax purposes;


2

 

(iii) AOL Holdings LLC directly owned all of the outstanding membership interests in AOL LLC, a Delaware limited liability company that is disregarded as an entity separate from its owner for U.S. Federal income tax purposes;

As described in the Separation Agreement:

(i) TWA will file with the Virginia Secretary of State, pursuant to Section 13.1-722.9 of the Virginia Code, the documentation necessary to become a Virginia limited liability company that is disregarded for U.S. Federal income tax purposes (the “TWA Conversion);

(ii) The existing AOL Inc., currently a direct wholly-owned Subsidiary of AOL LLC, will file with the Delaware Secretary of State, pursuant to Section 242 of the Delaware General Corporate Law, the documentation necessary to change its name to “Original AOL Inc.”, (the “Existing AOL Inc. Name Change”);

(iii) AOL Holdings LLC will file with the Delaware Secretary of State, pursuant to Section 18-216 of the Delaware Limited Liability Company Act (the “DLLC Act”), the documentation necessary to convert to a Delaware corporation and to change its name to AOL Inc. (the “AOL Conversion”);

(iv) AOL LLC will transfer the AOL Assets to AOL (the “Asset Distribution”), and AOL will assume the AOL LLC Liabilities, pursuant to the Assignment and Assumption Agreement. TWX may determine not to have AOL LLC transfer its AOL Online Shares in the Asset Distribution;

(v) If the AOL Online Shares are not distributed to AOL pursuant to the Asset Distribution, following the Asset Distribution, AOL LLC will transfer the AOL Online shares to AOL Mauritius Services Ltd. (the “AOL Online Transfer”);

(vi) AOL will transfer all of the membership interests in AOL LLC to TWA and TWX, on a pro rata basis in respect of the AOL Common Stock held by TWA and TWX, respectively (the “First AOL LLC Distribution”);

(vii) TWA will transfer all of its interests in AOL LLC to TWX (the “Second AOL LLC Distribution”) in respect of the TWA membership interests held by TWX;

(viii) AOL LLC will file with the Delaware Secretary of State, pursuant to Sections 18-103 and 18-202 of the DLLC Act, the documentation necessary to change its name to “Historic AOL LLC” (the “AOL LLC Name Change”);

(ix) TWA will transfer all of the AOL Common Stock that it owns to TWX in respect of the TWA membership interests held by TWX (the “Internal Distribution”);


3

 

(x) AOL will convert each of the outstanding shares of AOL Common Stock to [] fully paid and nonassessable share[s] of AOL Common Stock (the “Recapitalization”); and

(xi) TWX will distribute all of the AOL Common Stock (the “Distribution”) pro rata to holders of TWX Common Stock (the “TWX Shareholders”).

In rendering our opinion, we have examined and with your consent are relying upon: (i) the Information Statement included in Form 10 as filed by AOL with the Commission on July 27, 2009, as amended, under the Exchange Act; (ii) the Separation Agreement and the TMA; (iii) the representation letters, dated the date hereof, addressed to us from TWX and AOL and attached hereto as Appendices A and B, respectively; and (iv) such other documents and corporate records as we have deemed necessary or appropriate for purposes of our opinion.

In addition, we have assumed, with your consent, that: (i) all signatures are genuine, all natural persons are of legal capacity, all documents submitted to us are authentic originals or, if submitted as duplicates or certified or conformed copies, that they faithfully reproduce the originals thereof; (ii) all such documents (including the Separation Agreement, the TMA and the exhibits thereto) have been or will be duly executed to the extent required in the form presented to us; (iii) all representations and statements set forth in such documents are true, correct and complete; (iv) any representation or statement qualified by belief, knowledge, materiality or any similar qualification is true, correct and complete without such qualification; (v) all events described in such documents that are expected, planned or intended to occur or not occur will in fact occur or not occur, as applicable, and all obligations imposed by any such document on the parties thereto have been or will be performed or satisfied in accordance with their terms; and (vi) the Transactions will be reported by TWX, AOL and their respective Affiliates on their respective U.S. Federal income tax returns in a manner consistent with our opinion set forth below.

Our opinion is based on statutory, regulatory and judicial authority existing as of the date hereof, any of which may be changed at any time with retroactive effect. Accordingly, a change in applicable law may affect our opinion. In addition, our opinion is based solely on the documents that we have examined and the facts and assumptions set forth herein. Any variation or difference in the facts from those set forth, or any inaccuracy in the representations made, in the documents described above may affect our opinion. Our opinion cannot be relied upon if any of our assumptions are inaccurate in any material respect. We assume no responsibility to inform you of any subsequent changes in the matters stated or represented in the documents described above or assumed herein or in statutory, regulatory and judicial authority and interpretations thereof. Further, our opinion is not binding upon the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. We express our opinion herein only as to those matters specifically set forth above, and no opinion has been expressed or should be inferred as to the tax consequences of the Transactions under any state, local or foreign laws or with respect to other areas of U.S. Federal taxation.


4

 

We are members of the Bar of the State of New York, and we express no opinion as to any law other than the Federal law of the United States of America.

Based upon and subject to the foregoing, we are of opinion that, for U.S. Federal income tax purposes, other than income or gain arising from any imputed income or other adjustment to TWX, AOL or their Subsidiaries if and to the extent that the Separation Agreement or any Ancillary Agreement is determined to have terms that are not at arm’s length:

(i) the TWA Conversion will qualify for non-recognition of gain and loss under Sections 332 and 337;

(ii) the Existing AOL Inc. Name Change will qualify for non-recognition of gain and loss under Sections 354
and 368(a)(1)(F);

(iii) the AOL Conversion will qualify for non-recognition of gain and loss under Sections 354 and 368(a)(1)(F);

(iv) the Asset Distribution will be disregarded;

(v) the AOL Online Transfer (if it occurs) will qualify for non-recognition of gain and loss under Section 351, and Section 367(a) will not apply to it;

(vi) the First AOL LLC Distribution will result in the recognition of gain (or loss), if any, under Sections 311 and 1001 and shall be taken into account consistent with the principles of Section 1.1502-13 of the Regulations with respect to assets owned by AOL LLC at the time of the First AOL LLC Distribution (including the TWX Retained Assets);

(vii) the Second AOL LLC Distribution will be disregarded;

(viii) the AOL LLC Name Change will qualify for non-recognition of gain and loss under Sections 354 and 368(a)(1)(F);

(ix) the Internal Distribution will be disregarded;

(x) the Recapitalization will qualify for non-recognition of gain and loss under Sections 368(a)(1)(E) and/or 1036; and

(xi) the Distribution will qualify for non-recognition of gain and loss under Section 355.

This opinion letter is intended to satisfy the condition in Section 4.02(e), of the Separation Agreement. Except as explicitly provided herein, this opinion may not be relied upon for any other purpose or by any person other than TWX and its Subsidiaries without our prior written consent.


5

 

*        *        *

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this document (including any attachment) is not intended or written by us to be used, and cannot be used, by you (or any other person) for the purposes of avoiding penalties under the Code or promoting, marketing or recommending to another party any transaction or matter addressed herein.

*        *        *

 

Very truly yours,

Time Warner Inc.

      One Time Warner Center

          New York, NY  10019

EX-10.1 5 dex101.htm EXHIBIT 10.1 EXHIBIT 10.1

Exhibit 10.1

 

 

 

 

TRANSITION SERVICES AGREEMENT

between

TIME WARNER INC.

and

AOL INC.

 

 

 

Dated as of             , 2009

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

     Page
ARTICLE I
Definitions

SECTION 1.01.   Definitions

   1
ARTICLE II
Services

SECTION 2.01.   Provision of Services

   4

SECTION 2.02.   Service Amendments and Additions

   6

SECTION 2.03.   No Management Authority

   6
ARTICLE III
Compensation

SECTION 3.01.   Compensation for Services

   6

SECTION 3.02.   Adjustments to Cost of Services

   6

SECTION 3.03.   Payment Terms

   7

SECTION 3.04.   Disclaimer of Warranties

   7

SECTION 3.05.   Books and Records

   7
ARTICLE IV
Term

SECTION 4.01.   Commencement

   8

SECTION 4.02.   Termination

   8

SECTION 4.03.   Return of Books and Records

   8
ARTICLE V
Indemnification; Limitation of Liability

SECTION 5.01.   Indemnification

   9

SECTION 5.02.   Limitation on Liability

   9
ARTICLE VI
Other Covenants

SECTION 6.01.   Attorney-in-Fact

   10

 

i


ARTICLE VII

Breach, Notice and Cure

 

SECTION 7.01.   Breach, Notice and Cure

   10
ARTICLE VIII
Miscellaneous

SECTION 8.01.   Title to Data

   10

SECTION 8.02.   Force Majeure

   11

SECTION 8.03.   Separation and Distribution Agreement

   11

SECTION 8.04.   Relationship of Parties

   11

SECTION 8.05.   Confidentiality

   11

SECTION 8.06.   Third-Party Beneficiaries

   11

SECTION 8.07.   Interpretation

   12

SECTION 8.08.   Amendments

   12

SECTION 8.09.   Notices

   12

SECTION 8.10.   Assignment

   12

SECTION 8.11.   Counterparts

   13

SECTION 8.12.   Severability

   13

SECTION 8.13.   Governing Law

   13

 

ii


TRANSITION SERVICES AGREEMENT (“Agreement”), dated as of             , 2009, by and between TIME WARNER INC., a Delaware corporation (“TWX”), and AOL INC., a Delaware corporation (“AOL”).

RECITALS

WHEREAS, in connection with the contemplated Separation of TWX and AOL and concurrently with the execution of this Agreement, TWX and AOL are entering into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”);

WHEREAS each of TWX and AOL will provide to the other certain services, as more particularly described in this Agreement, following the Distribution; and

WHEREAS each of TWX and AOL desires to reflect the terms of their agreement with respect to those certain services to be provided by each of TWX and AOL to the other Party for a limited period of time following the Distribution.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by this Agreement, TWX and AOL, for themselves, their successors and assigns, agree as follows:

ARTICLE I

Definitions

SECTION 1.01.     Definitions.    As used in this Agreement, the following terms have the following meanings, applicable both to the singular and the plural forms of the terms described, as the context may require:

Affiliate” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Affected Party” has the meaning ascribed thereto in Section 8.02.

Agreement” has the meaning ascribed thereto in the preamble.

AOL” has the meaning ascribed thereto in the preamble.

AOL Business” has the meaning ascribed thereto in the Separation and Distribution Agreement.

AOL Group” has the meaning ascribed thereto in the Separation and Distribution Agreement.


2

 

AOL Indemnified Party” has the meaning ascribed thereto in Section 5.01(b).

Applicable Termination Date” means, with respect to each Service or Service Category, the date that is 12 months from the Distribution Date, or such earlier date specified with respect to such Service or Service Category in Schedule A or Schedule B.

Cost of Services” means, with respect to each Service and/or Service Category, the cost of services specified with respect to such Service and/or Service Category in Schedule A or Schedule B, as applicable, to be paid by a Service Recipient in respect of such Service and/or Service Category.

Distribution” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Distribution Date” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Force Majeure Event” has the meaning ascribed thereto in Section 8.02.

Governmental Authority” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Group” means either the TWX Group or the AOL Group, as the context requires.

Indemnified Parties” means, with respect to any entity, such entity’s Affiliates, Subsidiaries, permitted assigns and each of their or such entity’s directors, officers, employees and agents.

Information” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Law” shall mean any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, government approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereinafter in effect and, in each case, as amended.

Losses” has the meaning ascribed thereto in Section 5.01.

Party” means either party hereto, and “Parties” shall mean both parties hereto.

Performing Party” has the meaning ascribed thereto in Section 8.02.


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Person” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Separation” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Separation and Distribution Agreement” has the meaning ascribed thereto in the recitals.

Service Categories” means the categories of Services identified in Schedule A or Schedule B, as applicable.

Service Manager” has the meaning ascribed thereto in Section 2.01(c).

Service Provider” means any member of the AOL Group or the TWX Group, as applicable, when it is providing Services to any member of the TWX Group or the AOL Group, as applicable.

Service Recipient” means any member of the AOL Group or the TWX Group, as applicable, when it is receiving Services from any member of the TWX Group or the AOL Group, as applicable.

Services” means the individual services included within the various Service Categories identified in Schedule A or Schedule B, as applicable.

Sub-Contractor” has the meaning ascribed thereto in Section 2.01(e).

Subsidiaries” has the meaning ascribed thereto in the Separation and Distribution Agreement.

Taxes” has the meaning ascribed thereto in Section 3.01(b).

Third-Party Claim” has the meaning ascribed thereto in the Separation and Distribution Agreement.

TWX” has the meaning ascribed thereto in the preamble.

TWX Business” has the meaning ascribed thereto in the Separation and Distribution Agreement.

TWX Group” has the meaning ascribed thereto in the Separation and Distribution Agreement.

TWX Indemnified Party” has the meaning ascribed thereto in Section 5.01.


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ARTICLE II

Services

SECTION 2.01. Provision of Services. (a) Commencing immediately after the Distribution, TWX shall and shall cause the other members of the TWX Group to provide to AOL and the other members of the AOL Group those Services as more particularly described in Schedule A to this Agreement as Services to be provided by members of the TWX Group, in accordance with the terms of this Agreement.

(b) Commencing immediately after the Distribution, AOL shall and shall cause the other members of the AOL Group to provide to TWX and the other members of the TWX Group those Services as more particularly described in Schedule B to this Agreement as Services to be provided by members of the AOL Group, in accordance with the terms of this Agreement.

(c) Each Service Recipient and its respective Service Provider shall use good-faith efforts to cooperate with each other in connection with the performance of the Services hereunder. TWX and AOL each, as Service Provider, agree to appoint one of their respective employees (each, a “Service Manager”) who will have overall responsibility for managing and coordinating the delivery of Services, including making available the services of appropriately qualified employees and resources to enable the provision of the Services. The Service Managers will consult and coordinate with each other regarding the provision of Services.

(d) The Service Provider shall determine the personnel who shall perform the Services to be provided by it. The Service Provider shall pay for all personnel and other related expenses, including salary or wages of its employees performing the Services as required by this Agreement.    No person providing Services to a Service Recipient shall be deemed to be, or have any rights as, an employee of such Service Recipient.

(e) The Service Provider may, at its option, from time to time delegate any or all of its obligations to perform Services under this Agreement to any one or more of its Affiliates; provided, however, that such Affiliate(s) are capable of performing such Services without a material diminution in quality. In addition, the Service Provider may, as it deems necessary or desirable, engage the services of other professionals, consultants or other third parties (each, a “Sub-Contractor”), at a reasonable cost, in connection with the performance of the Services; provided, however, that (i) the Service Provider shall remain ultimately responsible for ensuring that its obligations with respect to the nature, scope and quality of the Services described in this Section 2.01 are satisfied with respect to any Services provided by any such Sub-Contractor and (ii) such Sub-Contractor agrees in writing to be bound by confidentiality provisions at least as protective as the terms of Section 8.05 of this Agreement. In addition and except as agreed by the Parties in Schedule A or B or otherwise in writing, any costs associated with engaging the services of an Affiliate of a Service Provider or a Sub-Contractor shall not affect the Cost of Services payable by the Service Recipient under this Agreement, and the Service


5

 

Provider shall remain solely responsible with respect to payment for such Affiliate’s and/or Sub-Contractor’s costs, fees and expenses.

(f) Unless otherwise agreed by the Parties, the Services shall be (i) performed by the Service Provider in a reasonably prompt and professional manner that is substantially the same manner in which the Service Provider provided the Services (or substantially similar services) prior to the Separation for the Service Recipient, unless the Services are being provided by a Sub-Contractor who is also providing the same services to the Service Provider or a member of such Service Provider’s Group, in which case the Services shall be performed for the Service Recipient in the same manner as they are being performed for the Service Provider or such member of such Service Provider’s Group, as applicable and (ii) used by the Service Recipient for substantially the same purpose, in substantially the same manner and at substantially the same level as the Service Recipient used the Services (or substantially similar services) from the Service Provider prior to the Separation.

(g) The Parties acknowledge that the Service Provider may make changes from time to time in the manner of performing Services if the Service Provider is making similar changes in performing the same or substantially similar Services for itself or members of its Group; provided, however, that such changes shall not affect the Cost of Services for such Service or materially decrease the quality or level of the Services provided to the Service Recipient, except upon prior written approval of the Service Recipient.

(h) Except as otherwise contemplated in this Agreement or Schedule A or B, in the context of the provision of the Services hereunder, the Service Provider shall not grant to the Service Recipient, and the Service Recipient shall not have, access to any competitively sensitive information or confidential information (including personal data).

(i) The Service Provider shall use commercially reasonable efforts to obtain as promptly as possible the consents, approvals or authorizations of any Person as may be necessary for the performance of the Service Provider’s obligations pursuant to this Agreement. Any fee, expenses or extra cost incurred in connection with obtaining any such consents, approvals or authorizations shall be paid by the Service Recipient, and the Service Recipient shall use commercially reasonable efforts to provide assistance as necessary in obtaining such consents, approvals and authorizations. In the event that the consent of a third party, if required in order for the Service Provider to provide Services, is not obtained reasonably promptly after the Distribution, the Service Provider shall notify the Service Recipient and the Parties shall cooperate in devising an alternative manner for the provision of the Services affected by such failure to obtain consent and the Cost of Services associated therewith, such alternative manner and Cost of Services to be reasonably satisfactory to both Parties and agreed to in writing. If the Parties elect such an alternative plan, the Service Provider shall provide the Services in such alternative manner and the Service Recipient shall pay for such Services based on the alternative Cost of Services.


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(j) The Service Recipient hereby grants to the Service Provider performing Services under this Agreement a limited, nontransferable license, without the right to sublicense (except to an Affiliate of the Service Provider or a Sub-Contractor who is providing Services on the Service Provider’s behalf, solely to the extent necessary for such Affiliate or Sub-Contractor to provide the Services), for the term of this Agreement to use the intellectual property owned by the Service Recipient solely to the extent necessary for the Service Provider to perform its obligations hereunder.

(k) The Parties agree that the Services set forth in Schedules A and B consist of all of the Services to be provided by members of the TWX Group and members of the AOL Group, respectively, as of the Distribution; provided, however, that such Services shall not include, and neither TWX nor AOL shall be obligated to provide, any service the provision of which to a Service Recipient following the Distribution would constitute a violation of any Law. In addition, notwithstanding anything to the contrary herein, the Service Provider will not be required to perform or to cause to be performed any of the Services for the benefit of any third party or any other person other than the Service Recipient.

SECTION 2.02. Service Amendments and Additions. Schedules A and B may be amended at any time by the mutual written agreement of the Parties.

SECTION 2.03. No Management Authority. Notwithstanding any other provision hereof, no Service Provider shall be authorized by, or shall have responsibility under, this Agreement to manage the affairs of the business of any Service Recipient.

ARTICLE III

Compensation

SECTION 3.01. Compensation for Services. (a) As compensation for Services rendered pursuant to this Agreement, the Service Recipient shall be liable to pay to the Service Provider the Cost of Service amounts specified for each Service as set forth in Schedule A or Schedule B, as applicable.

(b) The amount of any actual and documented sales tax, value-added tax, goods and services tax or similar tax that is required to be paid by the Service Provider in connection with the Services provided hereunder (“Taxes”) will be promptly reimbursed to the Service Provider by the Service Recipient in accordance with Section 3.03. Such reimbursement shall be in addition to the Cost of Service set forth on Schedule A or Schedule B, as applicable (unless such Tax is expressly already accounted for in the applicable Service).

SECTION 3.02. Adjustments to Cost of Services. If at any time following the date of this Agreement the Parties mutually agree to add any Service Categories or Services, then concurrently with the addition of such Services or Service Category, as the case may be, the Parties shall work in good faith to amend Schedule A


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or Schedule B, as applicable, to reflect such additional Service or Service Category and the related Cost of Services.

SECTION 3.03. Payment Terms. (a) The Service Provider shall bill the Service Recipient monthly, within five business days after the end of each month, an amount equal to the aggregate Cost of Services due for all Services provided in such month, plus any Taxes paid by the Service Provider in such month that are eligible for reimbursement pursuant to Section 3.01(b). Invoices shall be directed to the Service Manager appointed by TWX or AOL, as applicable, or to such other person designated in writing from time to time by such Service Manager. The Service Recipient shall pay such amount in full within 30 days after receipt of each invoice by wire transfer of immediately available funds to the account designated by the Service Provider for this purpose. Each invoice shall set forth in reasonable detail the calculation of the charges and amounts and applicable Taxes, for each Service during the month to which such invoice relates. In addition to any other remedies for non-payment, if any payment is not received by the Service Provider on or before the date such amount is due, then a late payment interest charge, calculated at a 6% per annum rate, shall immediately begin to accrue and any such late payment interest charges shall become immediately due and payable in addition to the amount otherwise owed under this Agreement.

(b) If a Service Recipient has any objection to the amount of any invoice, the Service Recipient shall notify the Service Provider in writing and the parties shall endeavor in good faith to promptly resolve such objection and the Service Recipient can withhold amounts that are being disputed in good faith. Thereafter, the Service Provider will be entitled to prompt payment of any amounts so determined by the Parties to be due to the Service Provider.

SECTION 3.04. DISCLAIMER OF WARRANTIES. THE SERVICES TO BE PURCHASED UNDER THIS AGREEMENT ARE FURNISHED WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. NO MEMBER OF THE TWX GROUP OR OF THE AOL GROUP, AS SERVICE PROVIDER, MAKES ANY WARRANTY THAT ANY SERVICE COMPLIES WITH ANY LAW, DOMESTIC OR FOREIGN.

SECTION 3.05. Books and Records. TWX and AOL shall each maintain complete and accurate books of account as necessary to support calculations of the Cost of Services for Services rendered by it as a Service Provider and shall make such books available to the other, upon reasonable notice, during normal business hours; provided, however, that to the extent TWX’s or AOL’s books contain Information relating to any other aspect of the TWX Business or the AOL Business, as applicable, TWX and AOL shall negotiate a procedure to provide the other Party with necessary access while preserving the confidentiality of such other records.


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ARTICLE IV

Term

SECTION 4.01. Commencement. This Agreement is effective as of the date hereof and shall remain in effect with respect to a particular Service or Service Category until the occurrence of the Applicable Termination Date applicable to such Service or Service Category, unless earlier terminated (i) in its entirety or with respect to a particular Service or Service Category, in each case in accordance with Section 4.02, or (ii) by mutual consent of the Parties. Notwithstanding anything to the contrary contained herein, if the Separation and Distribution Agreement shall be terminated in accordance with its terms, this Agreement shall be automatically terminated and void ab initio with no further action by the Parties and shall be of no force and effect.

SECTION 4.02. Termination. (a) If a Service Provider or Service Recipient materially breaches any of its respective obligations under this Agreement, the non-breaching Service Recipient or Service Provider, as applicable, may terminate this Agreement with respect to the Service Category to which such obligations apply (including the obligation of the Service Provider to provide Services in such Service Category), effective at any time upon not less than 30 days’ written notice of termination to the breaching Party, if the breaching Party does not cure such default within 30 days after receiving written notice thereof from the non-breaching Party. The termination of this Agreement with respect to any Service Category pursuant to this Section 4.02 shall not affect the Parties’ rights or obligations under this Agreement with respect to any other Service Category.

(b) Except as otherwise provided in this Agreement or Schedule A or B, upon not less than 90 days’ prior written notice (i) the Service Provider may terminate this Agreement with respect to any Service Category or Service if the Service Provider or its Affiliates cease to provide such Service Category or Service to members of the Service Provider’s Group and (ii) the Service Recipient shall be entitled to terminate one or more Services being provided by the Service Provider for any reason or no reason at all.

(c) In the event of any termination of this Agreement in its entirety or with respect to any Service Category or Service, each Party, Service Provider and Service Recipient shall remain liable for all of their respective obligations that accrued hereunder prior to the date of such termination, including all obligations of the Service Recipient to pay any amounts due to the Service Provider hereunder.

SECTION 4.03. Return of Books and Records. Upon the request of the Service Recipient after the termination of a Service with respect to which the Service Provider holds books, records or files, including current and archived copies of computer files, (i) owned by the Service Recipient or its Affiliates and used by the Service Provider in connection with the provision of a Service pursuant to this Agreement or (ii) created by the Service Provider and in the Service Provider’s possession as a function of and relating solely to the provision of Services pursuant to this Agreement, such books and


9

 

records shall be returned to the Service Recipient. The Service Provider shall return all of such books, records or files as soon as reasonably practicable following request therefor. The Service Recipient shall bear the Service Provider’s reasonable, necessary and actual out-of-pocket costs and expenses associated with the return of such documents. At its expense, the Service Provider may make one (1) copy of such books, records or files for its legal files.

ARTICLE V

Indemnification; Limitation of Liability

SECTION 5.01. Indemnification. (a) AOL in its capacity as a Service Recipient and on behalf of each member of its Group in their capacity as a Service Recipient, shall indemnify and hold harmless TWX and its Indemnified Parties (each, a “TWX Indemnified Party”) from and against any and all losses, liabilities, claims, litigation, damages, penalties, actions, demands or expenses, including the reasonable fees and expenses of counsel (collectively, “Losses”), incurred by such TWX Indemnified Party and arising out of, in connection with or by reason of this Agreement or any Services provided by any TWX Service Provider hereunder, except to the extent such Losses arise out of such TWX Service Provider’s (i) material breach of this Agreement, (ii) violations of Laws in providing the Services, (iii) violations of third-party rights (including such third-party rights embodied in patents, trademarks, copyrights and trade secrets) in providing the Services and/or (iv) gross negligence or wilful misconduct in providing the Services.

(b) TWX in its capacity as a Service Recipient and on behalf of each member of its Group in their capacity as a Service Recipient, shall indemnify and hold harmless AOL and its Indemnified Parties (each, an “AOL Indemnified Party”) from and against any and all Losses, incurred by such AOL Indemnified Party and arising out of, in connection with or by reason of this Agreement or any Services provided by any AOL Service Provider hereunder, except to the extent such Losses arise out of such AOL Service Provider’s (i) material breach of this Agreement, (ii) violations of Laws in providing the Services, (iii) violations of third-party rights (including such third-party rights embodied in patents, trademarks, copyrights and trade secrets) in providing the Services and/or (iv) gross negligence or wilful misconduct in providing the Services.

SECTION 5.02. Limitation on Liability. (a) No Service Provider, in its capacity as such, nor any member of its Group acting in the capacity of a Service Provider, nor any director, officer, employee or agent thereof, shall be liable (whether such liability is direct or indirect, in contract or tort or otherwise) to the other Party (or any of such other Party’s Indemnified Parties) for any Losses arising out of, related to, or in connection with the Services or this Agreement, except to the extent that such Losses arise out of such Service Provider’s (i) material breach of this Agreement, (ii) violations of Laws in providing the Services, (iii) violations of third-party rights (including such third-party rights embodied in patents, trademarks, copyrights and trade secrets) in providing the Services and/or (iv) gross negligence or wilful misconduct in providing the Services.


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(b) IN NO EVENT SHALL ANY SERVICE PROVIDER, IN ITS CAPACITY AS SUCH, NOR ANY MEMBER OF ITS GROUP ACTING IN THE CAPACITY OF A SERVICE PROVIDER, NOR ANY DIRECTOR, OFFICER, EMPLOYEE OR AGENT THEREOF, BE LIABLE, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE TO THE OTHER PARTY (OR ANY OF SUCH OTHER PARTY’S INDEMNIFIED PARTIES) FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING LOSS OF PROFITS) AS A RESULT OF ANY BREACH, PERFORMANCE OR NON-PERFORMANCE BY SUCH PERSON ACTING AS SERVICE PROVIDER UNDER THIS AGREEMENT, EXCEPT WITH RESPECT TO ANY VIOLATION OF SECTION 8.05 OR A THIRD-PARTY CLAIM.

(c) EACH GROUP’S TOTAL LIABILITY, IN ITS CAPACITY AS A SERVICE PROVIDER, TO THE OTHER GROUP UNDER THIS AGREEMENT FOR ANY CLAIM SHALL NOT EXCEED IN THE AGGREGATE AN AMOUNT EQUAL TO THE TOTAL AMOUNT PAID TO IT FOR SERVICES UNDER THIS AGREEMENT.

(d) The provisions of this Article V shall survive indefinitely, notwithstanding any termination of all or any portion of this Agreement.

ARTICLE VI

Other Covenants

SECTION 6.01. Attorney-in-Fact. On a case-by-case basis, the Service Recipient shall execute documents necessary to appoint the Service Provider as its attorney-in-fact for the sole purpose of executing any and all documents and instruments reasonably required to be executed in connection with the performance by the Service Provider of any Service under this Agreement.

ARTICLE VII

Breach, Notice and Cure

SECTION 7.01. Breach, Notice and Cure. No breach of this Agreement by a Party shall be deemed material unless the non-breaching Party serves written notice on the breaching Party specifying the nature thereof and the breaching Party fails to cure such breach, if any, within 30 days after receipt of such notice (or 10 days in the case of a failure by the breaching Party to pay a sum certain).

ARTICLE VIII

Miscellaneous

SECTION 8.01. Title to Data. Each of AOL and TWX acknowledges that it will acquire no right, title or interest (including any license rights or rights of use) in any firmware or software, or the licenses therefor that are owned by the other Party or


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its Affiliates, Subsidiaries or divisions, by reason of the provision of the Services hereunder, except as expressly provided in Section 4.03.

SECTION 8.02. Force Majeure. In case performance of any terms or provisions hereof shall be delayed or prevented, in whole or in part, because of or related to compliance with any Law or requirement of any national securities exchange, or because of riot, war, public disturbance, strike, labor dispute, fire, explosion, storm, flood, act of God or act of terrorism that is not within the control of the Party, Service Provider or Service Recipient whose performance is interfered with (each, a “Performing Party”) and which by the exercise of reasonable diligence such Performing Party is unable to prevent, or for any other reason which is not within the control of such Performing Party whose performance is interfered with and which by the exercise of reasonable diligence such Performing Party is unable to prevent (each, a “Force Majeure Event”), then upon prompt written notice stating the date and extent of such interference and the cause thereof by the Performing Party to the other Party, Service Recipient or Service Provider (each, an “Affected Party”), as applicable, the Performing Party shall be excused from its obligations hereunder during the period such Force Majeure Event or its effects continue, and no liability shall attach against either the Performing Party or the Affected Party on account thereof; provided, however, that the Performing Party promptly resumes the required performance upon the cessation of the Force Majeure Event or its effects. No Performing Party shall be excused from performance if such Performing Party fails to use commercially reasonable efforts to remedy the situation and remove the cause and effects of the Force Majeure Event.

SECTION 8.03. Separation and Distribution Agreement. The Parties agree that, in the event of a conflict between the terms of this Agreement and the Separation and Distribution Agreement, the terms of this Agreement shall govern.

SECTION 8.04. Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the Parties or any third party as creating a relationship of principal and agent, partnership or joint venture between the Parties, between Service Providers and Service Recipients or with any individual providing Services, it being understood and agreed that no provision contained herein, and no act of any Party or members of their respective Groups, shall be deemed to create any relationship between the Parties or members of their respective Groups other than the relationship set forth herein.

SECTION 8.05. Confidentiality. Each Party hereby acknowledges that confidential Information of such Party or members of its Group may be exposed to employees and agents of the other Party or its Group as a result of the activities contemplated by this Agreement. Each Party agrees, on behalf of itself and the members of its Group, that such Party’s obligation to use and keep confidential such Information of the other Party or its Group shall be governed by Sections 7.01(c) and 7.08 of the Separation and Distribution Agreement.

SECTION 8.06. Third-Party Beneficiaries. Except as otherwise expressly provided herein, the provisions of this Agreement are solely for the benefit of the Parties


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and are not intended to confer upon any person except the Parties any rights or remedies hereunder.

SECTION 8.07. Interpretation. When a reference is made in this Agreement to a Section or Article, such reference shall be to a Section or Article of this Agreement unless otherwise indicated. All Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule but not otherwise defined therein shall have the meaning set forth in this Agreement. The table of contents and 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.”

SECTION 8.08. Amendments. This Agreement (including Schedules A and B) may not be amended except by an instrument in writing signed on behalf of each of the Parties hereto. By an instrument in writing, AOL, on the one hand, or TWX, on the other hand, may waive compliance by the other with any term or provision of this Agreement that such other Party, Service Provider or Service Recipient was or is obligated to comply with or perform. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of either Party to assert any of its rights hereunder shall not constitute a waiver of any such rights.

SECTION 8.09. Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

if to AOL or any member of the AOL Group,

AOL Inc.

22000 AOL Way

Dulles, VA 20166

Attention:    General Counsel

Fax: (703) 265-7404

if to TWX or any member of the TWX Group,

Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attention:    General Counsel

Fax: (212) 484-7167

SECTION 8.10. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part,


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by operation of Law or otherwise by any Party without the prior written consent of the other Party and any purported assignment without such consent shall be void. Notwithstanding the foregoing, a Party may assign this Agreement in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Party’s Assets, or (b) upon the sale of all or substantially all of such Party’s Assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 8.10 shall release the assigning Party from liability for the full performance of its obligations under this Agreement. 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. Nothing in this Section 8.10 shall effect or impair a Service Provider’s ability to delegate any or all of its obligations under this Agreement to one or more of its Affiliates or Sub-Contractors pursuant to Section 2.01(e).

SECTION 8.11. 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 Party and delivered to the other Party.

SECTION 8.12. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or 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 materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, TWX and AOL 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.

SECTION 8.13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any of the transactions contemplated hereby.


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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

 

TIME WARNER INC.,
by    
   

 

    Name:
    Title:
AOL INC.,
by    
   

 

    Name:
    Title:


SCHEDULE A

 

Service Category:

  Construction and Project Management
   

Service Item:

  TWX will continue providing construction and project management for the tenant improvements benefitting AOL’s leased office space on the 6th floor of the building located at 770 Broadway, New York, NY (the “Project”) until final completion and full payment of all invoices. TWX will provide project management services as described in the most current version of the TW Rule Book, which is hereby incorporated by reference into this Schedule A as if fully set forth herein. TWX will include a fee of two percent (2%) of total project costs as identified in the approved budget, comprised of hard, soft, FF&E and IT costs including the TWX fee, and submit it to AOL for written approval by AOL’s CFO. TWX will make payments in accordance with the Project budget. On a weekly basis, TWX will provide to AOL change order log and weekly project summaries, each in the form mutually agreed by the Parties. TWX will obtain AOL’s prior written consent from the CFO or delegate, prior to expending any funds in excess of the approved Project budget. Based on the approved Project budget, TWX will engage all vendors, including architect, subconsultants (e.g., MEP, IT, A/V), construction manager, general contractor and expediter. TWX will purchase all work in accordance with the most current version of the TW Rule Book. TWX will engage architects, engineers and construction manager through pre-negotiated on-call agreements. TWX will competitively bid all trade sub-contracts. TWX and AOL’s Corporate Services teams will work together with the AOL client groups to determine the scope of that client’s needs for the Project. All customer / client meetings will be set up by TWX with AOL’s Corporate Services VP, or delegate, invited in a timely manner and informed of the scope of the meeting and expected deliverables. TWX, upon consultation with AOL, will coordinate and obtain final written Project approval to the Project program scope from the AOL client groups and the AOL Corporate Services designated representative. Once the Project program scope is approved, TWX will have the Project lead, coordinating approvals and requests for additional information with the AOL Corporate Services team and the AOL end user. Once the Project program scope is approved and the final Project budget is approved, TWX will have the overall responsibility of completing the Project. During the Project construction, TWX will forward weekly status reports on the Project to the AOL client, with a copy to AOL’s Corporate Services VP or delegate. AOL may participate in the Project, including by attending meetings, inspecting the site, reviewing submittals, including but not limited to, mechanical and electrical, and reviewing proposed change orders. Changes in approved Project scope must be approved in advance in writing by AOL. TWX will review all third party invoices and approve them in writing for payment; TWX will provide AOL with a copy of all final, approved monthly invoices. TWX’s Project accountant will provide all approved change orders and all potential exposures. Upon request by AOL, TWX’s Project accountant will distribute a report that identifies the Project approvals for the month, the PM responsible for the work and a cost monitor report for the Project documenting the budget, committed costs, exposure and paid to date. TWX will only make any final payments to the architect and its subconsultants, construction manager and any contractors after receipt of a final waiver of lien, receipt of close-out binders (e.g., with as-builts, etc.) from contractors and record sets from consultants and receipt of such other typical conditions predecent to final payment. Upon request by AOL, TWX will prepare and issue a capital costs forecast / cash flow for the Project that identifies the paid to date for the Project as well as the anticipated quarterly expenditures for the Project over the course of a calendar year. Upon completion of the Project, TWX will obtain and turn over to AOL’s Corporate Services team all Project documentation, including but not limited to record set of construction documents, submittals, as-built drawings (via electronic AutoCAD files), Operation and Maintenance manuals, warranties, commissioning documents (the “Final Documents”).
   

Cost of Service:

  TWX will provide AOL with third party invoices associated with the work, and AOL will pay TWX those invoices, plus a fee of two percent (2%) of the amount of the invoice (representing TWX’s fee for these services), in a total amount not to exceed $1,000,000.
   

Applicable Termination

Date:

 

 

The later of three (3) months from the Distribution Date or the date that last of the Final Documents are delivered to AOL.

 

Service Category:

  Tax Services
   

Service Item:

 

TWX shall provide worldwide tax support services to AOL and the other members of the AOL Group on an as-requested basis as described in this Schedule A. The scope of such services will include, but is not limited to, the financial reporting of income taxes, assistance with tax audits and controversies, the provision of general tax consulting services and general tax advice, and tax compliance (as described further below). The services provided by TWX under this Schedule A shall be substantially similar to and consistent with the tax support services provided by TWX to the AOL Group in the three (3) years prior to the Distribution Date. TWX shall make its tax professionals available to the AOL Group to the extent necessary to perform the services described in this Schedule A.

 

 

Financial Reporting for Income Taxes

 

TWX will provide tax technical, tax accounting, and related footnote disclosure assistance in connection with the preparation of the AOL Group’s worldwide quarterly and annual financial statement filing obligations.

 

Tax Audits and Controversies

 

TWX will provide advice and assistance with respect to matters involving the Internal Revenue Service or other tax authorities, including preparation or review of responses to notices and information requests, and assistance with audit negotiations and settlements.

 

General Tax Consulting

 

TWX will provide tax consulting and transaction support services including buy and sell-side due diligence, transaction structuring, domestic and international legal entity structuring, NOL planning, VAT planning, support on commercial agreements, and legislation updates.

 

Tax Compliance

 

TWX will assist with the preparation and/or review of the AOL Group’s tax returns to be filed with the Internal Revenue Service or other tax authorities including assistance with the identification and preparation or review of tax return elections and disclosures, identification of new filing positions or accounting methods, and the preparation or review of quarterly estimated tax payments vouchers and related computations.

 

 

The foregoing examples are not intended to limit the services TWX may provide to the AOL Group under the terms of this Schedule A.

   

Cost of Service:

  $62,500/month (not including any third party fees and/or expenses)
   

Applicable Termination

Date:

  Twelve (12) months from the Distribution Date; provided, however, that AOL may terminate such services upon sixty (60) days’ prior written notice to TWX. The Parties may agree in writing to extend the term of the services to be provided under this Schedule A.


Service Category:

   Treasury Services
   

Service Item:

   TWX shall provide the AOL Group, on an as-requested basis, with the following services:
   
    

1.      Consultation regarding cash management strategies

    

2.      Consultation regarding overall investment policies

    

3.      Consultation regarding investment strategies and products

    

4.      Consultation surrounding international treasury matters such as exposure netting, finance company structure and operation, cross border/inter-company loans, and other international capitalization issues

    

5.      Consultation regarding the AOL Group’s overall capital structure

    

6.      Support in obtaining an AOL Group debt rating

    

7.      Assistance with arranging a long-term revolving credit facility or other long-term financing

    

8.      Hedging execution services

   
     TWX shall make its treasury professionals available during regular business hours to the AOL Group to the extent necessary to perform such services and, on an as-requested basis, to provide general consulting on other treasury/hedging related matters, including advice, answers to questions and/or opinions. Notwithstanding the foregoing, TWX shall not be required to provide a service listed in 1 through 7 above to the extent it determines in its reasonable discretion that doing so would pose a conflict of interest. It is further understood that any and all decision-making in connection with all treasury services provided by TWX is the responsibility of AOL.
   

Cost of Service:

   $40,000 per month
   

Applicable Termination Date:

   Twelve (12) months from the Distribution Date; provided, however, that AOL may terminate such services upon thirty (30) days’ prior written notice to TWX.
EX-10.2 6 dex102.htm EXHIBIT 10.2 EXHIBIT 10.2

Exhibit 10.2

SECOND TAX MATTERS AGREEMENT (this “Agreement”), dated as of [November 12], 2009, by and between TIME WARNER INC., a Delaware corporation (“TWX”), and AOL INC., a Delaware corporation (“AOL”, and together with TWX, the “Companies”).

W I T N E S S E T H:

WHEREAS AOL is a wholly-owned Subsidiary of TWX;

WHEREAS the Companies are parties to the Tax Matters Agreement dated as of April 13, 2006 (the “Old AOL TMA”);

WHEREAS, pursuant to the Separation Agreement, the Companies have agreed to effect the Transactions;

WHEREAS the Companies intend, with respect to: (i) the TWA Conversion, that it qualifies for non-recognition of gain and loss under Sections 332 and 337 of the Code; (ii) the Existing AOL Inc. Name Change, that it qualifies for non-recognition of gain and loss under Sections 354 and 368(a)(1)(F) of the Code; (iii) the AOL Conversion, that it qualifies for non-recognition of gain and loss under Sections 354 and 368(a)(1)(F) of the Code; (iv) the Asset Distribution, that it is disregarded for U.S. Federal income tax purposes; (v) the AOL Online Transfer (if it occurs), that it qualifies for non-recognition of gain and loss under Section 351 of the Code and that Section 367(a) of the Code does not apply to it; (vi) the First AOL LLC Distribution, that it will result in the recognition of gain (or loss) under Sections 311 and 1001 of the Code and will be taken into account consistent with the principles of Section 1.1502-13 of the Regulations with respect to assets owned by AOL LLC at the time of the First AOL LLC Distribution (including the TWX Retained Assets); (vii) the Second AOL LLC Distribution, that it is disregarded for U.S. Federal income tax purposes; (viii) the AOL LLC Name Change, that it is disregarded for U.S. Federal income tax purposes; (ix) the Internal Distribution, that it is disregarded for U.S. Federal income tax purposes; (x) the Recapitalization, that it qualifies for non-recognition of gain and loss under Sections 368(a)(1)(E) and/or 1036 of the Code; and (xi) the Distribution, that it qualifies for non-recognition of gain and loss under Section 355 of the Code; in the case of each of clauses (i), (ii), (iii), (x) and (xi), other than income or gain arising from any imputed income or other adjustment to TWX, AOL or their Subsidiaries if and to the extent that the Separation Agreement or the Ancillary Agreements are determined to have terms that are not at arm’s length (the “Intended Tax Treatment”);

WHEREAS the Companies desire to terminate the Old AOL TMA and memorialize certain new agreements and understandings relating to the Transactions.


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NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Companies hereby agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Definition of Terms. The following terms shall have the following meanings (such meanings to apply equally to both the singular and the plural forms of the terms defined). All Section and Article references are to this Agreement unless otherwise stated. Terms used but not defined in this Agreement shall have the meanings ascribed to them in the Separation Agreement.

Agreement” has the meaning set forth in the preamble.

AOL” has the meaning set forth in the preamble.

AOL Indemnified Taxes” shall mean any Ordinary Taxes of AOL or its Affiliates other than, without duplication, (i) Consolidated Income Taxes for any Pre-Distribution Tax Period and (ii) Contribution Agreement Taxes.

AOL Prepared Tax Return” has the meaning set forth in Section 3.01(b).

AOL Tax Package” has the meaning set forth in Section 3.01(c).

AOL Tax Representations” shall mean any representations made by AOL or its Affiliates in Representation Letters that serve as a basis for the Tax Opinion.

Business Day” shall mean any day on which the New York Stock Exchange, or its successor, is open for trading.

Code” shall mean the Internal Revenue Code of 1986, as amended.

Companies” has the meaning set forth in the preamble.

Consolidated Group” shall mean (i) an affiliated group of corporations (within the meaning of Section 1504(a) of the Code), including any predecessors and successors to such corporations, that files consolidated U.S. Federal income tax returns and (ii) a group of corporations, including any predecessors and successors to such corporations, that files state or local income tax returns on a combined, consolidated, unitary or similar basis.

Contribution Agreement” shall mean the Contribution Agreement dated March 24, 2006, among TWX, Google Inc. and America Online, Inc.

Contribution Agreement Taxes” shall mean Taxes arising solely as a result of the transactions described in Article I, Section 2.01, Section 2.02(a),


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Section 2.02(b), Section 2.02(c), Section 7.01, Section 7.02 or Section 7.04 of the Contribution Agreement.

Consolidated Income Taxes” shall mean any Income Taxes of a TWX Consolidated Group that are (i) imposed by the United States of America or any state or local jurisdiction in the United States of America and (ii) determined on a consolidated, combined, unitary or similar basis.

Deferred Compensation Payable” has the meaning set forth in the EMA.

Determination” shall mean (i) any final determination of liability in respect of a Tax that, under applicable Law, is not subject to further appeal, review or modification through proceedings or otherwise (including the expiration of a statute of limitations or period for the filing of claims for refunds, amended tax returns or appeals from adverse determinations), including a “determination” as defined in Section 1313(a) of the Code or execution of an IRS Form 870AD, or (ii) the payment of Tax by TWX or AOL or any of their respective Subsidiaries, whichever is responsible for payment of such Tax under applicable Law, with respect to any item disallowed or adjusted by a Taxing Authority; provided, however, that such responsible Company determines that no action should be taken to recoup such payment and the other Company agrees.

Income Taxes” shall mean any income and franchise Taxes, and any similar Taxes primarily based upon, measured by, or calculated with respect to gross income, net income, gross receipts, net receipts, capital or profits (including any capital gains Taxes and minimum Taxes), but excluding any sales, use, withholding or payroll Taxes, other similar Taxes and Transaction Taxes.

Indemnifying Party” shall mean a Company that has any obligation to indemnify an Indemnitee pursuant to the Separation Agreement or any Ancillary Agreement.

Indemnitee” shall mean a Company entitled to indemnification pursuant to the Separation Agreement or any Ancillary Agreement.

Indemnity Payment” shall mean a payment from an Indemnifying Party to an Indemnitee pursuant to the Separation Agreement or any Ancillary Agreement.

Intended Tax Treatment” has the meaning set forth in the recitals.

IRS” shall mean the U.S. Internal Revenue Service.

Old AOL TMA” has the meaning set forth in the recitals.

Ordinary Taxes” shall mean Taxes other than Transaction Taxes.

Pre-Distribution Tax Period” shall mean any taxable period (or portion thereof) that ends on or before the Distribution Date.


4

 

Records” has the meaning set forth in Section 6.01.

Regulations” shall mean the Treasury regulations promulgated under the Code.

Representation Letters” shall mean letters setting forth reasonable and customary representations (that are true and correct) regarding certain facts in existence at the applicable time.

Separation Agreement” shall mean the Separation Agreement dated as of [November 12], 2009, by and between TWX and AOL.

Tax Attribute” has the meaning set forth in Section 2.05.

Taxes” shall mean all forms of taxation or duties imposed, or required to be collected or withheld, including charges, together with any related interest, penalties or other additional amounts.

Taxing Authority” shall mean any Governmental Authority imposing Taxes.

Tax Opinion” shall mean the written opinion of Cravath, Swaine & Moore LLP issued to TWX to the effect that the Transactions will qualify for the Intended Tax Treatment, which opinion is in form and substance satisfactory to TWX in its sole discretion; provided, however, that such opinion may rely on the Tax Representations.

Tax Representations” shall mean the TWX Tax Representations and the AOL Tax Representations.

Transaction Tax Contest” shall mean an audit, review, examination or any other administrative or judicial proceeding, in each case by any Taxing Authority, with the purpose or effect of determining or redetermining Transaction Taxes.

Transaction Taxes” shall mean all (i) Taxes resulting from the failure of the Transactions to qualify for the Intended Tax Treatment, (ii) Taxes and any other liability of any third party for which TWX, AOL or any of their respective Subsidiaries or Affiliates is or becomes liable for any reason, which Taxes or liabilities result from the failure of the Transactions to qualify for the Intended Tax Treatment and (iii) reasonable, out-of-pocket legal, accounting and other advisory and court fees incurred in connection with liability for Taxes described in clause (i) or (ii).

TWA Conversion Stockholder Consent” shall mean the consent of an authorized TWX representative to effect the TWA Conversion.

25% Ownership Change” shall mean one or more persons acquiring, directly or indirectly, an interest in the relevant Company representing (i) 25% of “the total combined voting power of all classes of stock entitled to vote” (within the meaning


5

 

of Section 355(d)(4) of the Code) or (ii) 25% of “the total value of shares of all classes of stock” (within the meaning of Section 355(d)(4) of the Code).

TWX” has the meaning set forth in the preamble.

TWX Consolidated Group” shall mean any Consolidated Group of which (i) TWX or any of its Affiliates is a member and (ii) AOL or any of its Affiliates is also a member.

TWX Consolidated Return” shall mean (i) any consolidated U.S. Federal income tax return of a TWX Consolidated Group and (ii) any combined, consolidated, unitary or similar state or local income tax return of a TWX Consolidated Group.

TWX Equity Award Payable” has the meaning set forth in the EMA.

TWX Prepared Tax Return” has the meaning set forth in Section 3.01(a).

TWX Tax Representations” shall mean any representations made by TWX or its Affiliates in Representation Letters that serve as a basis for the Tax Opinion.

ARTICLE II

Termination of Old AOL TMA; Allocation of Tax Liabilities and Benefits

SECTION 2.01. Effectiveness; Termination of Old AOL TMA. This Agreement shall become effective at the time the Distribution occurs. At that time, the Old AOL TMA shall be terminated and shall have no further force or effect.

SECTION 2.02. Indemnification. (a) TWX shall be liable for, and shall indemnify and hold AOL and its Subsidiaries harmless from, without duplication, any (i) Consolidated Income Taxes for any Pre-Distribution Tax Period (ii) Contribution Agreement Taxes and (iii) Transaction Taxes other than Transaction Taxes for which AOL is liable under Section 2.02(b)(ii).

(b) AOL shall be liable for, and shall indemnify and hold TWX and its Subsidiaries harmless from, any (i) AOL Indemnified Taxes, and (ii) Transaction Taxes attributable to (A) the failure of any representation made by AOL or its Affiliates in the AOL Tax Representations to be true when made or deemed made or (B) except as otherwise expressly required by the Separation Agreement or any Ancillary Agreement, any other action or omission by AOL or its Affiliates.

SECTION 2.03. Refunds, Credits and Offsets. (a) If AOL or its Affiliates receives (i) any refund, credit or offset of any Taxes for which TWX is responsible under Section 2.02(a) or (ii) any refund of Taxes other than state and local indirect Taxes that at the time of the Distribution is anticipated to be received within 60 Business Days after the Distribution Date, AOL shall pay to TWX the entire amount of the refund or the economic benefit of the credit or offset (including interest) within 10 Business Days of receipt or accrual; provided, however, that TWX, upon the request of


6

 

AOL, shall repay the amount paid to TWX in the event AOL is required to repay such refund, credit or offset.

(b) If TWX or its Affiliates receives any refund, credit or offset of any Taxes for which AOL is responsible under Section 2.02(b), other than any refund described in clause (ii) of Section 2.03(a), TWX shall pay to AOL the entire amount of the refund or the economic benefit of the credit or offset (including interest) within 10 Business Days of receipt or accrual; provided, however, that AOL, upon the request of TWX, shall repay the amount paid to AOL in the event TWX is required to repay such refund, credit or offset.

SECTION 2.04. Straddle Periods. In the case of any taxable period that includes (but does not end on) the Distribution Date, Income Taxes for the Pre-Distribution Tax Period shall be computed as if such taxable period ended as of the close of business on the Distribution Date.

SECTION 2.05. Carrybacks. If a tax return of AOL or its Affiliates for any taxable period ending after the Distribution Date reflects any net operating losses, net capital losses, excess tax credits or other tax attributes (a “Tax Attribute”) that is carried back to a TWX Consolidated Return, whether or not AOL or its Affiliates waives the right to carry back any such Tax Attribute to a TWX Consolidated Return, no payment with respect to such carryback shall be due to AOL or its Affiliates from TWX. In the event that AOL or its Affiliates receives any refund, credit or offset of any Taxes in connection with a carryback of a Tax Attribute of any Company to a TWX Consolidated Return, AOL shall promptly pay the full amount of such refund or the economic benefit of the credit or offset (including interest) to TWX.

ARTICLE III

Procedural Matters for Ordinary Taxes

SECTION 3.01. Tax Returns. (a) TWX shall have exclusive and sole responsibility for the preparation and filing of (i) any TWX Consolidated Returns (including requests for extensions thereof) and (ii) any other tax returns of TWX or its Affiliates (a “TWX Prepared Tax Return”).

(b) AOL shall have exclusive and sole responsibility for the preparation and filing of the tax returns of AOL and its Affiliates to the extent such responsibility has not been allocated to TWX under Section 3.01(a) (an “AOL Prepared Tax Return”).

(c) AOL shall provide to TWX (in the format determined by TWX) all information requested by TWX as reasonably necessary to prepare any TWX Consolidated Returns (the “AOL Tax Package”). The AOL Tax Package shall be provided to TWX on a timely basis consistent with the current practices of the TWX Consolidated Groups in preparing tax returns. AOL shall also provide to TWX information reasonably required to determine estimated tax payments, current taxable income, current and deferred tax liabilities, tax reserve items and any additional current


7

 

or prior information required by TWX to comply with its obligations under this Agreement.

SECTION 3.02. Audits, Refund Claims, Litigation. (a) If any AOL Prepared Tax Return becomes the subject of litigation in any court or examination by any Taxing Authority, the conduct and settlement of the litigation or examination shall be exclusively controlled by AOL; provided, however, that TWX and AOL shall share joint control with respect to the conduct and settlement of any litigation or examination that reasonably could be expected to cause a payment obligation to, or a refund claim for, TWX.

(b) If any TWX Prepared Tax Return becomes the subject of litigation in any court or examination by any Taxing Authority, the conduct and settlement of the litigation or examination shall be exclusively controlled by TWX; provided, however, that TWX and AOL shall share joint control with respect to the conduct and settlement of any litigation or examination that reasonably could be expected to cause a payment obligation to, or a refund claim for, AOL.

(c) Notwithstanding Sections 3.02(a) and (b), no settlement relating to any matter that would cause a payment obligation for an Indemnifying Party under this Agreement shall be accepted or entered into by the Indemnitee without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

(d) AOL shall assist and cooperate with TWX during the course of any examination or litigation described in
Section 3.02(b). Within 10 Business Days of the commencement of any such proceeding, TWX shall give AOL notice of, and consult with AOL with respect to, any issues relating to AOL Indemnified Taxes; provided, however, that AOL shall not be relieved of any obligation to make payments under this Agreement if TWX fails to timely deliver the notice described in this Section 3.02(d) except, and only to the extent that, AOL is actually prejudiced thereby.

(e) TWX shall assist and cooperate with AOL during the course of any examination or litigation described in
Section 3.02(a). Within 10 Business Days of the commencement of any such proceeding, AOL shall give TWX notice of, and consult with TWX with respect to, any issues relating to Consolidated Income Taxes for any Pre-Distribution Period; provided, however, that TWX shall not be relieved of any obligation to make payments under this Agreement if AOL fails to timely deliver the notice described in this Section 3.02(e) except, and only to the extent that, TWX is actually prejudiced thereby.

(f) This Section 3.02 shall not apply to Transaction Taxes or to Article V, which shall govern procedural matters relating to Transaction Taxes.

SECTION 3.03. Expenses. (a) AOL shall bear the cost of its own expenses and shall reimburse TWX for all reasonable out-of-pocket expenses (including, without limitation, legal, consulting and accounting fees) in the course of proceedings


8

 

described in Section 3.02 to the extent such expenses are reasonably attributable to AOL Indemnified Taxes.

(b) TWX shall bear the cost of its own expenses and shall reimburse AOL for all reasonable out-of-pocket expenses (including, without limitation, legal, consulting and accounting fees) in the course of proceedings described in Section 3.02 to the extent such expenses are reasonably attributable to Taxes for which TWX is responsible pursuant to this Agreement.

SECTION 3.04. Rulings. AOL shall assist and cooperate with TWX and take all actions reasonably requested by TWX in connection with any ruling requests submitted by TWX to the IRS.

SECTION 3.05. Short Period Election. TWX and AOL shall jointly make a timely election under
Section 1.1502-76(b)(2)(ii)(D) of the Regulations or any comparable provision or state or local law to allocate items ratably between the final Pre-Distribution Tax Period (TWX Consolidated Return) and the AOL short taxable period beginning after the Distribution Date (AOL separate tax return).

SECTION 3.06. Tax Treatment of Payments Paid Pursuant to the EMA. Any Federal, state and local income tax deduction arising as a result of amounts paid pursuant to the EMA shall be claimed (if and when permitted by applicable law) by the Company (or its applicable Affiliate) that pays such amount in the first instance; provided, however, that with respect to amounts (i) for which reimbursement is paid pursuant to Article XV of the EMA, such deduction shall be claimed (if and when permitted by applicable law) by the Company that pays such reimbursement or (ii) paid pursuant to Articles VIII or XII of the EMA, such deduction shall be claimed (A) by AOL (or its applicable Affiliate) to the extent such amounts are less than or equal to the amount of the Deferred Compensation Payable or TWX Equity Award Payable, as the case may be, and (B) by TWX (or its applicable Affiliate) to the extent such amounts are greater than the amount of the Deferred Compensation Payable or TWX Equity Award Payable, as the case may be.

ARTICLE IV

Tax Matters Relating to the Separation

SECTION 4.01. Mutual Representations. Except as otherwise expressly required or permitted by the Separation Agreement or any Ancillary Agreement, neither Company has any plan or intention to take any action inconsistent with the qualification of the Transactions for the Intended Tax Treatment.

SECTION 4.02. Mutual Covenants. (a) The Companies agree to take, and to cause their respective Affiliates to take, any reasonable actions necessary or advisable in order for the Transactions to qualify for the Intended Tax Treatment. Except as otherwise expressly required or permitted by the Separation Agreement or any Ancillary Agreement, neither Company shall take or fail to take, or permit their respective


9

 

Affiliates to take or fail to take, any action, if such action or omission would be inconsistent with its respective Tax Representations.

(b) Subject to Section 4.02(c), during the period beginning on the date of the Distribution and ending on and including the last day of the 30-month period following the date of the Distribution, each Company shall notify the other Company within 10 Business Days after entering into a binding contract (or other agreement or understanding that has been publicly disclosed by such Company) with respect to a transaction that, if completed (whether or not it would constitute a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code with the Distribution) alone or together with other transactions (excluding, for these purposes, the transactions described in clauses (i) through (iv) of Section 4.02(c)), would result in a 25% Ownership Change of such Company and shall provide the other Company with complete details (and additional information as such other Company shall reasonably request) regarding such transaction and other transactions, if any; provided, however, that in no case shall either Company be obligated to provide to the other Company any material non-public information.

(c) For purposes of Section 4.02(b), a “binding contract (or other agreement or understanding that has been publicly disclosed by such Company)” shall not include (i) the adoption by a Company of a shareholder rights plan that meets the requirements of IRS Revenue Ruling 90-11, 1990-1 C.B. 10, (ii) transfers on an established market of the stock of a Company described in Safe Harbor VII of Section 1.355-7(d)(7) of the Regulations, (iii) issuances of stock of a Company pursuant to an employee stock purchase agreement or equity compensation plan in accordance with Safe Harbor VIII of Section 1.355-7(d)(8) of the Regulations or (iv) issuances of stock of a Company described in Safe Harbor IX of Section 1.355-7(d)(9) of the Regulations.

SECTION 4.03. Tax Opinion. The Companies shall use their reasonable best efforts to cause the Tax Opinion to be issued, including by executing any Representation Letters reasonably requested by Cravath, Swaine & Moore LLP.

SECTION 4.04. Reporting. (a) AOL and TWX each (i) shall timely file the appropriate information and statements (including as required by Section 1.355-5 of the Regulations) to report the Transactions as qualifying for the Intended Tax Treatment and (ii) absent a change of Law or a Determination of a Transaction Tax Contest, shall not take any position on any tax return that is inconsistent with the Transactions qualifying for the Intended Tax Treatment.

(b) With respect to the AOL Online Transfer, AOL and TWX each shall comply with the relevant rules regarding gain recognition agreements contained in Section 1.367(a)-8 of the Regulations, including by entering into a new gain recognition agreement upon the distribution in accordance with Section 1.367(a)-8(j)(5) of the Regulations.


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ARTICLE V

Procedural Matters for Transaction Taxes

SECTION 5.01. Notice. (a) Within 30 Business Days after a Company becomes aware of the existence of a Transaction Tax Contest, such Company shall promptly notify the other Company of the Transaction Tax Contest, and thereafter shall promptly forward or make available to the other Company copies of notices and communications with a Taxing Authority relating to such Transaction Tax Contest.

(b) A failure by the Indemnitee to timely provide the notice described in Section 5.01(a) shall not affect the Indemnifying Party’s indemnification obligations under this Agreement except, and only to the extent that, the Indemnifying Party shall have been actually prejudiced as a result of such failure.

SECTION 5.02. Control of Transaction Tax Contests. (a) Both Companies shall have the right to control jointly the defense, compromise or settlement of any such Transaction Tax Contest.

(b) No Indemnitee shall settle or compromise or consent to entry of any judgment with respect to any Transaction Tax Contest without the prior written consent of the Indemnifying Party (which consent may be withheld in the Indemnifying Party’s sole discretion).

(c) Notwithstanding Sections 5.02(a) and (b), a Company shall be entitled to control exclusively the defense, compromise or settlement of any Transaction Tax Contest if such Company notifies the other Company that (notwithstanding the rights and obligations of the Companies in Article IV or Article V) it agrees to pay (and indemnify such other Company against) any liability for all Transaction Taxes resulting from such Transaction Tax Contest; provided, however, that no settlement, compromise or consent to entry of any judgment that fails to give the Company indemnified under this Section 5.02(c) full release of liability or that would impose any material obligations on that Company shall be made without the prior written consent of that Company.

SECTION 5.03. Indemnification Payments. An Indemnitee shall be entitled to make a claim for payment with respect to Transaction Taxes pursuant to this Agreement when the Indemnitee determines that it is entitled to such payment and the amount of such payment. The Indemnitee shall provide to the Indemnifying Party notice of such claim within 60 Business Days of the date on which it first so becomes entitled to claim such payment, and such notice shall include a description of such claim and a detailed calculation of the amount of the indemnification payment that is claimed; provided, however, that no delay on the part of the Indemnitee in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder except, and only to the extent that, the Indemnifying Party shall have been actually prejudiced thereby as a result of such failure. The Indemnifying Party shall make the claimed payment to the Indemnitee within 30 Business Days after receiving such notice,


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unless the Indemnifying Party reasonably disputes its liability for, or the amount of, such payment.

SECTION 5.04. Cooperation. TWX and AOL shall cooperate, and shall cause their Affiliates to cooperate, with all reasonable requests from the other Company in connection with Transaction Tax Contests.

ARTICLE VI

Procedural Matters for Ordinary Taxes and Transaction Taxes

SECTION 6.01. Document Retention, Access to Records and Use of Personnel. Until the expiration of the relevant statute of limitations (including extensions), each of TWX and AOL shall (i) retain records, documents, accounting data, computer data and other information (the “Records”) necessary for the preparation, filing, review, audit or defense of all tax returns relevant to an obligation, right or liability of either Company under this Agreement; and (ii) give each other reasonable access to such Records and to its personnel (ensuring their cooperation) and premises to the extent relevant to an obligation, right or liability of either Company under this Agreement. Prior to disposing of any such Records, each of TWX and AOL shall notify the other Company in writing of such intention and afford the other Company the opportunity to take possession or make copies of such Records at its discretion.

SECTION 6.02. Interest. Interest required to be paid pursuant to this Agreement shall, unless otherwise specified, be computed at the rate and in the manner provided in the Code for interest on underpayments and overpayments, respectively, for the relevant taxable period. Any payments required pursuant to this Agreement that are not made within the time period specified in this Agreement shall bear interest at a rate equal to the interest rate for underpayments of U.S. Federal income tax for the relevant period.

SECTION 6.03. Access to Information. TWX and AOL agree to provide to the other Company any information reasonably required to complete tax returns or to compute the amount of any payment contemplated by this Agreement.

SECTION 6.04. Indemnity Payments. (a) Any Indemnity Payment (other than a payment that represents interest accruing after the date of the Distribution) shall be treated by AOL and TWX for all Tax purposes as a distribution from AOL to TWX immediately prior to the Distribution (if made by AOL to TWX) and as a contribution from TWX to AOL immediately prior to the Distribution (if made by TWX to AOL).

(b) The amount of any Indemnity Payment described in Section 6.04(a) shall be (i) reduced to take into account any Tax benefit actually realized by the Indemnitee resulting from the incurrence of the Liability in respect of which the Indemnity Payment was made and (ii) increased to take into account any Tax cost actually realized by the Indemnitee resulting from the receipt of the Indemnity Payment


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(including Tax cost arising from such Indemnity Payment having resulted in income or gain to either Company (for example, under Section 1.1502-19 of the Regulations) and Tax cost imposed on additional amounts payable pursuant to this Section 6.04(b)(ii)).

ARTICLE VII

Miscellaneous Provisions

SECTION 7.01. Confidentiality. The Confidential Information provision of the Separation Agreement shall apply with respect to this Agreement.

SECTION 7.02. Successors. This Agreement shall be binding upon and inure to the benefit of the Companies, their Affiliates, their legal representatives and any successor to either of the Companies, by merger, acquisition of assets or otherwise, to the same extent as if the successor had been an original party to the Agreement, and in such event, all references herein to a Company shall refer instead to the successor of such Company. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Companies or their respective successors or assigns or, to the extent provided by this Agreement, their Affiliates, any rights or remedies under or by reason of this Agreement.

SECTION 7.03. Failure to Pursue Remedies. The failure of a Company to seek redress for breach of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a breach, from having the effect of an original breach.

SECTION 7.04. Cumulative Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by a Company shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the Companies may have by Law or otherwise.

SECTION 7.05. Entire Agreement. This Agreement contains the entire agreement between the Companies with respect to the subject matter hereof, supersedes all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Companies with respect to the subject matter hereof other than those set forth or referred to herein.

SECTION 7.06. Absence of Presumption. The Companies have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Companies and no presumption or burden of proof shall arise favoring or disfavoring either Company by virtue of the authorship of any of the provisions of this Agreement. Notwithstanding the foregoing, the purposes of Articles IV and V are to ensure the Intended Tax Treatment and, accordingly, the Companies agree


13

 

that the language thereof shall be interpreted in a manner that serves this purpose to the greatest extent possible.

SECTION 7.07. Governing Law; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the Laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the Laws of Delaware or any other jurisdiction are mandatorily applicable. Each of the Companies irrevocably agrees that any legal action or proceeding arising out of this Agreement or any transaction contemplated hereby shall be brought only in the State or United States Federal courts located in the State of New York. Each Company irrevocably consents to the service of process outside the territorial jurisdiction of such courts in any such action or proceeding by the mailing of such documents by registered United States mail, postage prepaid, to the respective address set forth in Section 7.13. EACH COMPANY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY AGREEMENT ENTERED INTO IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

SECTION 7.08. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

SECTION 7.09. 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 Company and delivered to the other Company.

SECTION 7.10. Interpretation. Any reference in this Agreement to the Separation Agreement, the Ancillary Agreements or the Contribution Agreement shall in each case include references to any exhibits, schedules and amendments thereto. If, and to the extent, the provisions of this Agreement conflict with the Separation Agreement, or any Ancillary Agreement, the provisions of this Agreement shall control.

SECTION 7.11. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either Company without the prior written consent of the other Company. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the Companies and their respective successors and assigns. Notwithstanding the preceding sentence, either Company may assign this Agreement without consent in connection with (a) a merger transaction in which such Company is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Company’s Assets, or (b) upon the sale of all or substantially all of such Company’s Assets; provided, however, that the assignee expressly assumes in


14

 

writing all of the obligations of the assigning Company under this Agreement, and the assigning Company provides written notice and evidence of such assignment and assumption to the non-assigning Company. No assignment permitted by this Section 7.11 shall release the assigning Company from liability for the full performance of its obligations under this Agreement.

SECTION 7.12. Third Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Companies and are not intended to confer upon any Person except the Companies any rights or remedies hereunder. There are no third party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

SECTION 7.13. Notices. Any payments, notices, requests, claims, demands and other communications under this Agreement shall be provided in accordance with the Notices provision of the Separation Agreement. In addition, copies of all documents mentioned in the preceding sentence shall also be sent to the address set forth below (or at such other address as one Company may specify by notice to the other Company):

If to TWX:

 

Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attention:

  

Annaliese Kambour, Esq.

Senior Vice President—Tax

Fax:   

(212) 484-8507

and with copies to:

 

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attention:

  

Stephen L. Gordon, Esq.

Lauren Angelilli, Esq.

Fax:    (212) 474-3700

If to AOL:

 

AOL Inc.

770 Broadway

New York, NY 10003

Attention:

   Scott Cockrell


15

 

           Vice President—Tax
Fax1:   

All such notices shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) sent by telecopier (except that, if not sent during normal business hours for the recipient, then at the opening of business on the next Business Day for the recipient) to the fax numbers set forth above or (c) deposited in the United States mail or private express mail, postage prepaid, addressed as set forth above.

SECTION 7.14. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby, as the case may be, is not affected in any manner materially adverse to either Company. Upon any such determination, the Companies shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the Companies.

SECTION 7.15. Force Majeure. Neither Company shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability or parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

SECTION 7.16. Termination. The Agreement shall remain in force and be binding so long as the applicable period of assessments (including extensions) remains unexpired for any Taxes contemplated by the Agreement.

SECTION 7.17. Successor Provisions. Any reference herein to any provisions of the Code or Regulations shall be deemed to include any amendments or successor provisions thereto as appropriate.

SECTION 7.18. Compliance by Affiliates. TWX and AOL shall cause their Affiliates to comply with the terms of this Agreement.

SECTION 7.19. Survival. Except as expressly set forth in this Agreement, any covenants, representations or warranties contained in this Agreement and any liabilities for the breach of any obligation contained in this Agreement shall survive each of the Separation and Distribution and shall remain in full force and effect.

 

 

1

AOL to provide.


16

 

SECTION 7.20. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by either Company, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Company against whom it is sought to enforce such waiver, amendment, supplement or modification.


17

 

IN WITNESS WHEREOF, the Companies have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

 

TIME WARNER INC.,
  by  

 

    Name:
    Title:
AOL INC.,
  by  

 

    Name:
    Title:
EX-10.3 7 dex103.htm EXHIBIT 10.3 EXHIBIT 10.3

Exhibit 10.3

 

 

 

 

EMPLOYEE MATTERS AGREEMENT

By and Among

TIME WARNER INC.,

AOL LLC,

and

AOL INC.

Dated as of                     , 2009

 

 

 

 

 


TABLE OF CONTENTS

 

         

Page

ARTICLE I

SECTION 1.01.

   Schedules and Section References    1

SECTION 1.02.

   Definitions    1
ARTICLE II
General Principles; Employee Transfers

SECTION 2.01.

   Transfer of AOL LLC Employees; Assumption of AOL LLC Employee Liabilities; Indemnity    15

SECTION 2.02.

   Transfer of TWX Transferred Employees    15

SECTION 2.03.

   Transfer of TWX Retained Employees    16

SECTION 2.04.

   Continuation of Employment of Transferred Entity Employees    16

SECTION 2.05.

   Benefit Plans and Benefit Agreements    17

SECTION 2.06.

   Allocation of Employment Liabilities for TWX Transferred Employees and TWX Retained Employees    18
ARTICLE III
Annual Bonuses for Year of Distribution

SECTION 3.01.

   TWX Transferred Employee Bonuses    18

SECTION 3.02.

   TWX Retained Employee Bonuses    19
ARTICLE IV
Service Credit

SECTION 4.01.

   TWX Benefit Plans    19

SECTION 4.02.

   AOL Benefit Plans    19
ARTICLE V
Certain Welfare Benefit Plan Matters

SECTION 5.01.

   AOL Welfare Plans    19

SECTION 5.02.

   Comparability of Welfare Benefits    20

SECTION 5.03.

   Allocation of Welfare Benefit Claims    20

 

i


SECTION 5.04.    Workers Compensation Claims of TWX Transferred Employees and TWX Retained Employees    21
SECTION 5.05.    COBRA and HIPAA    21
ARTICLE VI
Defined Benefit Pension Plans
SECTION 6.01.    TWX Pension Plans    22
SECTION 6.02.    Vesting of Benefits    22
ARTICLE VII
U.S. Tax-Qualified Savings/401(k) Plan
SECTION 7.01.    AOL 401(k) Plan    22
SECTION 7.02.    Trust-to-Trust Transfers    23
SECTION 7.03.    Employer 401(k) Plan Contributions    24
SECTION 7.04.    Limitation of Liability    24
ARTICLE VIII
Deferred Compensation
SECTION 8.01.    Employee Deferred Compensation    24
SECTION 8.02.    Retention of TWX Deferred Compensation Obligations    25
SECTION 8.03.    Retention of AOL LLC Deferred Compensation Obligations    25
SECTION 8.04.    No Distributions on Separation    25
SECTION 8.05.    Section 409A    26
SECTION 8.06.    Tax Withholding and Reporting    26
SECTION 8.07.    Limited Indemnification    26
ARTICLE IX
Flexible Spending Accounts
SECTION 9.01.    Flexible Spending Accounts    26
ARTICLE X
Transportation Reimbursement Accounts
SECTION 10.01.    Transportation Reimbursement Accounts    27

 

ii


ARTICLE XI
Vacation
SECTION 11.01.    Vacation    27
ARTICLE XII
TWX Equity Compensation Awards
SECTION 12.01.    General Treatment of Outstanding TWX Equity Compensation Awards    27
SECTION 12.02.    Treatment of Outstanding TWX Equity Compensation Awards Held by Timothy M. Armstrong    28
SECTION 12.03.    Payable    29
SECTION 12.04.    Tax Withholding and Reporting    29
SECTION 12.05.    Tax Deductions    30
ARTICLE XIII
Administrative Costs and Benefit Plan Reimbursements
SECTION 13.01.    AOL Reimbursement of TWX for Post-Separation Administrative Services    30
SECTION 13.02.    Pre-Separation Benefit Plan Matters    30
SECTION 13.03.    TWX Benefit Plan Indemnification    31
ARTICLE XIV
Cooperation; Production of Witnesses; Works Councils
SECTION 14.01.    Cooperation    31
SECTION 14.02.    Production of Witnesses; Records; Further Cooperation    32
SECTION 14.03.    Works Councils; Employee Notices    33
ARTICLE XV
Reimbursements
SECTION 15.01.    Reimbursements by the AOL Group    33
SECTION 15.02.    Reimbursements by the TWX Group    34
SECTION 15.03.    Invoices    34

 

iii


ARTICLE XVI
Termination
SECTION 16.01.    Termination    34
SECTION 16.02.    Effect of Termination    34
ARTICLE XVII
Indemnification Procedures
SECTION 17.01.    Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds    34
SECTION 17.02.    Procedures for Indemnification of Third-Party Claims    35
SECTION 17.03.    Additional Matters    36
SECTION 17.04.    Remedies Cumulative    37
SECTION 17.05.    Survival of Indemnities    37
SECTION 17.06.    Limitation on Liability    37
ARTICLE XVIII
Further Assurances and Additional Covenants
SECTION 18.01.    Further Assurances    37
ARTICLE XIX
Miscellaneous
SECTION 19.01.    Vendor Contracts    38
SECTION 19.02.    Administration    39
SECTION 19.03.    Employment Tax Reporting Responsibility    39
SECTION 19.04.    Data Privacy    39
SECTION 19.05.    No Third-Party Beneficiaries    39
SECTION 19.06.    Confidentiality    40
SECTION 19.07.    Counterparts; Entire Agreement; Corporate Power    41
SECTION 19.08.    Governing Law; Jurisdiction    41
SECTION 19.09.    Assignability    41
SECTION 19.10.    Notices    42
SECTION 19.11.    Severability    43
SECTION 19.12.    Force Majeure    43
SECTION 19.13.    Headings    43
SECTION 19.14.    Survival of Covenants    43
SECTION 19.15.    Waivers of Default    43
SECTION 19.16.    Specific Performance    43

 

iv


SECTION 19.17.    Amendments    44
SECTION 19.18.    Interpretation    44
Schedule 2.05 - Benefit Agreements   
Schedule 5.01 - AOL LLC Welfare Plans   
Schedule 7.02 - 401(k) Investment Options Transferring In Kind   
Schedule 8.01 - Deferred Compensation   
Schedule 13.01 - Benefit Plan Administration   

 

v


THIS EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of     , 2009, by and among TIME WARNER INC., a Delaware corporation (“TWX”), AOL LLC, a Delaware limited liability company (“AOL LLC”), and AOL INC., a Delaware corporation (“AOL”).

R E C I T A L S

WHEREAS, TWX and AOL are entering into the Separation and Distribution Agreement (the “Separation Agreement”) concurrently herewith, pursuant to which TWX intends to distribute to its shareholders its entire interest in AOL by way of a stock dividend to be made to holders of TWX Common Stock (as defined below); and

WHEREAS, TWX, AOL LLC and AOL wish to set forth their agreements as to certain matters regarding employment, compensation and employee benefits.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

SECTION 1.01. Schedules and Section References. Article, Section and Schedule references are to the articles, sections or schedules of or to this Agreement unless otherwise specified.

SECTION 1.02. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

Action” shall mean any claim, demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any federal, state, local, foreign or international arbitration or mediation tribunal.

Affiliate” of any Person shall mean a Person that controls, is controlled by or is under common control with such Person. As used herein, “control” of any entity shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise; provided, however, that, except as specified in the following sentence, for the purposes of the Separation Agreement and the Ancillary Agreements, (i) AOL and its Subsidiaries shall not be considered Affiliates of TWX or any of its Subsidiaries and (ii) TWX and its Subsidiaries shall not be considered Affiliates of AOL or any of its Subsidiaries. For the avoidance of doubt, AOL LLC shall be considered an Affiliate of AOL and its Subsidiaries, and not TWX, at all times prior to the Distribution Date, but shall be considered an Affiliate of TWX and its Subsidiaries, and not AOL, at all times on or following the Distribution Date.


2

 

Ancillary Agreements” shall mean the Transition Services Agreements, TMA, this Employee Matters Agreement, IPA, Assignment and Assumption Agreement, Employee Benefits Assignment and Assumption Agreement and any other instruments, assignments, documents and agreements executed in connection with the implementation of the transactions contemplated by the Separation Agreement.

AOL” has the meaning set forth in the preamble.

AOL Asset Distribution Date” shall mean the date on which the Asset Distribution occurs.

AOL Assets” shall mean all of the Assets held by AOL LLC directly (including, for the avoidance of doubt, all capital stock of any Person held by AOL LLC), but excluding the TWX Retained Assets and any Assets held by a member of the AOL Group that are determined by the Parties, in good faith, to be primarily related to or used primarily in connection with the business or operations of a member of the TWX Group.

AOL Benefit Agreement” shall mean any Benefit Agreement to which any member of the AOL Group is a party and to which any member of the TWX Group is not a party.

AOL Benefit Plan” shall mean any AOL New Benefit Plan, AOL LLC Benefit Plan or Transferred Entity Benefit Plan. For the avoidance of doubt, no member of the AOL Group shall be deemed to sponsor or maintain any Benefit Plan if its relationship to such Benefit Plan is solely to administer or provide to TWX any reimbursement in respect of such Benefit Plan.

AOL Common Stock” shall mean the common stock, $0.01 par value per share, of AOL.

AOL Conversion” shall mean that on     , 2009, AOL Holdings filed with the Delaware Secretary of State, pursuant to Section 18-216 of the DLLC Act, the documentation necessary to convert to a Delaware corporation and to change its name to AOL Inc.

AOL Employee” shall mean each individual who, as of the time that is relevant to the context in which such term is used, is either (i) an AOL LLC Employee, (ii) a Former AOL LLC Employee, (iii) a Transferred Entity Employee or (iv) a TWX Transferred Employee.

AOL Employee Transfer Time” shall mean the time that the employment of the AOL LLC Employees is transferred to a member of the AOL Group, which time shall not be later than 11:59 p.m. on the business day immediately preceding the AOL Asset Distribution Date.

AOL 401(k) Plan” shall have the meaning set forth in Section 7.01.

AOL Group” shall mean AOL and each of its controlled Affiliates.


3

 

AOL Holdings” shall mean AOL Holdings LLC, a Delaware limited liability company that was classified as a corporation for U.S. Federal income tax purposes.

AOL Indemnitees” shall mean AOL, each other member of the AOL Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing.

AOL LLC Benefit Agreement” shall mean each Benefit Agreement to which AOL LLC is a party.

AOL LLC Benefit Plan” shall mean each Benefit Plan sponsored or maintained by AOL LLC.

AOL LLC Employee” shall mean an employee of AOL LLC, who, as of immediately prior to the AOL Employee Transfer Time, is actively employed by AOL LLC or is on a leave of absence, whether paid or unpaid, from which such employee is permitted to return (in accordance with AOL LLC’s personnel policies).

AOL LLC Employee Liabilities” shall mean all potential or actual employment and employee benefits-related AOL LLC Liabilities.

AOL LLC Liabilities” shall mean the Liabilities of AOL LLC, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or prior to the Distribution Date, including as a result of or in connection with this Agreement, the Assignment and Assumption Agreement or any of the transactions or other actions to implement the Separation or Distribution, but excluding the TWX Retained Liabilities.

AOL LLC Name Change” shall mean the filing by AOL LLC with the Delaware Secretary of State, pursuant to Sections 18-103 and 18-202 of the DLLC Act, the documentation necessary to change its name to “Historic AOL LLC”.

AOL LLC Welfare Plan” shall mean each Welfare Plan sponsored or maintained by AOL LLC.

AOL New Benefit Plan” shall mean any Benefit Plan sponsored or maintained by any member of the AOL Group as of the AOL Employee Transfer Time (including, without limitation, any AOL LLC Benefit Plan assumed by AOL pursuant to Section 2.01), other than a Transferred Entity Benefit Plan.

AOL Transferred Entity” shall mean each member of the AOL Group that is transferred from AOL LLC to AOL in connection with the Asset Distribution.


4

 

AOL Welfare Plan” shall mean each Welfare Plan that, immediately upon the AOL Employee Transfer Time, is sponsored or maintained by a member of the AOL Group.

AOL Workers Compensation Plan” shall have the meaning set forth in Section 5.04.

Armstrong” shall have the meaning set forth in Section 12.02.

Armstrong Employment Agreement” shall have the meaning set forth in Section 12.02.

Asset Distribution” shall mean AOL LLC’s transfer of the AOL Assets to AOL pursuant to the Assignment and Assumption Agreement.

Assets” shall mean all assets, properties and rights (including goodwill), other than any relating to Taxes, wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible or intangible, or accrued or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following:

(a) all accounting and other books, records and files, whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form;

(b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, furniture, office and other equipment, including hardware systems, circuits and other computer and telecommunication assets and equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property;

(c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products;

(d) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;

(e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; all other investments in securities of any Person; and all rights as a partner, joint venturer or participant;

(f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture


5

 

and sale of products and other contracts, agreements or commitments and all rights arising thereunder;

(g) all deposits, letters of credit, performance bonds and other surety bonds;

(h) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals and materials and analyses prepared by consultants and other third parties;

(i) all United States, state, multinational and foreign intellectual property, including patents, copyrights, trade names, trademarks, service marks, slogans, logos, trade dresses and other source indicators and the goodwill of the business symbolized thereby; all registrations, applications, recordings, disclosures, renewals, continuations, continuations-in-part, divisions, reissues, reexaminations, foreign counterparts, and other legal protections and rights related to any of the foregoing; mask works, trade secrets, inventions and other proprietary information, including know-how, processes, formulae, techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals, discoveries, inventions, licenses from third-parties granting the right to use any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium;

(j) all computer applications, programs, software and other code (in object and source code form), including operating software, network software, firmware, middleware, design software, design tools, systems documentation, instructions, ASP, HTML, DHTML, SHTML and XML files, cgi and other scripts, APIs, web widgets, algorithms, models, methodologies, files, documentation related to any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium;

(k) all Internet URLs and domain names;

(l) all websites, databases, content, text, graphics, images, audio, video, data and other copyrightable works or other works of authorship including all translations, adaptations, derivations and combinations thereof;

(m) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, subscriber, customer and vendor data, correspondence and lists, product literature and other advertising and promotional materials, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, server and traffic logs, quality records and reports and other books, records, studies, surveys, reports, plans, business records and documents;

(n) all prepaid expenses, trade accounts and other accounts and notes receivable (whether current or non-current);


6

 

(o) all claims or rights against any Person arising from the ownership of any other Asset, all rights in connection with any bids or offers, all claims, causes in action, lawsuits, judgments or similar rights, all rights under express or implied warranties, all rights of recovery and all rights of setoff of any kind and demands of any nature, in each case whether accrued or contingent, whether in tort, contract or otherwise and whether arising by way of counterclaim or otherwise;

(p) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;

(q) all licenses (including radio and similar licenses), permits, approvals and authorizations that have been issued by any Governmental Authority and all pending applications therefor;

(r) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements;

(s) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements; and

(t) all goodwill as a going concern and other intangible properties.

Assignment and Assumption Agreement” shall mean the Assignment and Assumption Agreement between AOL and AOL LLC to be dated as of the date of the Asset Distribution.

Benefit Agreement” shall mean any Benefit Plan that is an employment, consulting, deferred compensation, executive compensation, change in control, split dollar life insurance, special retiree medical, sale bonus, incentive bonus, severance or other compensatory agreement between any employee or former employee of any member of the TWX Group or any member of the AOL Group, on the one hand, and any member of the TWX Group or any member of the AOL Group, on the other hand.

Benefit Plan” shall mean, with respect to an entity, each plan, program, policy, agreement, arrangement or understanding that is an employment, consulting, deferred compensation, executive compensation, incentive bonus or other bonus, employee pension, profit sharing, savings, retirement, supplemental retirement, stock option, stock purchase, stock appreciation right, restricted stock, restricted stock unit, deferred stock unit, other equity-based compensation, severance pay, salary continuation, life, death benefit, health, hospitalization, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any “employee benefit plan” (as defined in Section 3(3) of ERISA) sponsored or maintained by such entity or to which such entity is a party.

COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

Code” shall mean the Internal Revenue Code of 1986, as amended.


7

 

Converted AOL Option” shall have the meaning set forth in Section 12.02.

Converted AOL RSU” shall have the meaning set forth in Section 12.02.

Deferred Compensation Payable” shall mean an amount equal to the aggregate fair market value, determined as of the most recently available time prior to the business day immediately preceding the Distribution Date, of the obligations pursuant to the deferred compensation account for any Former AOL LLC Employee listed on Schedule 8.01(B) or Schedule 8.01(C). For the avoidance of doubt, the Deferred Compensation Payable shall be considered a Qualified Intercompany Account pursuant to Schedule IV of the Separation Agreement.

Distribution” shall mean the distribution, on a pro rata basis, by TWX to the Record Holders of all the outstanding shares of AOL Common Stock owned by TWX on the Distribution Date.

Distribution Date” shall mean the date, determined by TWX in accordance with Section 5.03 of the Separation Agreement, on which the Distribution occurs.

DLLC Act” shall mean the Delaware Limited Liability Company Act.

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

Employee Benefits Assignment and Assumption Agreement” shall mean the Employee Benefits Assignment and Assumption Agreement between TWX, AOL and AOL LLC to be dated as of the date of AOL Employee Transfer Time.

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

Existing AOL Inc. Name Change” shall mean the filing with the Delaware Secretary of State of the documentation necessary to change its name to “Original AOL Inc.” by AOL Inc., a direct wholly-owned Subsidiary of AOL LLC.

FAS 123R” shall mean Statement of Financial Accounting Standards No. 123R or the comparable relevant sections of the FASB Accounting Standards Codification.

FASB” shall mean the Financial Accounting Standards Board.

Fair Market Value” of a share of TWX Common Stock shall mean, with respect to any given date, (i) if there should be a public market for such stock on such date, the closing sale price of such stock on the NYSE Composite Tape, or, if such stock is not listed or admitted on any national securities exchange, the average of the per share closing bid price and per share closing asked price on such date for such stock as quoted


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on the NASDAQ (or such market in which such prices are regularly quoted), or, if no sale of shares of such stock shall have been reported on the NYSE Composite Tape or quoted on the NASDAQ on such date, then the immediately preceding date on which sales of shares of such stock have been so reported or quoted shall be used, and (ii) if there should not be a public market for such stock on such date, the Fair Market Value shall be the value established by TWX in good faith.

First AOL LLC Distribution” shall mean the transfer by AOL of all of the membership interests in AOL LLC to TWX and TWA LLC, on a pro rata basis in respect of the AOL Common Stock held by TWX and TWA LLC, respectively.

Former AOL LLC Employee” shall mean each employee of AOL LLC who, as of immediately prior to the AOL Employee Transfer Time, is no longer employed by a member of the TWX Group or the AOL Group. For the avoidance of doubt, the term “Former AOL LLC Employee” shall not include any employee who, as of immediately prior to the AOL Employee Transfer Time, is on a leave of absence from which such employee is permitted to return (in accordance with AOL LLC’s personnel policies).

Governmental Authority” shall mean any Federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other legislative, judicial, regulatory, administrative or governmental authority.

Group” shall mean either the TWX Group or the AOL Group, as the context requires.

HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996.

Indemnifying Party” shall have the meaning set forth in Section 17.01.

Indemnitee” shall have the meaning set forth in Section 17.01.

Indemnity Payment” shall have the meaning set forth in Section 17.01.

Information” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

Insurance Proceeds” shall mean those moneys:


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(a) received by an insured (or its successor-in-interest) from an insurance carrier;

(b) paid by an insurance carrier on behalf of the insured (or its successor-in-interest); or

(c) received (including by way of set-off) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability; in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.

Internal Distribution” shall mean the transfer by TWA LLC of all of the AOL Common Stock that it owns to TWX in respect of the membership interests of TWA LLC held by TWX.

Internal Transactions” shall mean the TWA Conversion, the Existing AOL Inc. Name Change, the AOL Conversion, the Asset Distribution, the First AOL LLC Distribution, the Second AOL LLC Distribution, the AOL LLC Name Change, the Internal Distribution, the Payables Transactions and the Recapitalization.

Law” shall mean any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, government approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereinafter in effect and, in each case, as amended.

Liabilities” shall mean any and all claims, debts, demands, actions, causes of action, suits, damages, obligations, accruals, accounts payable, reckonings, bonds, indemnities and similar obligations, agreements, promises, guarantees, make whole agreements and similar obligations, and other liabilities and requirements, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action, order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. For the avoidance of doubt, Liabilities (i) shall include attorneys’ fees, the costs and expenses of all assessments, judgments, settlements and compromises, and any and all other costs and expenses whatsoever reasonably incurred in connection with anything contemplated by the preceding sentence and (ii) shall not include liabilities or requirements related to Taxes.


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NASDAQ” shall mean the National Association of Securities Dealers Automated Quotation System.

NYSE” shall mean the New York Stock Exchange.

Party” shall mean any party hereto.

Payables Transactions” shall mean the intercompany payables transactions set forth on Schedule IV of the Separation Agreement to be settled as of the close of business on the business day immediately prior to the Distribution Date.

Person” shall mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability company, any other entity and any Governmental Authority.

Post-Separation AOL Employee” shall mean each AOL Employee who is employed by a member of the AOL Group immediately following the Distribution Date.

Recapitalization” shall mean the recapitalization of AOL so that the number of outstanding shares of AOL Common Stock will be equal to the number of shares that will be distributed in the Distribution.

Recently Terminated Former AOL LLC Employee” shall mean a Former AOL LLC Employee whose employment was terminated within the five years immediately prior to the AOL Employee Transfer Time.

Record Date” shall mean the close of business on the date to be determined by the TWX board of directors as the record date for determining the shares of TWX Common Stock in respect of which shares of AOL Common Stock will be distributed pursuant to the Distribution.

Record Holders” shall mean the holders of TWX Common Stock as of the Record Date.

Second AOL LLC Distribution” shall mean the transfer by TWA LLC of all of its membership interests in AOL LLC to TWX in respect of the membership interests of TWA LLC held by TWX.

Security Interest” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.

Separation” shall mean (a) the Internal Transactions, (b) any actions to be taken pursuant to Article II of the Separation Agreement and (c) any other transfers of Assets and assumptions of Liabilities, in each case, between a member of one Group and a member of the other Group, provided for in the Separation Agreement or the Assignment and Assumption Agreement.


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Subsidiary” of any Person shall mean any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that (i) no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person and (ii) AOL and its Subsidiaries (including AOL LLC) shall not be considered Subsidiaries of TWX prior to the Distribution.

Taxes” shall mean all forms of taxation or duties imposed, or required to be collected or withheld, including (but not limited to) all forms of income taxes, social insurance charges, payroll tax payments or other tax-related amounts, together with any related interest, penalties or other additional amounts

Third-Party Claim” shall mean any assertion by a Person (including any Governmental Authority) who is not a member of the TWX Group or the AOL Group of any claim, or the commencement by any such Person of any Action, against any member of the TWX Group or the AOL Group.

Third-Party Proceeds” shall have the meaning set forth in Section 17.01.

TMA” shall mean the Second Tax Matters Agreement dated as of the date of the Separation Agreement by and between TWX and AOL.

Transferred Entity Benefit Plan” shall mean any Benefit Plan sponsored or maintained by any AOL Transferred Entity.

Transferred Entity Employees” shall mean each individual who, as of immediately prior to the AOL Asset Distribution Date, is a current or former employee of any AOL Transferred Entity, other than any former employee of an AOL Transferred Entity who, immediately prior to the AOL Asset Distribution Date, is employed by a member of the TWX Group.

Transition Services Agreement” shall mean the Transition Services Agreement dated as of the date of the Separation Agreement between TWX and AOL.

Transactions” shall mean the Internal Transactions and the Distribution.

TWA” shall mean TW AOL Holdings Inc., a Virginia corporation.

TWA Conversion” shall mean the filing by TWA with the Virginia Secretary of State, pursuant to Section 13.1-722.9 of the Virginia Code, the documentation necessary to become a Virginia limited liability company named TW AOL Holdings LLC.


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TWA LLC” shall mean TW AOL Holdings LLC, a Virginia limited liability company.

TWX” shall have the meaning set forth in the preamble.

TWX Benefit Agreement” shall mean any Benefit Agreement to which any member of the TWX Group is a party and to which any member of the AOL Group is not a party.

TWX Benefit Plan” shall mean any Benefit Plan sponsored or maintained by any member of the TWX Group. For the avoidance of doubt, no member of the TWX Group shall be deemed to sponsor or maintain any Benefit Plan if its relationship to such Benefit Plan is solely to administer or provide to AOL any reimbursement in respect of such Benefit Plan.

TWX Benefit Plan Costs” shall have the meaning set forth in Section 16.02.

TWX Benefit Plan Costs Reimbursement Amount” shall mean, with respect to any calendar quarter ending at or after the AOL Employee Transfer Time, the amount, if any, by which the TWX Benefit Costs incurred by the members of the TWX Group during such calendar quarter exceed the TWX Benefit Plan Rebates received by the members of the TWX Group during such calendar quarter (in each case, as set forth in Section 13.02), which amount shall be paid pursuant to Section 15.01.

TWX Benefit Plan Rebate Reimbursement Amount” shall mean, with respect to any calendar quarter ending at or after the AOL Employee Transfer Time, the amount, if any, by which the TWX Benefit Plan Rebates received by the members of the TWX Group during such calendar quarter exceed the TWX Benefit Plan Costs incurred by the members of the TWX Group during such calendar quarter, which amount shall be paid pursuant to Section 15.02.

TWX Common Stock” shall mean the common stock, $0.01 par value per share, of TWX.

TWX Dividend Equivalents” shall mean dividend equivalents paid with respect to TWX RSUs held by AOL Employees.

TWX Equity Compensation Award” shall have the meaning set forth in Section 12.01.

TWX Equity Award Payable” shall mean the sum of (i) an aggregate amount equal to the excess of (A) the Fair Market Value, as of the most recently available time prior to the business day immediately prior to the Distribution Date, of a share of TWX Common Stock over (B) the per share exercise price of each TWX Option that is outstanding as of the business day immediately prior to the Distribution Date and that is not expected to be forfeited promptly following the Distribution, (ii) an aggregate amount equal to the Fair Market Value, as of the most recently available time prior to the


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business day immediately prior to the Distribution Date, of all shares of TWX Common Stock subject to TWX RSUs that are outstanding as of the business day immediately prior to the Distribution Date and that are not expected to be forfeited promptly following the Distribution and (iii) an aggregate amount equal to the Fair Market Value, as of the most recently available time prior to the business day immediately prior to the Distribution Date, of all shares of TWX Common Stock subject to TWX PSUs that are outstanding as of the business day immediately prior to the Distribution Date and that are not expected to be forfeited promptly following the Distribution. For the avoidance of doubt, the TWX Equity Award Payable shall be considered a Qualified Intercompany Account pursuant to Schedule IV of the Separation Agreement.

TWX Excess Benefit Pension Plan” shall mean the Time Warner Excess Benefit Pension Plan, as amended and restated as of May 1, 2008.

TWX 401(k) Plan” shall have the meaning set forth in Section 7.01.

TWX Group” shall mean TWX and each of its Affiliates.

TWX Indemnitees” shall mean TWX, each other member of the TWX Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns.

TWX Nonqualified Plans” shall mean the Time Warner Inc. Deferred Compensation Plan, as amended January 1, 2004, the Time Warner Inc. Deferred Compensation Plan, as amended and restated as of January 1, 2005, and the Time Warner Excess Profit Sharing Plan, effective as of January 1, 1997.

TWX Option” shall have the meaning set forth in Section 12.01.

TWX Pension Plan” shall have the meaning set forth in Section 6.01.

TWX PSU” shall have the meaning set forth in Section 12.01.

TWX Retained Assets” shall mean the Assets to be retained by TWX in the Funding Agreement between Time Warner Inc. and AOL LLC relating to the TWX Retained Liabilities.

TWX Retained Employee” shall have the meaning set forth in Section 2.03.

TWX Retained Employee Bonuses” shall have the meaning set forth in Section 3.02.

TWX Retained Employee Bonuses Reimbursement Amount” shall mean an amount equal to the TWX Retained Employee Bonuses paid pursuant to Section 3.02.

TWX Retained Employee 401(k) Contributions” shall have the meaning set forth in Section 7.03.


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TWX Retained Employee 401(k) Contributions Reimbursement Amount” shall mean an amount equal to the TWX Retained Employee 401(k) Contributions paid pursuant to Section 7.03.

TWX Retained Employee Transfer Time” shall mean the time at which a TWX Retained Employee commences employment with a member of the TWX Group, but in no event later than the AOL Employee Transfer Time.

TWX Retained Liabilities” shall mean the guarantees by AOL LLC of the existing public and bank debt of TWX and its Affiliates and the Liabilities described in Section 8.03 of the Separation Agreement.

TWX RSU” shall have the meaning set forth in Section 12.01.

TWX Services” shall have the meaning set forth in Section 13.01.

TWX Services Reimbursement Amounts” shall have the meaning set forth in Section 13.01.

TWX Transferred Employee” shall have the meaning set forth in Section 2.02.

TWX Transferred Employee Bonuses” shall have the meaning set forth in Section 3.01.

TWX Transferred Employee Bonuses Reimbursement Amount” shall mean an amount equal to the TWX Transferred Employee Bonuses paid pursuant to Section 3.01.

TWX Transferred Employee Transfer Time” shall mean the time at which a TWX Transferred Employee commences employment with a member of the AOL Group, but in no event later than the AOL Employee Transfer Time.

TWX Welfare Plan” shall mean each Welfare Plan which, immediately upon the AOL Employee Transfer Time, is sponsored or maintained by a member of the TWX Group.

TWX Workers Compensation Plan” shall have the meaning set forth in Section 5.04.

Vendor Contract” shall have the meaning set forth in Section 19.01.

Welfare Plan” shall mean each Benefit Plan that provides life insurance, health care, dental care, accidental death and dismemberment insurance, disability, severance, vacation or other group welfare or fringe benefits.

Workers Compensation Event” shall mean the event, injury, illness or condition giving rise to a workers compensation claim.


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ARTICLE II

General Principles; Employee Transfers

SECTION 2.01. Transfer of AOL LLC Employees and AOL LLC Assets; Assumption of AOL LLC Employee Liabilities; Indemnity. The employment of each AOL LLC Employee with AOL LLC shall be transferred, and each AOL LLC Employee shall become employed by AOL, effective as of the AOL Employee Transfer Time. Furthermore, except as otherwise specifically provided in this Agreement, effective as of the AOL Employee Transfer Time, AOL LLC shall, in accordance with the Employee Benefits Assignment and Assumption Agreement, transfer, assign, convey and deliver, to AOL all of AOL LLC’s right, title and interest in the AOL Assets relating to employees or employee-benefits matters. Except as otherwise specifically provided in this Agreement, at the AOL Employee Transfer Time, (i) AOL shall, in accordance with the Employee Benefits Assignment and Assumption Agreement, assume and pay, perform, fulfill and discharge all AOL LLC Employee Liabilities and (ii) AOL shall, in accordance with the Employee Benefits Assignment and Assumption Agreement, assume and be responsible for administering each AOL LLC Benefit Plan and each AOL LLC Benefit Agreement in accordance with its terms. For the avoidance of doubt from and after the AOL Employee Transfer Time, AOL LLC shall not retain any AOL LLC Employee Liabilities, and in connection therewith, AOL shall indemnify, defend and hold harmless AOL LLC and each other member of the TWX Group from and against any and all AOL LLC Employee Liabilities.

SECTION 2.02. Transfer of TWX Transferred Employees. Prior to December 1, 2009, or such other date as the Parties may mutually agree upon, but in no event later than the last business day prior to the AOL Employee Transfer Time, TWX and AOL shall mutually agree upon a list of employees, if any, of any member of the TWX Group who shall be offered employment by a member of the AOL Group. Prior to the AOL Employee Transfer Time, a member of the AOL Group shall make an offer of employment to each employee on such list, effective as of the TWX Transferred Employee Transfer Time. Each employee who is offered employment by a member of the AOL Group pursuant to this Section 2.02 and who expressly accepts such offer and commences employment is referred to herein as a “TWX Transferred Employee”. The employment of each TWX Transferred Employee with the relevant member of the TWX Group shall be terminated, and each TWX Transferred Employee shall become employed by a member of the AOL Group, effective as of the TWX Transferred Employee Transfer Time. For a period of not less than one year following the AOL Employee Transfer Time, AOL shall maintain or cause to be maintained for the benefit of each TWX Transferred Employee base salary or hourly compensation, as applicable, and annual cash incentive opportunities and long-term incentive opportunities that are substantially comparable in the aggregate to the base salary or hourly compensation, annual cash incentive opportunities and long-term incentive opportunities, as applicable, provided to other similarly situated employees of the members of the AOL Group; provided, however, that nothing herein shall be construed as requiring any member of the AOL Group to continue the employment of any specific person for any particular period of time after the AOL Employee Transfer Time. No member of the AOL Group shall be


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responsible for any severance payments or benefits in respect of the termination of employment of any employee by any member of the TWX Group pursuant to this Section 2.02; provided, however, that the applicable member of the AOL Group shall be responsible for severance payments or benefits (if any) in respect of the termination of employment of any TWX Transferred Employee by a member of the AOL Group following the TWX Transferred Employee Transfer Time.

SECTION 2.03. Transfer of TWX Retained Employees. Prior to December 1, 2009, or such other date as the Parties may mutually agree upon, but in no event later than the last business day prior to the AOL Employee Transfer Time, TWX and AOL shall mutually agree upon a list of employees, if any, of any member of the AOL Group who shall be offered employment by a member of the TWX Group. Prior to the AOL Employee Transfer Time, a member of the TWX Group shall make an offer of employment to each employee on such list, effective as of the TWX Retained Employee Transfer Time. Each employee who is offered employment by a member of the TWX Group pursuant to this Section 2.03 and who expressly accepts such offer and commences employment is referred to herein as a “TWX Retained Employee”. The employment of each TWX Retained Employee with the relevant member of the AOL Group shall be terminated, and each TWX Retained Employee shall become employed by a member of the TWX Group, effective as of the TWX Retained Employee Transfer Time. For a period of not less than one year following the relevant AOL Employee Transfer Time, TWX shall maintain or cause to be maintained for the benefit of each TWX Retained Employee base salary or hourly compensation, as applicable, and annual cash incentive opportunities and long-term incentive opportunities that are substantially comparable in the aggregate to the base salary or hourly compensation, annual cash incentive opportunities and long-term incentive opportunities, as applicable, provided to other similarly situated employees of a member of the TWX Group; provided, however, that nothing herein shall be construed as requiring any member of the TWX Group to continue the employment of any specific person for any particular period of time after the AOL Employee Transfer Time. No member of the TWX Group shall be responsible for any severance payments or benefits in respect of the termination of employment of any employee by any member of the AOL Group pursuant to this Section 2.03; provided, however, that the applicable member of the TWX Group shall be responsible for severance payments or benefits (if any) in respect of the termination of employment of any TWX Retained Employee by a member of the TWX Group following the TWX Retained Employee Transfer Time.

SECTION 2.04. Continuation of Employment of Transferred Entity Employees. From and after the AOL Asset Distribution Date, AOL will (a) cause the relevant AOL Transferred Entity to continue the employment of each Transferred Entity Employee who is actively employed on such date; provided, however, that nothing herein shall be construed as requiring any member of the AOL Group to continue the employment of any specific person for any particular period of time after the AOL Asset Distribution Date, and (b) retain liability and responsibility for all actual or potential employment and employee benefits-related Liabilities relating to each Transferred Entity Employee to the same extent as if the transactions contemplated by this Agreement and the Separation Agreement had not occurred.


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SECTION 2.05. Benefit Plans and Benefit Agreements. Except as otherwise specifically provided in this Agreement, as of the AOL Employee Transfer Time, each AOL Employee (and each such employee’s dependents and beneficiaries) shall cease active participation in all TWX Benefit Plans and, as of such time, AOL shall or shall cause another member of the AOL Group to have in effect such AOL New Benefit Plans as are necessary to comply with its obligations pursuant to this Agreement, including, without limitation, pursuant to Sections 5.01, 7.01, 9.01 and 10.01. As of immediately following the AOL Employee Transfer Time, except as otherwise specifically provided in this Agreement, (i) TWX shall, or shall cause one or more members of the TWX Group to, retain, pay, perform, fulfill and discharge all Liabilities arising out of or relating to all TWX Benefit Plans and TWX Benefit Agreements and (ii) AOL shall, or shall cause one or more members of the AOL Group to, retain, pay, perform, fulfill and discharge all Liabilities arising out of or relating to all AOL Benefit Plans and AOL Benefit Agreements. Notwithstanding the foregoing, and unless otherwise provided in this Agreement, (A) in the case of any Benefit Agreement in effect at the AOL Employee Transfer Time that is listed on Schedule 2.05(A) pursuant to which both a member of the AOL Group and a member of the TWX Group are parties, each such party shall continue to honor its respective obligations under such Benefit Agreement, (B) in the case of any AOL Benefit Agreement in effect as of the AOL Employee Transfer Time that is listed on Schedule 2.05(B), pursuant to which AOL and TWX intend or expect that specific compensation or benefit items will be provided by any member of the TWX Group (as described in Schedule 2.05(B)), such member of the TWX Group shall honor its obligations with respect to such specific compensation or benefit items and (C) in the case of any TWX Benefit Agreement in effect as of the AOL Employee Transfer Time that is listed on Schedule 2.05(C), pursuant to which AOL and TWX intend or expect that specific compensation or benefit items will be provided by any member of the AOL Group (as described in Schedule 2.05(C)), such member of the AOL Group shall honor its obligations with respect to such specific compensation or benefit items. From and after the AOL Employee Transfer Time, except in the case of any arrangement that is set forth on Schedule 2.05(A), Schedule 2.05(B) or Schedule 2.05(C) or as otherwise specifically provided in this Agreement, in the case of any Benefit Agreement pursuant to which both a member of the AOL Group and a member of the TWX Group are parties, (1) AOL shall, or shall cause one or more members of the AOL Group to, assume all obligations of the members of the TWX Group under such Benefit Agreement that relate to an AOL Employee (other than a TWX Transferred Employee), (2) TWX shall, or shall cause one or more members of the TWX Group to, assume all obligations of the members of the AOL Group under such Benefit Agreement that relate to any current or former employee of the TWX Group who is not an AOL Employee (other than a TWX Retained Employee) and (3) in the case of any TWX Transferred Employee or any TWX Retained Employee, (x) AOL shall, or shall cause one or more members of the AOL Group to, assume all obligations of the members of the TWX Group under such Benefit Agreement that relate to such employee’s service with any member of the AOL Group, and (y) TWX shall, or shall cause one or more members of the TWX Group to, assume all obligations of the members of the AOL Group under such Benefit Agreement that relate to such employee’s service with any member of the TWX Group. For the avoidance of doubt, from and after the AOL Employee Transfer


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Time, in no event will AOL be required to issue, grant or award any compensation relating to AOL Common Stock to any employee who is a member of the TWX Group, and in no event will TWX be required to issue, grant or award any compensation relating to TWX Common Stock to any employee who is a member of the AOL Group. Notwithstanding any provision of this Agreement to the contrary, nothing contained herein shall be construed as requiring, and the members of the TWX Group shall take no action that would have the effect of requiring, any member of the AOL Group to continue any AOL Benefit Plan or any other specific plans, programs, policies, arrangements, agreements or understandings from or after the AOL Employee Transfer Time.

SECTION 2.06. Allocation of Employment Liabilities for TWX Transferred Employees and TWX Retained Employees. Except as otherwise specifically provided in this Agreement, effective as of the relevant TWX Transferred Employee Transfer Time, (a) the members of the TWX Group shall retain liability and responsibility for all actual or potential employment and employee benefits-related Liabilities incurred prior to the TWX Transferred Employee Transfer Time that relate to the TWX Transferred Employees (or any dependent or beneficiary of any TWX Transferred Employee) and (b) the members of the AOL Group shall assume liability and responsibility for all actual or potential employment and employee benefits-related Liabilities incurred at or after the TWX Transferred Employee Transfer Time that relate to the TWX Transferred Employees (or any dependent or beneficiary of any TWX Transferred Employee). Except as otherwise specifically provided in this Agreement, effective as of the relevant TWX Retained Employee Transfer Time, (i) the members of the AOL Group shall retain liability and responsibility for all actual or potential employment and employee benefits-related Liabilities incurred prior to the TWX Retained Employee Transfer Time that relate to the TWX Retained Employees (or any dependent or beneficiary of any TWX Retained Employee) and (ii) the members of the TWX Group shall assume liability and responsibility for all actual or potential employment and employee benefits-related Liabilities incurred at or after the TWX Retained Employee Transfer Time that relate to the TWX Retained Employees (or any dependent or beneficiary of any TWX Retained Employee).

ARTICLE III

Annual Bonuses for Year of Distribution

SECTION 3.01. TWX Transferred Employee Bonuses. Following the end of the calendar year that includes the Distribution Date, TWX shall inform AOL in writing of the bonus (if any) payable to each TWX Transferred Employee under the applicable annual incentive plan or arrangement of a member of the TWX Group with respect to the portion of such calendar year ending at the TWX Transferred Employee Transfer Time (collectively, the “TWX Transferred Employee Bonuses”). AOL shall, or shall cause its Affiliates to, pay each TWX Transferred Employee such bonus (if any) promptly following the end of such calendar year and within the time period set forth in the applicable annual incentive plan or arrangement. The obligations of the members of the TWX Group to reimburse the members of the AOL Group with respect to the TWX Transferred Employee Bonuses are set forth in Section 15.02.


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SECTION 3.02. TWX Retained Employee Bonuses. Following the end of the calendar year that includes the Distribution Date, AOL shall inform TWX in writing of the bonus (if any) payable to each TWX Retained Employee under the applicable annual incentive plan or arrangement of a member of the AOL Group with respect to the portion of such calendar year ending at the TWX Retained Employee Transfer Time (collectively, the “TWX Retained Employee Bonuses”). TWX shall, or shall cause its Affiliates to, pay each TWX Retained Employee such bonus (if any) promptly following the end of such calendar year and within the time period set forth in the applicable annual incentive plan or arrangement. The obligations of the members of the AOL Group to reimburse the members of the TWX Group with respect to the TWX Retained Employee Bonuses are set forth in Section 15.01.

ARTICLE IV

Service Credit

SECTION 4.01. TWX Benefit Plans. From and after the AOL Employee Transfer Time, service of Post-Separation AOL Employees with any member of the AOL Group or any other employer other than any member of the TWX Group shall not be taken into account for any purpose under the TWX Benefit Plans, except for purposes of determining the timing of the payment of compensation or the provision of benefits under any TWX Benefit Plan, to the extent that the timing of such payment or provision is triggered under such TWX Benefit Plan by a Post-Separation AOL Employee’s separation from service from the AOL Group.

SECTION 4.02. AOL Benefit Plans. Unless prohibited by applicable Law, as of the AOL Employee Transfer Time, AOL shall, and shall cause its Affiliates to, credit service accrued by each Post-Separation AOL Employee with, or otherwise recognized for benefit plan purposes by, any member of the TWX Group prior to the AOL Employee Transfer Time for purposes of (i) eligibility and vesting under each AOL Benefit Plan under which service is relevant in determining eligibility or vesting, (ii) determining the amount of severance payments and benefits (if any) payable under each AOL Benefit Plan that provides severance payments or benefits and (iii) determining the number of vacation days to which each such employee will be entitled following the AOL Employee Transfer Time, in the case of clauses (i), (ii) and (iii), (A) to the same extent recognized by the relevant members of the TWX Group or the corresponding TWX Benefit Plan immediately prior to the AOL Employee Transfer Time, and (B) except to the extent such credit would result in a duplication of benefits for the same period of service.

ARTICLE V

Certain Welfare Benefit Plan Matters

SECTION 5.01. AOL Welfare Plans. Effective as of the AOL Employee Transfer Time, AOL shall, or shall cause its Affiliates to, have in effect the AOL Welfare Plans to provide welfare benefits to the Post-Separation AOL Employees and Former


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AOL LLC Employees participating in any TWX Welfare Plans immediately prior to the AOL Employee Transfer Time. Schedule 5.01 contains a list of AOL LLC Welfare Plans that are in effect as of the date hereof.

SECTION 5.02. Comparability of Welfare Benefits. Without limiting the generality of Section 2.05, the Post-Separation AOL Employees and Former AOL LLC Employees (and their respective dependents and beneficiaries) shall cease all active participation in all TWX Welfare Plans effective as of AOL Employee Transfer Time. To the extent permitted by applicable Law, AOL shall, and shall cause the other members of the AOL Group to, (i) for a period of not less than one year following the AOL Employee Transfer Time, provide benefits to all TWX Transferred Employees that are substantially comparable in the aggregate to those provided to other similarly situated employees of the members of the AOL Group under the AOL Welfare Plans, (ii) waive, or with respect to AOL Welfare Plans insured through third-party insurance carriers, use commercially reasonable efforts to cause such insurance carriers to waive, all limitations as to preexisting conditions, exclusions and waiting periods and actively-at-work requirements with respect to eligibility, participation and coverage requirements applicable to the Post-Separation AOL Employees, Former AOL LLC Employees and their dependents under the AOL Welfare Plans, to the extent satisfied or waived under the applicable corresponding TWX Welfare Plan as of the AOL Employee Transfer Time, and (iii) provide or, with respect to AOL Welfare Plans insured through third-party insurance carriers, use commercially reasonable efforts to cause such insurance carriers to provide, each Post-Separation AOL Employee, each Former AOL LLC Employee and their eligible dependents with credit under the AOL Welfare Plans for any co-payments, co-insurance and deductibles paid under corresponding TWX Welfare Plans at or prior to the AOL Employee Transfer Time, in the plan year in which the relevant time occurs for purposes of satisfying any applicable deductible or out-of-pocket requirements under any AOL Welfare Plans in which the relevant Post-Separation AOL Employee or Former AOL LLC Employee participates following the AOL Employee Transfer Time.

SECTION 5.03. Allocation of Welfare Benefit Claims. Except as otherwise required under applicable Law and except for benefits for which a member of the AOL Group will reimburse a member of the TWX Group as provided in Section 15.01 or as otherwise set forth in Section 13.03, AOL or a member of the AOL Group shall be responsible for all benefit claims incurred under the TWX Welfare Plans and the AOL Welfare Plans by AOL Employees, Former AOL LLC Employees and their covered dependents and beneficiaries, whether incurred prior to, at or after the AOL Employee Transfer Time. Notwithstanding the foregoing and except as otherwise required under applicable Law or as otherwise specifically provided in this Agreement, TWX shall be responsible in accordance with the applicable TWX Welfare Plans in effect prior to the relevant TWX Transferred Employee Transfer Time for all benefit claims incurred under such plans prior to the relevant TWX Transferred Employee Transfer Time by TWX Transferred Employees and their covered dependents and beneficiaries. Except in the event of any claim by a TWX Transferred Employee for workers compensation benefits and as otherwise provided under applicable Law, for purposes of this Section 5.03, a benefit claim shall be deemed to be incurred as follows: (i) health, dental, vision, employee assistance program and prescription drug benefits


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(including in respect of any hospital confinement), upon provision of such services, materials or supplies, and (ii) life, disability, accidental death and dismemberment and business travel accident insurance benefits, upon the death, illness or accident giving rise to such benefits.

SECTION 5.04. Workers Compensation Claims of TWX Transferred Employees and TWX Retained Employees. Workers compensation claims of any TWX Transferred Employee shall be covered under the workers compensation plans of a member of the TWX Group (each, a “TWX Workers Compensation Plan”) if the Workers Compensation Event occurred prior to the TWX Transferred Employee Transfer Time, and shall be covered under the workers compensation plans of a member of the AOL Group (each, an “AOL Workers Compensation Plan”) if the Workers Compensation Event occurs at or after the TWX Transferred Employee Transfer Time. Workers compensation claims of any TWX Retained Employee shall be covered under the AOL Workers Compensation Plans if the Workers Compensation Event occurred prior to TWX Retained Employee Transfer Time, and shall be covered under the TWX Workers Compensation Plans if the Workers Compensation Event occurs at or after the TWX Retained Employee Transfer Time. If the Workers Compensation Event occurs over a period both preceding and following the TWX Transferred Employee Transfer Time or the TWX Retained Employee Transfer Time, as applicable, the claim shall be covered jointly under TWX Workers Compensation Plan and AOL Workers Compensation Plan, and shall be equitably apportioned between them based upon the relative periods of time that the Workers Compensation Event transpired preceding and following the TWX Transferred Employee Transfer Time or the TWX Retained Employee Transfer Time, as applicable.

SECTION 5.05. COBRA and HIPAA. Effective as of the AOL Employee Transfer Time, AOL shall assume all Liabilities of the TWX Welfare Plans and the members of the TWX Group to Post-Separation AOL Employees, Former AOL LLC Employees and their eligible dependents, in respect of health insurance under COBRA and any applicable similar state Laws; provided that the members of the TWX Group shall remain obligated to provide any applicable COBRA notices in respect of events occurring prior to the AOL Employee Transfer Time. Without limiting the generality of Section 13.03, AOL shall indemnify, defend and hold harmless the members of the TWX Group from and against any and all Liabilities relating to, arising out of or resulting from COBRA benefits provided by AOL, or the failure to provide such benefits, to Post-Separation AOL Employees, Former AOL LLC Employees and their eligible dependents. Notwithstanding Section 13.03 or any other provision of this Agreement to the contrary, in the event of any violation of HIPAA, whether occurring prior to, at or after the AOL Employee Transfer Time, the members of the TWX Group shall be solely liable for any such violations resulting from any action by a member of the TWX Group or any employee of a member of the TWX Group, and the members of the AOL Group shall be solely liable for any such violations resulting from any action by a member of the AOL Group or any employee of a member of the AOL Group.


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ARTICLE VI

Defined Benefit Pension Plans

SECTION 6.01. TWX Pension Plans. Effective as of the AOL Employee Transfer Time, each Post-Separation AOL Employee who is a participant, as of the AOL Employee Transfer Time, in one or more TWX Benefit Plans that are defined benefit pension plans, whether or not tax-qualified (each such plan, a “TWX Pension Plan”), including the TWX Excess Benefit Pension Plan, shall cease active participation in such TWX Pension Plans and, without limiting the generality of Section 2.05 or the first sentence of Section 4.01, service with any member of the AOL Group or any other employer other than any member of the TWX Group from and after the AOL Employee Transfer Time shall not be taken into account for any purpose under such TWX Pension Plans, except for purposes of determining the timing of the payment of compensation or the provision of benefits under any TWX Pension Plan, to the extent that such payment or provision is triggered under such TWX Pension Plan by a Post-Separation AOL Employee’s separation from service from the AOL Group. Notwithstanding any provision of this Agreement to the contrary, following the AOL Employee Transfer Time, TWX or its applicable Subsidiaries shall retain, or shall cause the applicable TWX Pension Plans to retain, sponsorship of each TWX Pension Plan and all Assets and Liabilities arising out of or relating to each TWX Pension Plan, and shall make payments to Post-Separation AOL Employees and former employees of any member of the AOL Group with vested rights thereunder and their applicable beneficiaries, in accordance with the terms of the applicable TWX Pension Plans, as in effect from time to time. The obligations of the members of the AOL Group to provide information to the members of the TWX Group in connection with the payment of benefits to the AOL Employees pursuant to the TWX Pension Plans are set forth in Section 14.01.

SECTION 6.02. Vesting of Benefits. Notwithstanding anything to the contrary in Section 4.01 of this Agreement, TWX shall take all steps necessary, including amending any TWX Pension Plan, so that, as of the Distribution Date, each Post-Separation AOL Employee shall be fully vested in his or her benefits under each TWX Pension Plan in which such Post-Separation AOL Employee participated while an employee of a member of the TWX Group.

ARTICLE VII

U.S. Tax-Qualified Savings/401(k) Plan

SECTION 7.01. AOL 401(k) Plan. Effective as of the AOL Employee Transfer Time, AOL shall, or shall cause its Affiliates to, have in effect a defined contribution plan that includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code (the “AOL 401(k) Plan”) providing benefits as of the AOL Employee Transfer Time to the AOL LLC Employees participating in any tax-qualified defined contribution plan sponsored by any member of the TWX Group (collectively, the “TWX 401(k) Plan”) immediately prior to the AOL Employee Transfer Time.


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SECTION 7.02. Trust-to-Trust Transfers. At the AOL Employee Transfer Time, or at such later time as may be mutually agreed upon by TWX and AOL, a member of the TWX Group shall cause to be transferred from the TWX 401(k) Plan to the AOL 401(k) Plan the Assets and Liabilities relating to (a) the account balances of the AOL LLC Employees (whether vested or unvested as of the AOL Employee Transfer Time), (b) the account balances or portions thereof of the Former AOL LLC Employees who are not Recently Terminated Former AOL LLC Employees that are vested as of the AOL Employee Transfer Time and (c) the account balances or portions thereof of the Recently Terminated Former AOL LLC Employees that are vested or unvested as of the AOL Employee Transfer Time, in each case, in accordance with the applicable requirements of all applicable Laws, including the Code. From and after the time that the transfer is complete, as described in the immediately preceding sentence, a member of the AOL Group shall administer the accounts of AOL LLC Employees, TWX Transferred Employees and Former AOL LLC Employees in the AOL 401(k) Plan in accordance with all applicable Laws, including the Code. Except as otherwise provided for in this Section 7.02, such transfer of Assets shall consist of cash, cash equivalents or participant loan receivables equal to all the accrued benefit Liabilities relating to all account balances referred to in the first sentence of this Section 7.02, including such Liabilities for the beneficiaries of the AOL LLC Employees and the Former AOL LLC Employees and including such accrued benefit Liabilities arising under any applicable qualified domestic relations order. Notwithstanding the foregoing, in the event that the AOL 401(k) Plan provides for an investment option listed on Schedule 7.02 hereto, transfers relating to TWX 401(k) balances invested in such investment option will be made in kind. A member of the AOL Group shall direct the trustee of the AOL 401(k) Plan to accept such transfers of Assets and Liabilities from the TWX 401(k) Plan. No later than 30 days prior to the date of the transfer of Assets and Liabilities pursuant to this Section 7.02, TWX shall, to the extent necessary and with the cooperation of AOL as necessary, file Internal Revenue Service Form 5310-A regarding such transfer of Assets and Liabilities from the TWX 401(k) Plan to the AOL 401(k) Plan, as described in this Section 7.02. At the AOL Employee Transfer Time, or such later date upon which the transfers of Assets and Liabilities contemplated by this Section 7.02 are completed, a member of the AOL Group shall direct the trustee of the AOL 401(k) Plan to, and the trustee shall, fully and immediately vest the transferred account balances of all AOL LLC Employees and TWX Transferred Employees (but not the account balances of any Recently Terminated Former AOL LLC Employee) in the AOL 401(k) Plan. Following the foregoing transfer, AOL and/or the AOL 401(k) Plan shall assume all Liabilities of the TWX Group under the TWX 401(k) Plan with respect to all participants in the TWX 401(k) Plan whose balances were transferred to the AOL 401(k) Plan and their beneficiaries pursuant to such transfer, and the TWX Group and the TWX 401(k) Plan shall have no Liabilities to provide such participants with benefits under the TWX 401(k) Plan following such transfer. TWX and AOL shall use reasonable efforts to minimize the duration of any “blackout period” imposed in connection with each transfer of account balances from the TWX 401(k) Plan to the AOL 401(k) Plan. For purposes of clarity, subject to Section 13.03, from and after the AOL Employee Transfer Time, the TWX 401(k) Plan shall retain liability and responsibility for the unvested account balances or portions thereof of each Former AOL LLC Employee who is not a Recently Terminated Former AOL LLC Employee.


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SECTION 7.03. Employer 401(k) Plan Contributions. Promptly following the end of the calendar year in which the Distribution Date occurs, AOL and TWX shall cooperate in good faith to contribute (in accordance with ERISA, the Code and the relevant terms of the TWX 401(k) Plan and the AOL 401(k) Plan), to the account of any AOL LLC Employee whose account balance was transferred from the TWX 401(k) Plan to the AOL 401(k) Plan in accordance with Section 7.02 the prorated amount of any additional employer contributions that such AOL LLC Employee would otherwise be eligible to receive under the TWX 401(k) Plan based on his or her deferral of eligible compensation (as defined in the TWX 401(k) Plan) received from a member of the TWX Group or a member of the TWX Group prior to the AOL Employee Transfer Time and during the calendar year in which the AOL Employee Transfer Time occurs. Promptly following the end of the calendar year in which the Distribution Date occurs, if a TWX Retained Employee would otherwise be eligible for any additional employer contributions (in accordance with the TWX 401(k) Plan) for the calendar year in which the applicable TWX Retained Employee Transfer Time occurs, a member of the TWX Group will contribute to each such TWX Retained Employee’s account under the TWX 401(k) Plan the prorated amount of any such additional employer contributions to which the TWX Retained Employee is entitled based on his or her deferral of eligible compensation (as defined in the TWX 401(k) Plan) received from a member of the AOL Group up to but not including the applicable TWX Retained Employee Transfer Time (collectively, the “TWX Retained Employee 401(k) Contributions”), provided that such TWX Retained Employee is employed by the TWX Group on the last day of the calendar year in which the applicable TWX Retained Employee Transfer Time occurred. The obligations of the members of the AOL Group to reimburse such member of the TWX Group with respect to the TWX Retained Employee 401(k) Contributions are set forth in Section 15.01.

SECTION 7.04. Limitation of Liability. For the avoidance of doubt, TWX shall have no responsibility for any failure of AOL to properly administer the AOL 401(k) Plan in accordance with its terms and applicable Law, including without limitation any failure to properly administer the accounts of Post-Separation AOL Employees and their beneficiaries in such AOL 401(k) Plan, and, without limiting the generality of Section 13.03, AOL shall indemnify, defend and hold harmless the TWX 401(k) Plan and the members of the TWX Group from and against any and all Liabilities relating to, arising out of or resulting from any such failure.

ARTICLE VIII

Deferred Compensation

SECTION 8.01. Employee Deferred Compensation. AOL and TWX hereby acknowledge that each AOL LLC Employee and Former AOL LLC Employee whose name is set forth on Schedule 8.01(A), 8.01(B) or 8.01(C) (i) has an outstanding deferred compensation account balance under a TWX Nonqualified Plan or (ii) is an individual to whom AOL LLC has nonqualified deferred compensation Liabilities, in each case, as of the date of this Agreement, and no other AOL LLC Employee or Former AOL LLC Employee has an outstanding deferred compensation account balance under a


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TWX Nonqualified Plan or is an individual to whom AOL LLC has nonqualified deferred compensation Liabilities.

SECTION 8.02. Retention of TWX Deferred Compensation Obligations. Notwithstanding Section 2.05 or any provision of this Agreement or the Separation Agreement to the contrary, from and after the AOL Employee Transfer Time, TWX shall retain, or cause any member of the TWX Group to retain, all Assets and all Liabilities arising out of or relating to the TWX Nonqualified Plans, and all trusts relating to such TWX Benefit Plans, including any grantor or “rabbi trust”, and shall make payments to all Post-Separation AOL Employees or Former AOL LLC Employees listed on Schedule 8.01(A) or 8.01(B) and their respective beneficiaries in accordance with the terms of the applicable plan. The members of the AOL Group shall not be required to reimburse the members of the TWX Group with respect to the deferred compensation accounts for any Post-Separation AOL Employee or Former AOL LLC Employee listed on Schedule 8.01(A). The Deferred Compensation Payable shall be treated as a Qualified Intercompany Account, as set forth on Schedule IV of the Separation Agreement. From and after the completion of the Payables Transactions, the members of the AOL Group shall have no obligations to reimburse the members of the TWX Group with respect to any deferred compensation accounts that relate to any AOL LLC Employee or Former AOL LLC Employee listed on Schedule 8.01(A) or Schedule 8.01(B). The obligations of the members of the AOL Group to provide information to the members of the TWX Group in connection with the payment of benefits to AOL Employees pursuant to the TWX Nonqualified Plans are set forth in Section 14.01.

SECTION 8.03. Retention of AOL LLC Deferred Compensation Obligations. Notwithstanding Section 2.01 or any other provision of this Agreement or the Separation Agreement to the contrary, from and after the AOL Employee Transfer

Time, AOL LLC shall retain all Assets and all Liabilities arising out of or relating to the deferred compensation account or accounts maintained by AOL LLC on behalf of any Former AOL LLC Employee listed on Schedule 8.01(C), and shall make payments to such individuals pursuant to the terms of the applicable agreement. The Deferred Compensation Payable shall be treated as a Qualified Intercompany Account, as set forth on Schedule IV of the Separation Agreement. From and after the completion of the Payables Transactions, the members of the AOL Group shall have no obligations to reimburse the members of the TWX Group with respect to any such deferred compensation accounts.

SECTION 8.04. No Distributions on Separation. TWX and AOL acknowledge that neither the Separation nor any of the other transactions contemplated by this Agreement or the Separation Agreement will trigger a payment or distribution of compensation under any TWX Nonqualified Plan or other deferred compensation account for any Post-Separation AOL Employee and, consequently, that the payment or distribution of any compensation to which any Post-Separation AOL Employee is entitled under any TWX Nonqualified Plan will occur upon such Post-Separation AOL Employee’s separation from service from the AOL Group or at such other time as provided in such TWX Nonqualified Plan or such AOL Employee’s deferral election. Notwithstanding the foregoing, if TWX and AOL reasonably determine that the


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Separation or any other transaction contemplated by this Agreement or the Separation Agreement will trigger a payment or distribution of compensation under any TWX Nonqualified Plan or other deferred compensation account for any Post-Separation AOL Employee, TWX and AOL shall cooperate in good faith so that neither the Separation nor any of the other transactions contemplated by this Agreement or the Separation Agreement will trigger any such payment or distribution; provided, however, that neither TWX nor AOL shall be required to take any action to the extent that such action would cause any TWX Nonqualified Plan or other deferred compensation account or payment thereunder to fail to comply with Section 409A of the Code.

SECTION 8.05. Section 409A. TWX and AOL shall cooperate in good faith so that the Separation will not result in adverse tax consequences under Section 409A of the Code to any current or former employee of any member of the TWX Group or any member of the AOL Group, or their respective beneficiaries, in respect of his or her benefits under any TWX Benefit Plan or AOL Benefit Plan.

SECTION 8.06. Tax Withholding and Reporting. Notwithstanding Section 19.03, TWX shall be responsible for the withholding and reporting of Taxes required to be withheld or reported in connection with payments made pursuant to Sections 8.02 and 8.03, and no member of the AOL Group shall have any responsibility or liability with respect thereto.

SECTION 8.07. Limited Indemnification. From and after the AOL Employee Transfer Time, (i) the members of the TWX Group shall be solely liable for all deferred compensation payments to the AOL LLC Employees and the Former AOL LLC Employees pursuant to the TWX Nonqualified Plans and (ii) AOL LLC shall be solely liable for all payments to any Former AOL LLC Employee with respect to the deferred compensation account or accounts for any Former AOL LLC Employee listed on Schedule 8.01(C) and, notwithstanding Section 13.03 or any other provision of this Agreement to the contrary, the members of the AOL Group shall not be obligated to indemnify the members of the TWX Group for Liabilities relating thereto, except to the extent that any such Liabilities relate to actions by a member of the AOL Group, whether occurring before, at or after the AOL Employee Transfer Time (including, without limitation, any failure by a member of the AOL Group to provide the members of the TWX Group with true and accurate information that is necessary for the proper administration of the TWX Nonqualified Plans and the deferred compensation account or accounts for any Former AOL LLC Employee listed on Schedule 8.01(C)).

ARTICLE IX

Flexible Spending Accounts

SECTION 9.01. Flexible Spending Accounts. Effective as of the AOL Employee Transfer Time, AOL shall, or shall cause its Affiliates to, have in effect flexible spending reimbursement accounts under a cafeteria plan qualifying under Section 125 of the Code. From and after the date of this Agreement, AOL and TWX shall cooperate in good faith in order to minimize any interruption of benefits to the AOL


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LLC Employees and TWX Transferred Employees who participate in the cafeteria plan sponsored by TWX or any of its Affiliates immediately prior to the AOL Employee Transfer Time in order to allow such AOL LLC Employees and TWX Transferred Employees to continue to receive claim reimbursements under a cafeteria plan qualifying under Section 125 of the Code (whether sponsored by a member of the AOL Group or a member of the TWX Group), to the extent of their contributions prior to the AOL Employee Transfer Time, through the end of the plan year in which the AOL Employee Transfer Time occurs, including any grace period provided for under the relevant cafeteria plan.

ARTICLE X

Transportation Reimbursement Accounts

SECTION 10.01. Transportation Reimbursement Accounts. Effective as of the AOL Employee Transfer Time, AOL shall, or shall cause its Affiliates to, have in effect a transportation reimbursement account plan. From and after the date of this Agreement, AOL and TWX shall cooperate in good faith in order to minimize any interruption of benefits to the AOL LLC Employees and TWX Transferred Employees who participate in the transportation reimbursement account plan sponsored by TWX or any of its Affiliates immediately prior to the AOL Employee Transfer Time in order to allow such AOL LLC Employees and TWX Transferred Employees to continue to receive reimbursements under a transportation reimbursement account plan (whether sponsored by a member of the AOL Group or a member of the TWX Group), to the extent of their contributions prior to the AOL Employee Transfer Time, through the end of the plan year in which the AOL Employee Transfer Time occurs.

ARTICLE XI

Vacation

SECTION 11.01. Vacation. Promptly following the relevant TWX Transferred Employee Transfer Time, TWX shall make a cash payment to each TWX Transferred Employee for any vacation or annual leave days accrued or earned for the year in which the TWX Transferred Employee Transfer Time occurs, but not yet used by such TWX Transferred Employee as of the TWX Transferred Employee Transfer Time. AOL shall not assume any Liability for such vacation or annual leave days.

ARTICLE XII

TWX Equity Compensation Awards

SECTION 12.01. General Treatment of Outstanding TWX Equity Compensation Awards. Notwithstanding Section 2.05 or any other provision of this Agreement or the Separation Agreement to the contrary, on and following the Distribution Date, each outstanding option to purchase TWX Common Stock (“TWX Option”) and each performance stock unit (“TWX PSU”) and restricted stock unit


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(“TWX RSU”) payable in shares of TWX Common Stock or the value of which is determined by reference to the value of shares of TWX Common Stock, in each case that was granted under or pursuant to any equity compensation plan of TWX (each such TWX Option, TWX PSU or TWX RSU, a “TWX Equity Compensation Award”), that, on the Distribution Date, is held by any AOL Employee, shall be treated as provided in the equity compensation plan under which such TWX Equity Compensation Award was granted, the award agreement governing such TWX Equity Compensation Award and any employment agreement to which such AOL Employee is a party, as in effect on the Distribution Date; provided, however, that, except as set forth in Section 12.02 below, any such TWX Equity Compensation Award that is not forfeited by its holder as a result of the Distribution shall be adjusted to reflect the Distribution in the same manner, if any, as similar TWX Equity Compensation Awards held by employees of the TWX Group immediately prior to the Distribution (other than TWX Transferred Employees) are adjusted, as determined in the sole discretion of TWX; provided further, however, that TWX may amend any such TWX Equity Compensation Award in any manner that TWX determines is necessary in order to avoid additional Taxes and penalties under Section 409A of the Code. TWX hereby acknowledges that each Post-Separation AOL Employee who, as of the Distribution Date, meets the eligibility requirements for retirement treatment in the event of a voluntary termination of employment with respect to any TWX Equity Compensation Award held by such Post-Separation AOL Employee as of the Distribution Date, as determined under the applicable equity compensation plan or award agreement, will, in connection with the Distribution, receive the benefit of any provisions of such equity compensation plan or award agreement that provide for accelerated vesting of such TWX Equity Compensation Award or an extended time period to exercise any such TWX Equity Compensation Award that is a vested TWX Option in connection with a termination of employment due to retirement.

SECTION 12.02. Treatment of Outstanding TWX Equity Compensation Awards Held by Timothy M. Armstrong. Notwithstanding any provision of Section 12.01 to the contrary, subject to any required action by the AOL board of directors (or a duly authorized committee thereof) in accordance with the Employment Agreement, dated March 12, 2009, by and among Timothy M. Armstrong (“Armstrong”), AOL LLC and TWX (the “Armstrong Employment Agreement”), effective immediately upon the Distribution, each outstanding TWX Option, whether vested or unvested, that is held, immediately prior to the Distribution, by Armstrong shall be converted into an option (each, a “Converted AOL Option”) to acquire shares of AOL Common Stock, on substantially the same terms and conditions as were applicable under such TWX Option (other than with respect to exercise price and the number and type of shares covered thereby), that will have a “fair value” and an “intrinsic value” (in each case, within the meaning of FAS 123R), as of immediately following the Distribution, that shall be identical to the fair value and intrinsic value of such TWX Option immediately prior to the Distribution. The adjustments provided in this Section 12.02 with respect to any TWX Options, whether or not they are “incentive stock options”, as defined in Section 422 of the Code, are intended to be effected in a manner that is consistent with Section 424(a) and Section 409A of the Code. Furthermore, subject to any required action by the AOL board of directors (or a duly authorized committee thereof) in accordance with the Armstrong Employment Agreement, effective immediately upon the


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Distribution, each outstanding TWX RSU, whether vested or unvested, that is held, immediately prior to the distribution, by Armstrong shall be converted into a restricted stock unit with respect to shares of AOL Common Stock (such restricted stock units, the “Converted AOL RSUs”), on substantially the same terms and conditions as were applicable under such TWX RSU (other than with respect to the number and type of shares covered thereby), that will have a “fair value” and an “intrinsic value” (in each case, within the meaning of FAS 123R), as of immediately following the Distribution, that shall be identical to the fair value and intrinsic value of such TWX RSU immediately prior to the Distribution. Effective immediately upon the Distribution, AOL shall assume Liabilities related to the TWX Options and TWX RSUs (as Converted AOL Options and Converted AOL RSUs) and, from and after the Distribution, no member of the TWX Group shall have any Liabilities with respect thereto. The AOL board of directors (or a duly authorized committee thereof) shall take all reasonable steps as may be required to cause the transactions contemplated by this Section 12.02 to be exempt from Section 16 of the Exchange Act under Rule 16b-3 promulgated thereunder.

SECTION 12.03. Payable. The TWX Equity Award Payable shall be treated as a Qualified Intercompany Account, as set forth in Schedule IV of the Separation Agreement.

SECTION 12.04. Tax Withholding and Reporting. Without limiting the generality of Section 19.03, the members of the AOL Group shall be solely responsible for all obligations relating to the withholding and reporting of Taxes required to be withheld or reported in connection with the exercise, vesting or settlement, as applicable, of the TWX Equity Compensation Awards held by AOL Employees and any TWX Dividend Equivalents paid to AOL Employees, and no member of the TWX Group shall have any responsibility or liability with respect thereto. Notwithstanding the foregoing and except as otherwise set forth in this Section 12.04, (i) upon the vesting of any TWX RSUs held by AOL Employees that are not forfeited upon the Distribution Date, TWX shall reduce the number of TWX RSUs held by each AOL Employee by a number of TWX RSUs having a Fair Market Value equal to the employee-paid portion of any Taxes (including any Social Security and Medicare Taxes) required to be withheld upon vesting of such TWX RSUs, (ii) upon exercise or settlement, as applicable, of any TWX Equity Compensation Award, a member of the TWX Group shall withhold from the number of shares of TWX Common Stock otherwise issuable to the relevant AOL Employee a number of shares having a Fair Market Value equal to the employee-paid portion of any Taxes required to be withheld upon vesting of such TWX Equity Compensation Awards and (iii) upon payment of any TWX Dividend Equivalents to AOL Employees, a member of the TWX Group shall reduce the amount paid to such AOL Employee by an amount equal to the employee-paid portion of any Taxes required to be withheld upon payment of such TWX Dividend Equivalents. Notwithstanding the foregoing, if any of the procedures described in clause (i), (ii) or (iii) of the immediately preceding sentence are prohibited by applicable Law, TWX and AOL shall cooperate in good faith to determine alternative procedures with respect to such awards in order to fulfill all required withholding and reporting obligations in compliance with applicable Law. Prior to the date of exercise, vesting, settlement or payment, as applicable, a member of the AOL Group shall provide a member of the TWX Group with instructions relating to the


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amount, if any, required to be withheld for each AOL Employee who holds TWX Equity Compensation Awards.

SECTION 12.05. Tax Deductions. The rights of the members of the TWX Group and the members of the AOL Group to take deductions for TWX Equity Compensation Awards shall be determined in accordance with Section 3.06 of the TMA.

ARTICLE XIII

Administrative Costs and Benefit Plan Reimbursements

SECTION 13.01. AOL Reimbursement of TWX for Post-Separation Administrative Services. From and after the AOL Employee Transfer Time, TWX shall continue to provide to the members of the AOL Group services relating to (a) the administration of the TWX Equity Compensation Awards outstanding at the AOL Employee Transfer Time, (b) the administration of compensation and benefits provided to AOL Employees pursuant to those TWX Benefit Plans set forth on Schedule 13.01 prior to the AOL Employee Transfer Time that require ongoing administration following the AOL Employee Transfer Time (including, without limitation, any administration relating to the TWX Nonqualified Plans and other deferred compensation accounts and any administration relating to withholding or reporting of Taxes) and (c) maintenance and administration of such data relating to AOL Employees as is necessary to provide the administrative services described in the preceding clauses (a) and (b) (such services, the “TWX Services”). Without limiting the generality of Section 19.02, TWX Services shall not include any services relating to an individual’s employment with any member of the AOL Group following the Distribution Date. As payment for the TWX Services, AOL shall make payments to TWX, or shall cause one of its Affiliates to make payments to TWX, in amounts that TWX and AOL reasonably determine to be the costs incurred by TWX in connection with such services (the “TWX Services Reimbursement Amounts”); provided, however, that to the extent that the costs of any TWX Service are billed directly to a member of the AOL Group by the relevant third-party vendor, the members of the AOL Group shall not be required to reimburse the members of the TWX Group for such TWX Service. The TWX Services Reimbursement Amounts shall also include amounts that relate to services for which a member of the AOL Group has previously reimbursed a member of TWX Group (including, without limitation, services provided to the AOL Group prior to the AOL Employee Transfer Time and any TWX Services) but with respect to which a member of the TWX Group incurs additional costs following the time of the initial reimbursement, which additional costs may include, but are not limited to, additional Taxes payable by a member of the TWX Group with respect to such services and additional payments required to be made to third-party vendors for previously rendered services. The obligations of AOL to reimburse TWX with respect to the TWX Services are set forth in Section 15.01.

SECTION 13.02. Pre-Separation Benefit Plan Matters. Following the AOL Employee Transfer Time, the members of the AOL Group shall remain responsible for reimbursing the members of the TWX Group for costs relating to compensation and benefits provided to the AOL Employees as a result of participation in the TWX Benefit


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Plans prior to the AOL Employee Transfer Time that are not charged directly to the members of the AOL Group (such costs, the “TWX Benefit Plan Costs”); provided, however, that, except as otherwise specifically provided in this Agreement, in no event shall any member of the AOL Group be required to reimburse any member of the TWX Group for the cost of any compensation or benefits provided to a TWX Transferred Employee that relates to a period prior to the applicable TWX Transferred Employee Transfer Time. Furthermore, following the AOL Employee Transfer Time, the members of the TWX Group shall reimburse the members of the AOL Group for any rebates or reimbursements received by a member of the TWX Group from any third party (whether from a vendor, a taxing authority or any other third party) that relates to amounts paid by a member of the AOL Group prior to the AOL Employee Transfer Time in connection with participation by AOL Employees in any TWX Benefit Plan (such refunds and rebates, the “TWX Benefit Plan Rebates”). Any amount that a member of the TWX Group owes to a member of the AOL Group in respect of the TWX Benefit Plan Rebates shall reduce the amount payable by the members of the AOL Group to the members of the TWX Group in respect of the TWX Benefit Plan Costs for the relevant calendar quarter. The timing of the obligations of AOL and TWX with respect to the TWX Benefit Plan Costs and the TWX Benefit Plan Rebates is set forth in Section 15.01.

SECTION 13.03. TWX Benefit Plan Indemnification. With respect to each TWX Benefit Plan, AOL shall indemnify, defend and hold harmless the members of the TWX Group from and against any and all Liabilities relating to, arising out of or resulting from participation in any such plan by any AOL Employee, regardless of whether such participation relates to a period that was prior to, at or after the AOL Employee Transfer Time; provided, however, that the foregoing obligations shall not apply to any participation by a TWX Transferred Employee in any TWX Benefit Plan prior to the applicable TWX Transferred Employee Transfer Time; provided, further, that the foregoing obligations shall not apply in the event of any Liabilities arising out of willful or intentional misconduct by any member of the TWX Group or any employee of any member of the TWX Group. With respect to each TWX Benefit Plan, TWX shall indemnify, defend and hold harmless the members of the AOL Group from and against any and all Liabilities arising out of willful or intentional misconduct by any member of the TWX Group or any employee of any member of the TWX Group; provided, however, that in no event shall any member of the TWX Group be responsible for the cost of any compensation or benefits that the relevant member of the AOL Group would have incurred in the absence of any willful or intentional misconduct by the relevant member of the TWX Group or the relevant employee of any member of the TWX Group.

ARTICLE XIV

Cooperation; Production of Witnesses; Works Councils

SECTION 14.01. Cooperation. Following the date of this Agreement, TWX and AOL shall, and shall cause their respective Subsidiaries to, use commercially reasonable efforts to cooperate with respect to any employee compensation or benefits matters that TWX or AOL, as applicable, reasonably determines require the cooperation of both TWX and AOL in order to accomplish the objectives of this Agreement. Without


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limiting the generality of the preceding sentence, (i) with respect to each AOL Employee who is a participant in a TWX Pension Plan or a TWX Nonqualified Plan, AOL shall promptly notify TWX of the occurrence of such individual’s separation from service with the AOL Group not later than 10 business days following the date of any such separation and, at such time, will provide TWX with such individual’s current home address, (ii) prior to the trust-to-trust transfer described in Section 7.02, AOL shall promptly notify TWX of the occurrence of a separation from service of any AOL Employee who is a participant in the TWX 401(k) Plan, (iii) TWX shall promptly notify AOL upon the occurrence of an exercise, vesting or settlement of a TWX Equity Compensation Award held by any AOL Employee or the payment of any TWX Dividend Equivalent to any AOL Employee, (iv) TWX and AOL shall cooperate in connection with any audits of any TWX Benefit Plan or AOL Benefit Plan with respect to which the other Party may have information, (v) TWX and AOL shall cooperate in coordinating each of their respective payroll systems in connection with the transfers of AOL Employees to the AOL Group and the Distribution, (vi) TWX shall transfer records to AOL as necessary for the proper administration of AOL Benefit Plans, to the extent such records are in TWX’s possession, and (vii) TWX and AOL shall cooperate in good faith in connection with the notification and consultation with works councils, labor unions and other employee representatives of members of the AOL Group and the TWX Group. The obligations of the AOL Group and the TWX Group to cooperate pursuant to this Section 14.01 shall remain in effect for so long as any obligations of any member of the TWX Group remain outstanding to any AOL Employee described in clause (i) or (iii) of the immediately preceding sentence, and until all audits of all Benefit Plans with respect to which the other Party may have information have been completed or the applicable statute of limitations with respect to such audits has expired.

SECTION 14.02. Production of Witnesses; Records; Further Cooperation. (a) For the time period described in Section 14.01, except in the case of an adversarial Action or threatened adversarial Action by either TWX or AOL or a Person or Persons in its Group against the other Party or a Person or Persons in its Group, each of TWX and AOL shall take all reasonable steps to make available, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the Persons in its respective Group (whether as witnesses or otherwise) and any books, records or other documents within its control or that it otherwise has the ability to make available, to the extent that such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action or threatened or contemplated Action (including preparation for such Action) in which TWX or AOL, as applicable, may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all reasonable out-of-pocket costs and expenses in connection therewith.

(b) Without limiting the foregoing, TWX and AOL shall use their reasonable best efforts to cooperate and consult to the extent reasonably necessary with respect to any Actions or threatened or contemplated Actions, other than an adversarial Action against the other Group.


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(c) The obligation of TWX and AOL to make available former, current and future directors, officers, employees and other personnel and agents or provide witnesses and experts pursuant to this Section 14.02 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to make available employees and other officers without regard to whether such individual or the employer of such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 14.02(a)). Without limiting the foregoing, each of TWX and AOL agrees that neither it nor any Person or Persons in its respective Group will take any adverse action against any employee of its Group based on such employee’s provision of assistance or information to each other pursuant to this Section 14.02.

(d) Upon the reasonable request of TWX or AOL, in connection with any Action contemplated by Section 14.01, TWX and AOL will enter into a mutually acceptable common interest agreement so as to maintain, to the extent practicable, any applicable attorney-client privilege or work product immunity of any member of either Group.

SECTION 14.03. Works Councils; Employee Notices. Prior to the AOL Asset Distribution Date, (a) AOL shall, and shall cause the other members of the AOL Group, to satisfy all legally required obligations of the AOL Group (if any), and (b) TWX shall, and shall cause the other members of the TWX Group, to satisfy all legally required obligations of the TWX Group (if any), in each case, relating to (i) notification and consultation with works councils, labor unions and other employee representatives, (ii) completion of all regulatory filings relating to AOL Employees, (iii) notification of individual AOL Employees, (iv) obtaining any required consents from any AOL Employees and (v) taking such other actions with respect to the AOL Employees as may be required by applicable Law, in each case, as may be necessary in order to complete the Transactions. AOL shall indemnify, defend and hold harmless AOL LLC and each member of the TWX Group from and against any and all Liabilities relating to, arising out of or resulting from the failure of any member of the AOL Group to satisfy its obligations pursuant to this Section 14.03, and TWX shall indemnify, defend and hold harmless AOL and each member of the AOL Group from and against any and all Liabilities relating to, arising out of or resulting from the failure of any member of the TWX Group to satisfy its obligations pursuant to this Section 14.03.

ARTICLE XV

Reimbursements

SECTION 15.01. Reimbursements by the AOL Group. Promptly following the end of each calendar quarter that ends following the AOL Employee Transfer Time, TWX shall provide AOL with one or more invoices that set forth the aggregate (a) TWX Retained Employee Bonuses Reimbursement Amounts, (b)TWX Retained Employee 401(k) Contributions Reimbursement Amounts, (c) TWX Services Reimbursement Amounts and (d) TWX Benefit Plan Costs Reimbursement Amounts incurred by a member of the TWX Group during such calendar quarter. Within 30 days


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following AOL’s receipt of each such invoice, AOL shall pay TWX an amount in cash equal to the aggregate amounts set forth on such invoice.

SECTION 15.02. Reimbursements by the TWX Group. Promptly following the end of each calendar quarter that ends following the AOL Employee Transfer Time in which the TWX Transferred Employee Bonuses are paid, AOL shall provide TWX with one or more invoices that set forth the aggregate TWX Transferred Employee Bonuses Reimbursement Amounts incurred by a member of the AOL Group during such calendar quarter. Within 30 days following TWX’s receipt of each such invoice, a member of the TWX Group shall pay a member of the AOL Group an amount in cash equal to the sum of the aggregate amounts set forth on such invoice plus the TWX Benefit Plan Rebate Reimbursement Amount (if any) for such calendar quarter.

SECTION 15.03. Invoices. All invoices provided pursuant to this Article XV shall be denominated in United States dollars.

ARTICLE XVI

Termination

SECTION 16.01. Termination. This Agreement may be terminated by TWX at any time, in its sole discretion, prior to the Distribution Date; provided, however, that this Agreement shall automatically terminate upon the termination of the Separation Agreement in accordance with its terms.

SECTION 16.02. Effect of Termination. In the event of any termination of this Agreement prior to the Distribution Date, none of the Parties (or any of its directors or officers) shall have any Liability or further obligation to any other Party under this Agreement.

ARTICLE XVII

Indemnification Procedures

SECTION 17.01. Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds. (a) The Parties intend that any Liability subject to indemnification or reimbursement pursuant to this Agreement will be net of (i) Insurance Proceeds that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability or (ii) other amounts recovered from any third party that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability (“Third-Party Proceeds”). Accordingly, the amount that either Party (an “Indemnifying Party”) is required to pay to any Person entitled to indemnification or reimbursement pursuant to this Agreement (an “Indemnitee”) will be reduced by any Insurance Proceeds or Third-Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee from a third party in respect of the related Liability. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Liability (an “Indemnity Payment”) and subsequently receives


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Insurance Proceeds or Third-Party Proceeds in respect of such Liability, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if such Insurance Proceeds or Third-Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.

(b) An insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or have any subrogation rights with respect thereto by virtue of the indemnification provisions hereof, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a “wind-fall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Each member of the TWX Group and AOL Group shall use reasonable best efforts to seek to collect or recover any Insurance Proceeds and any Third-Party Proceeds to which such Person is entitled in connection with any Liability for which such Person seeks indemnification pursuant to this Article XVII; provided, however, that such Person’s inability to collect or recover any such Insurance Proceeds or Third-Party Proceeds shall not limit the Indemnifying Party’s obligations hereunder.

(c) The calculation of any Indemnity Payments required by this Agreement shall be subject to Section 6.04 of the TMA.

SECTION 17.02. Procedures for Indemnification of Third-Party Claims. (a) If an Indemnitee shall receive notice or otherwise learn of a Third-Party Claim with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to this Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as reasonably practicable, but no later than 30 days after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 17.02(a) shall not relieve the related Indemnifying Party of its obligations under this Article XVII, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice.

(b) An Indemnifying Party may elect to defend, at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel, any Third-Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 17.02(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election as to whether the Indemnifying Party will assume responsibility for defending such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee, except that the Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnitee (i) for any period during which the Indemnifying Party has not assumed the defense of such Third-Party Claim (other than during any


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period in which the Indemnitee shall have failed to give notice of the Third-Party Claim in accordance with Section 17.02(a)) or (ii) to the extent that such engagement of counsel is as a result of a conflict of interest, as reasonably determined by the Indemnitee acting in good faith.

(c) If an Indemnifying Party elects not to assume responsibility for defending a Third-Party Claim, or fails to notify an Indemnitee of its election as provided in this Section 17.02, such Indemnitee may defend such Third-Party Claim at the cost and expense of the Indemnifying Party.

(d) If an Indemnifying Party elects to assume the defense of a Third-Party Claim in accordance with the terms of this Agreement, the Indemnitee(s) shall, subject to the terms of this Agreement, cooperate with the Indemnifying Party with respect to the defense of such Third-Party Claim.

(e) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of any Third-Party Claim without the consent of the applicable Indemnitee or Indemnitees; provided, however, that such Indemnitee(s) shall be required to consent to such entry of judgment or to such settlement that the Indemnifying Party may recommend if the judgment or settlement (i) contains no finding or admission of any violation of Law or any violation of the rights of any Person, (ii) involves only monetary relief which the Indemnifying Party has agreed to pay and (iii) includes a full and unconditional release of the Indemnitee. Notwithstanding the foregoing, in no event shall an Indemnitee be required to consent to any entry of judgment or settlement if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee.

(f) Whether or not the Indemnifying Party assumes the defense of a Third-Party Claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the Indemnifying Party’s prior written consent (such consent not to be unreasonably withheld or delayed).

SECTION 17.03. Additional Matters. (a) Any claim on account of a Liability that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Party as contemplated by this Agreement.

(b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-


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Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

(c) In the event of an Action relating to a Liability that has been allocated to an Indemnifying Party pursuant to the terms of this Agreement in which the Indemnifying Party is not a named defendant, if the Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant or add the Indemnifying Party as an additional named defendant, if at all practicable. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section, the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts, fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement.

SECTION 17.04. Remedies Cumulative. The remedies provided in this Article XVII shall be cumulative and, subject to the provisions of Article XVIII, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

SECTION 17.05. Survival of Indemnities. The rights and obligations of each of TWX and AOL and their respective Indemnitees under this Article XVII shall survive the sale or other transfer by any Party or its Affiliates of any Assets or businesses or the assignment by it of any Liabilities.

SECTION 17.06. Limitation on Liability. Except as may expressly be set forth in this Agreement, none of TWX, AOL or any other member of either Group shall in any event have any Liability to the other or to any other member of the other’s Group, or to any other TWX Indemnitee or AOL Indemnitee, as applicable, under this Agreement for any indirect, special, punitive or consequential damages, whether or not caused by or resulting from negligence or breach of obligations hereunder and whether or not informed of the possibility of the existence of such damages; provided, however, that the provisions of this Section 17.06 shall not limit an Indemnifying Party’s indemnification obligations hereunder with respect to any Liability any Indemnitee may have to any third-party not affiliated with any member of the TWX Group or the AOL Group for any indirect, special, punitive or consequential damages.

ARTICLE XVIII

Further Assurances and Additional Covenants

SECTION 18.01. Further Assurances. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall, subject to the discretion of TWX with respect to the Distribution, as set forth Section 5.03 of the Separation Agreement, use reasonable best efforts, prior to, on and after the Distribution


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Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement.

(b) Without limiting the foregoing, prior to, on and after the Distribution Date, each Party shall cooperate with the other Party, without any further consideration, but at the expense of the requesting Party, (i) to execute and deliver, or use reasonable best efforts to execute and deliver, or cause to be executed and delivered, all instruments, including any instruments of conveyance, assignment and transfer as such Party may reasonably be requested to execute and deliver by the other Party, (ii) to make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument and (iii) to take, or cause to be taken, all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and any transfers of Assets or assignments and assumptions of Liabilities hereunder and the other transactions contemplated hereby.

(c) On or prior to the Distribution Date, TWX and AOL, in their respective capacities as direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by AOL or any other Subsidiary of TWX, as the case may be, to effectuate the transactions contemplated by this Agreement.

(d) Prior to the Distribution, if either Party identifies any commercial or other service that is needed to ensure a smooth and orderly transition of its business in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement, the Parties will cooperate in determining whether there is a mutually acceptable arm’s-length basis on which the other Party will provide such service.

ARTICLE XIX

Miscellaneous

SECTION 19.01. Vendor Contracts. Prior to the AOL Employee Transfer Time, TWX and AOL shall use commercially reasonable efforts to (i) negotiate with the current third-party providers to separate and assign the applicable rights and obligations under each group insurance policy, health maintenance organization, administrative services contract, third-party administrator agreement, letter of understanding or arrangement that pertains to one or more TWX Welfare Plans and one or more AOL Welfare Plans (each, a “Vendor Contract”) to the extent that such rights or obligations pertain to AOL Employees and (ii) to the extent permitted by the applicable third-party provider, obtain and maintain pricing discounts or other preferential terms under the Vendor Contracts. At AOL’s reasonable request, AOL and TWX shall use commercially reasonable efforts so that the AOL Group may participate in the terms and conditions of


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such Vendor Contracts until a date that is not later than December 31, 2010. Prior to the AOL Employee Transfer Time, TWX and AOL shall use commercially reasonable efforts to negotiate with applicable consultants, plan auditors, investment advisors, legal advisors and other third-party providers of services to TWX in connection with the Benefit Plans to maintain pricing discounts or other preferential terms in effect as of immediately prior to the AOL Employee Transfer Time. At the AOL Employee Transfer Time, AOL shall assume each Vendor Contract to which AOL LLC is a party and shall be solely responsible for all obligations of AOL LLC thereunder, in each case, to the extent that there are any rights or obligations of any party thereunder that relate to any period following the AOL Employee Transfer Time.

SECTION 19.02. Administration. AOL hereby acknowledges that TWX has provided administration services for certain AOL Benefit Plans and AOL agrees to assume responsibility for the administration and administration costs of such plans and each other AOL Benefit Plan. The parties shall cooperate in good faith to complete such transfer of responsibility on commercially reasonable terms and conditions effective no later than the AOL Employee Transfer Time.

SECTION 19.03. Employment Tax Reporting Responsibility. AOL LLC and AOL hereby agree to follow the alternate procedure for United States employment tax withholding as provided in Section 5 of Rev. Proc. 2004-53, I.R.B. 2004-35. Accordingly, AOL LLC shall have no United States employment tax reporting responsibilities, and AOL shall have full United States employment tax reporting responsibilities, for AOL LLC Employees from and after the AOL Employee Transfer Time.

SECTION 19.04. Data Privacy. The Parties agree that any applicable data privacy Laws and any other obligations of the AOL Group and the TWX Group to maintain the confidentiality of any employee information in accordance with applicable Law shall govern the disclosure of employee information among the Parties under this Agreement. AOL and TWX shall ensure that they each have in place appropriate technical and organizational security measures to protect the personal data of the AOL Employees and the TWX Retained Employees.

SECTION 19.05. No Third-Party Beneficiaries. This Agreement is solely for the benefit of the Parties, and no current or former director, officer, employee or independent contractor of any member of the TWX Group or any member of the AOL Group or any other individual associated therewith (including any beneficiary or dependent thereof) shall be regarded for any purpose as a third-party beneficiary of this Agreement, and no provision of this Agreement shall create such rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any TWX Benefit Plan or any AOL Benefit Plan. Furthermore, no provision of this Agreement shall constitute a limitation on the rights to amend, modify or terminate any TWX Benefit Plan or any AOL Benefit Plan, and nothing herein shall be construed as an amendment to any such Benefit Plan. No provision of this Agreement shall require any member of the TWX Group or any member of the AOL Group to continue the


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employment of any employee of any member of the TWX Group or any member of the AOL Group for any specific period of time following the Distribution Date.

SECTION 19.06. Confidentiality. (a) Without limiting the scope of Section 19.04, each of TWX and AOL, on behalf of itself and each Person in its respective Group, shall hold, and cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, but no less than a reasonable degree of care, that it applies to its own confidential and proprietary information pursuant to policies in effect as of the Distribution Date, all Information concerning the other Group or its business that is either in its possession (including Information in its possession prior to the Distribution) or furnished by the other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, except, in each case, to the extent that such Information is (i) in the public domain through no fault of any member of the TWX Group or the AOL Group, as applicable, or any of its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by any of TWX, AOL or its respective Group, employees, directors or agents, accountants, counsel and other advisors and representatives, as applicable, which sources are not themselves bound by a confidentiality obligation to the knowledge of any of TWX, AOL or Persons in its respective Group, as applicable, (iii) independently generated without reference to any proprietary or confidential Information of the TWX Group or the AOL Group, as applicable, or (iv) required to be disclosed by Law; provided, however, that the Person required to disclose such Information gives the applicable Person prompt, and to the extent reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use commercially reasonable efforts to cooperate, at the expense of the requesting Person, in seeking any reasonable protective arrangements requested by such Person. In the event that such appropriate protective order or other remedy is not obtained, the Person that is required to disclose such Information shall furnish, or cause to be furnished, only that portion of such Information that is legally required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Information. Notwithstanding the foregoing, each of TWX and AOL may release or disclose, or permit to be released or disclosed, any such Information concerning the other Group (x) to their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of the obligations hereunder with respect to such Information), and (y) to any nationally recognized statistical rating agency as it reasonably deems necessary, solely for the purpose of obtaining a rating of securities upon normal terms and conditions; provided, however, that the Party whose Information is being disclosed or released to such rating agency is promptly notified thereof.

(b) Without limiting the foregoing, when any Information concerning the other Group or its business is no longer needed for the purposes contemplated by this Agreement, each of TWX and AOL will, promptly after request of the other Party, either return all Information in a tangible form (including all copies thereof and all notes,


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extracts or summaries based thereon) or certify to the other Party, as applicable, that it has destroyed such Information (and used commercially reasonable efforts to destroy all such Information electronically preserved or recorded within any computerized data storage device or component (including any hard-drive or database)).

SECTION 19.07. Counterparts; Entire Agreement; Corporate Power. (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party hereto and delivered to the other Party.

(b) This Agreement and the exhibits, schedules and appendices hereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein.

(c) TWX represents on behalf of itself and each other member of the TWX Group, and AOL represents on behalf of itself and each other member of the AOL Group, as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each Agreement to which it is a party and to consummate the transactions contemplated hereby; and (ii) on or prior to the Distribution Date, this Agreement will have been duly executed and delivered by it and constitutes, or will constitute, a valid and binding agreement of it enforceable in accordance with the terms thereof.

SECTION 19.08. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the Laws of Delaware or any other jurisdiction are mandatorily applicable to any of the transactions contemplated by this Agreement. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.

SECTION 19.09. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the preceding sentence, either Party may assign this Agreement without consent in


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connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Party’s Assets, or (b) upon the sale of all or substantially all of such Party’s Assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 19.09 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

SECTION 19.10. Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) sent by telecopier (except that, if not sent during normal business hours for the recipient, then at the opening of business on the next business day for the recipient) to the fax numbers set forth below or (c) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

If to TWX, to:

Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attn: General Counsel

Facsimile: (212) 484-7167

with a copy to:

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attn: Eric Schiele

Facsimile: (212) 474-3700

If to AOL LLC to:

AOL LLC

c/o Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attn: General Counsel

If to AOL to:

AOL Inc.

770 Broadway

New York, NY 10003


43

 

Attn: General Counsel

Facsimile: (703) 265-7404

Any Party may, by notice to the other Parties, change the address to which such notices are to be given.

SECTION 19.11. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the Parties.

SECTION 19.12. Force Majeure. Neither Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

SECTION 19.13. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

SECTION 19.14. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall survive each of the Separation and the Distribution and shall remain in full force and effect.

SECTION 19.15. Waivers of Default. Waiver by any Party hereto of any default by the other Party hereto of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.

SECTION 19.16. Specific Performance. Subject to Section 5.03 of the Separation Agreement and notwithstanding the procedures set forth in Article XVIII, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such


44

 

relief. The Parties to this Agreement agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.

SECTION 19.17. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party hereto, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.

SECTION 19.18. Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules, exhibits and appendices hereto) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 19.17. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.


IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives.

 

TIME WARNER INC.,
BY  

 

  NAME:
  TITLE:
AOL LLC,
BY  

 

  NAME:
  TITLE:
AOL INC.,
BY  

 

  NAME:
  TITLE:
EX-10.4 8 dex104.htm EXHIBIT 10.4 EXHIBIT 10.4

Exhibit 10.4

 

 

INTELLECTUAL PROPERTY CROSS-LICENSE AGREEMENT

between

AOL INC.

and

TIME WARNER INC.

 

 

Dated as of             , 2009

 

 

 

 


TABLE OF CONTENTS

 

     Page

ARTICLE I

Definitions

SECTION 1.01

   Definitions    1
ARTICLE II
AOL Licensed Intellectual Property

SECTION 2.01

   AOL Licensed Intellectual Property    3

SECTION 2.02

   Covenant Not To Sue    3

SECTION 2.03

   No Obligation to Provide Services or Delivery    4

SECTION 2.04

   Limitations on AOL License    4

SECTION 2.05

   AOL Group Covenants    4

SECTION 2.06

   Existing Intellectual Property Rights    5

SECTION 2.07

   AOL Group Membership    5

SECTION 2.08

   No Obligation    5
ARTICLE III
TWX Licensed Intellectual Property

SECTION 3.01

   TWX Licensed Intellectual Property    6

SECTION 3.02

   Covenant Not To Sue    6

SECTION 3.03

   No Obligation to Provide Services or Delivery    6

SECTION 3.04

   Limitations on TWX License    7

SECTION 3.05

   TWX Group Covenants    7

SECTION 3.06

   Existing Intellectual Property Rights    8

SECTION 3.07

   TWX Group Membership    8

SECTION 3.08

   No Obligation    8
ARTICLE IV
Enforcement; Infringement; Termination

SECTION 4.01

   No Enforcement Against Third Party    8

SECTION 4.02

   Infringement by Third Parties.    9

SECTION 4.03

   Termination    9

SECTION 4.04

   Representations and Warranties    9

 

- i -


Table of Contents

(continued)

 

     Page

ARTICLE V

Disclaimer of Representations and Warranties

ARTICLE VI

Miscellaneous

SECTION 6.01

   No Other Rights    10

SECTION 6.02

   Further Assurances    10

SECTION 6.03

   Assignability    10

SECTION 6.04

   Sublicensing    11

SECTION 6.05

   Third Party Beneficiaries    14

SECTION 6.06

   Confidential Information    14

SECTION 6.07

   Counterparts    15

SECTION 6.08

   Entire Agreement    15

SECTION 6.09

   Governing Law; Jurisdiction    15

SECTION 6.10

   Notices    15

SECTION 6.11

   Severability    16

SECTION 6.12

   Force Majeure    16

SECTION 6.13

   Headings    16

SECTION 6.14

   Survival of Covenants    17

SECTION 6.15

   Waivers of Default    17

SECTION 6.16

   Specific Performance    17

SECTION 6.17

   Amendments    17

SECTION 6.18

   Separation and Distribution Agreement    17

SECTION 6.19

   Interpretation    17

 

Annexes  
Annex A -   AOL Business
Annex B -   AOL U.S. Patents and Patent Applications
Annex C -   TWX U.S. Patents and Patent Applications

 

- ii -


INTELLECTUAL PROPERTY CROSS-LICENSE AGREEMENT (this “Agreement”), dated as of
                        , 2009, between AOL Inc., a Delaware corporation (“AOL”), and Time Warner Inc., a Delaware corporation (“TWX”).

WHEREAS this Agreement is being entered into in connection with the Separation and Distribution Agreement, dated as of             , 2009 (the “Separation Agreement”), between TWX and AOL; and

WHEREAS the parties have each agreed to grant the other a license to certain intellectual property as described herein.

NOW, THEREFORE, in consideration of the premises and the mutual undertakings in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01 Definitions. As used in this Agreement, the following terms have the following meanings:

Affiliate” of any Person means a Person that controls, is controlled by or is under common control with such Person; provided, however, that, for purposes of this Agreement, no member of the AOL Group or the TWX Group shall be deemed to be an Affiliate of any member of the other Group. As used herein, “control” of any entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.

AOL Business” has the meaning set forth on Annex A.

AOL Covenant Intellectual Property” means (i) all trade secret rights (if any) in all inventions covered by any United States or foreign patent application owned, in whole or in part, as of the Effective Date, by AOL or any other member of the AOL Group, by any United States or foreign patent issued in respect thereof prior to the Effective Date and by any continuation, continuation-in-part, divisional, reissue, extension, reexamination or substitution relating thereto, (ii) all trade secret rights (if any) in all inventions owned, in whole or in part, by AOL or any other member of the AOL Group as of the Effective Date and for which a patent application had not been filed as of the Effective Date, whether or not patentable, and (iii) all trade secret rights in all invention disclosures owned as of the Effective Date by the AOL Group, whether or not included in categories (i) and (ii) above.


AOL Group” means AOL and each of its Subsidiaries.

AOL Patent Matters” means all United States or foreign patent applications or patents owned, in whole or in part, by AOL or any other member of the AOL Group as of the Effective Date or any patent transferred to any member of the AOL Group by any member of the TWX Group pursuant to Section 3.05, together with any continuation, continuation-in-part, divisional, reissue, extension, reexamination or substitution thereof, and any application claiming the benefit thereof.

Effective Date” means the Distribution Date, as defined in the Separation Agreement.

Governmental Authority” means any nation or government, any federal, state, province, city, municipal entity or authority or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board, bureau or similar body, whether federal, state, provincial, territorial, local or foreign.

Group” means either the AOL Group or the TWX Group, as the context requires.

Improvements” means all patentable and non-patentable inventions, discoveries, technology and information of any type whatsoever, including all methods, processes, technical information, knowledge, experience and know-how, that utilize, incorporate, are derived from or are based on the AOL Patent Matters or the TWX Patent Matters, as applicable, or could not be conceived, developed or reduced to practice but for the use of such AOL Patent Matters or TWX Patent Matters, as applicable.

Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product) and other technical, financial, employee or business information or data.

Law” means any law, statute, ordinance, rule, regulation, order, writ, judgment, injunction or decree of any Governmental Authority or principles of common law or equity (including negligence and strict liability) enacted, entered, promulgated or applied by a Governmental Authority.

Person” means an individual or a partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or other entity, without regard to whether such entity is treated as disregarded for U.S. Federal income tax purposes.

 

2


Subsidiary” means, with respect to a specified Person, another Person more than 50% of the outstanding voting or equity interests of which are owned by such specified Person or by one or more other Subsidiaries of such specified Person; provided, however, that for purposes of this Agreement, no member of the AOL Group shall be deemed to be a Subsidiary of TWX.

TWX Covenant Intellectual Property” means (i) all trade secret rights (if any) in all inventions covered by any United States or foreign patent application owned, in whole or part, by TWX or any member of the TWX Group as of the Effective Date, by any United States or foreign patent issued in respect thereof prior to the Effective Date and by any continuation, continuation-in-part, divisional, reissue, extension, reexamination or substitution relating thereto, (ii) all trade secret rights (if any) in all inventions owned, in whole or in part, by TWX or any other member of the TWX Group as of the Effective Date and for which a patent application had not been filed as of the Effective Date, whether or not patentable, and (iii) all trade secret rights (if any) in all invention disclosures owned as of the Effective Date by the TWX Group, whether or not included in categories (i) and (ii) above.

TWX Group” means TWX and each of its Subsidiaries.

TWX Patent Matters” means all United States or foreign patent applications or patents owned, in whole or in part, by TWX or any other member of the TWX Group as of the Effective Date or any patent transferred to any member of the TWX Group by any member of the AOL Group pursuant to Section 2.05, together with any continuation, continuation-in-part, divisional, reissue, extension, reexamination or substitution thereof, and any application claiming the benefit thereof.

ARTICLE II

AOL Licensed Intellectual Property

SECTION 2.01 AOL Licensed Intellectual Property. Subject to the terms and conditions set forth in this Agreement, including without limitation Sections 2.04 and 2.07, AOL, for itself and on behalf of each other member of the AOL Group, hereby grants to TWX and each other member of the TWX Group, from and after the Effective Date, a worldwide, fully-paid-up, non-exclusive, non-transferable (except as set forth in Section 6.03), royalty-free, perpetual, non-sublicensable (except as set forth in Section 6.04(a)) license under the AOL Patent Matters to make, have made, use, sell, offer to sell, import into any country, and export from any country all claimed inventions.

SECTION 2.02 Covenant Not To Sue. Subject to the terms and conditions set forth in this Agreement, including without limitation Sections 2.01, 2.04 and 2.07, from and after the Effective Date AOL will not, nor will any other member of the AOL Group, institute any action or suit at law or in equity against TWX or any other member of the TWX Group under or in respect of the AOL Patent Matters or the AOL Covenant Intellectual Property, nor institute, prosecute or in any way aid in the

 

3


initiation or prosecution of any claim, demand, action or cause of action for damages, costs, loss of services, expenses or compensation based upon any act by TWX or any other member of the TWX Group under or in respect of the AOL Patent Matters or the AOL Covenant Intellectual Property. The above covenant not to sue shall also extend to any third party to the extent such third party is an end user of a product or service that uses, incorporates or is related to any AOL Covenant Intellectual Property and such product or service is provided by a TWX Group member and such TWX Group member is then entitled to the protection of such covenant. Notwithstanding the foregoing, this Section 2.02 shall not prevent an AOL Group member from taking action against a member of the TWX Group and/or an employee of a TWX Group member to enforce a written confidentiality obligation in favor of such AOL Group member in effect as of the Effective Date with respect to any AOL Covenant Intellectual Property to the extent that such TWX Group member or TWX employee is then bound by, and alleged to be in breach of, such written confidentiality obligation.

SECTION 2.03 No Obligation to Provide Services or Delivery. Each party, on behalf of itself and its respective Affiliates, acknowledges and agrees that no provision of this Agreement shall require AOL or any of its Affiliates to provide any support, training, programming, research and development or other services or to disclose or deliver any software, other technology or any AOL Covenant Intellectual Property to TWX or any of its Affiliates with respect to the AOL Patent Matters or AOL Covenant Intellectual Property.

SECTION 2.04 Limitations on AOL License. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to license any AOL Patent Matter, in whole or in part, or any rights thereunder, if the agreement or attempt to license without the consent of a third party would in any way be ineffective or adversely affect the rights of AOL or any other member of the AOL Group with respect to such AOL Patent Matters. If an attempted license of any AOL Patent Matter pursuant to this Agreement would be ineffective or would adversely affect the rights of AOL or any other member of the AOL Group, the parties hereto shall cooperate with each other to effect an arrangement designed reasonably to provide for TWX and the other members of the TWX Group the benefits of any such AOL Patent Matter that would otherwise accrue to the TWX Group members under this Agreement. The preceding sentence shall not be construed to require the incurrence of any expenditures (other than minor expenditures relating to documenting any such arrangement and any processing, filing, application or similar costs or fees) or material liability, acceptance of any material change to any agreement or the waiver of any right by any member of the AOL Group.

SECTION 2.05 AOL Group Covenants. Subject to the immediately following sentence, AOL shall not, nor shall AOL permit any other member of the AOL Group to, engage in any act, or purposefully omit to do any act, that materially impairs or materially adversely affects, individually or in the aggregate, the rights of TWX or any other member of the TWX Group in and to the AOL Patent Matters. Notwithstanding the immediately preceding sentence, an AOL Group member may abandon any AOL Patent Matter; provided, however, that with regard to those U.S. patents and patent applications listed on Annex B (the “Annex B Patent Matters”),

 

4


such AOL Group member shall: (i) provide a written notice to TWX of such determination and such intention to abandon any Annex B Patent Matter as soon as reasonably practicable after such determination (and prior to any such abandonment); and (ii) if requested by TWX, transfer such Annex B Patent Matter to a TWX Group member identified by TWX at no cost to TWX or such TWX Group member (other than reasonable and customary patent transfer registration fees (if any)); provided further that, with regard to all other AOL Patent Matters not listed on Annex B, such AOL Group member shall: (i) use commercially reasonable efforts to provide a written notice to TWX of such determination and such intention to abandon such AOL Patent Matter as soon as reasonably practicable after such determination (and prior to any such abandonment); and (ii) if requested by TWX, transfer such AOL Patent Matter to a TWX Group member identified by TWX at no cost to TWX or such TWX Group member (other than reasonable and customary patent transfer registration fees (if any)). If, after the Effective Date, any AOL Patent Matter is transferred to any Affiliate of AOL or sold or otherwise transferred to any third party, then AOL shall cause such Affiliate or third party, as applicable, to enter into an agreement, license or sublicense to provide TWX and the other members of the TWX Group with the benefits of any such intellectual property on the same terms and conditions as set forth in this Agreement.

SECTION 2.06 Existing Intellectual Property Rights. TWX acknowledges and agrees that any AOL Patent Matter and AOL Covenant Intellectual Property created, owned, used or controlled by AOL or any other member of the AOL Group, shall remain the exclusive property of AOL or its applicable AOL Group member and, except for the rights and licenses granted hereunder, none of TWX and the other members of the TWX Group shall have any rights to such AOL Patent Matter or AOL Covenant Intellectual Property; provided, however, that any Improvements to any AOL Patent Matter or any AOL Covenant Intellectual Property by any member of the TWX Group after the Effective Date shall be owned in accordance with applicable Law. TWX shall not, nor shall it permit any TWX Group member to, do any act, or purposefully omit to do any act, that shall in any way impair the rights of AOL or any other member of the AOL Group in and to the AOL Patent Matters or AOL Covenant Intellectual Property.

SECTION 2.07 AOL Group Membership. If a member of the AOL Group ceases to be a Subsidiary of AOL (such member, an “ex-AOL member”): (i) the license of TWX Patent Matters to the ex-AOL member pursuant to this Agreement and the covenant not to sue set forth in Section 3.02 of this Agreement each shall not terminate and shall remain in effect with respect to all TWX Patent Matters licensed to such ex-AOL member and all TWX Covenant Intellectual Property, as applicable, in each case, that are related to products and services of such ex-AOL member existing immediately prior to such ex-AOL member ceasing to be a Subsidiary of AOL; and (ii) the license of any AOL Patent Matter granted by an ex-AOL member pursuant to this Agreement to the TWX Group and the covenant not to sue set forth in Section 2.02 of this Agreement shall each remain in effect with respect to all AOL Patent Matters and all AOL Covenant Intellectual Property, as applicable, owned, in whole or in part, by the ex-AOL member.

SECTION 2.08 No Obligation. Nothing in this Agreement shall be interpreted to obligate AOL or any other member of the AOL Group to license to any

 

5


Person other than TWX and the other members of the TWX Group any AOL Patent Matter.

ARTICLE III

TWX Licensed Intellectual Property

SECTION 3.01 TWX Licensed Intellectual Property. Subject to the terms and conditions set forth in this Agreement, including without limitation Sections 3.04 and 3.07, TWX, for itself and on behalf of each other member of the TWX Group, hereby grants to AOL and each other member of the AOL Group, from and after the Effective Date, a worldwide, fully-paid-up, non-exclusive, non-transferable (except as set forth in Section 6.03), royalty-free, perpetual, non-sublicensable (except as set forth in Section 6.04(b)) license under the TWX Patent Matters to make, have made, use, sell, offer to sell, import into any country, and export from any country all claimed inventions solely in the AOL Business; provided, however, that the license granted in this Section 3.01 with respect to the Annex C Patent Matters (as defined in Section 3.05 below) shall not be subject to the limitation relating to the AOL Business and AOL may make, have made, use, sell, offer to sell, import into any country, and export from any country all claimed inventions in such Annex C Patent Matters under such license in both the AOL Business and other than in the AOL Business.

SECTION 3.02 Covenant Not To Sue. Subject to the terms and conditions set forth in this Agreement, including without limitation Sections 3.01, 3.04 and 3.07, from and after the Effective Date TWX will not, nor will any other member of the TWX Group, institute any action or suit at law or in equity against AOL or any other member of the AOL Group under or in respect of the TWX Patent Matters or the TWX Covenant Intellectual Property, nor institute, prosecute or in any way aid in the initiation or prosecution of any claim, demand, action or cause of action for damages, costs, loss of services, expenses or compensation based upon any act by AOL or any other member of the AOL Group with respect to the AOL Business under or in respect of the TWX Patent Matters or the TWX Covenant Intellectual Property. The above covenant not to sue shall also extend to any third party to the extent such third party is an end user of a product or service that uses, incorporates or is related to any TWX Covenant Intellectual Property and such product or service is provided by an AOL Group member and such AOL Group member is then entitled to the protection of such covenant. Notwithstanding the foregoing, this Section 3.02 shall not prevent a TWX Group member from taking action against a member of the AOL Group and/or an employee of an AOL Group member to enforce a written confidentiality obligation in favor of such TWX Group member in effect as of the Effective Date with respect to any TWX Covenant Intellectual Property to the extent that such AOL Group member or AOL employee is then bound by, and alleged to be in breach of, such written confidentiality obligation.

SECTION 3.03 No Obligation to Provide Services or Delivery. Each party, on behalf of itself and its respective Affiliates, acknowledges and agrees that no provision of this Agreement shall require TWX or any of its Affiliates to provide any

 

6


support, training, programming, research and development or other services or to disclose or deliver any software, other technology or any TWX Covenant Intellectual Property to AOL or any of its Affiliates with respect to the TWX Patent Matters or TWX Covenant Intellectual Property.

SECTION 3.04 Limitations on TWX License. Notwithstanding anything in this Agreement to the contrary, (i) this Agreement shall not constitute an agreement to license any TWX Patent Matter, in whole or in part, or any rights thereunder, if the agreement or attempt to license without the consent of a third party would in any way be ineffective or adversely affect the rights of TWX or any other member of the TWX Group with respect to such TWX Patent Matters and (ii) the license to the TWX Patent Matters, excluding the Annex C Patent Matters shall only be used in connection with the conduct by the AOL Group of the AOL Business and the license to AOL and the other members of the AOL Group hereunder of the TWX Patent Matters, excluding the Annex C Patent Matters shall not extend to, or permit, any other use. If an attempted license of any TWX Patent Matter pursuant to this Agreement would be ineffective or would adversely affect the rights of TWX or any other member of the TWX Group, the parties hereto shall cooperate with each other to effect an arrangement designed reasonably to provide for AOL and the other members of the AOL Group the benefits of any such TWX Patent Matter that would otherwise accrue to the AOL Group members under this Agreement. The preceding sentence shall not be construed to require the incurrence of any expenditures (other than minor expenditures relating to documenting any such arrangement and any processing, filing, application or similar costs or fees) or material liability, acceptance of any material change to any agreement or the waiver of any right by any member of the TWX Group.

SECTION 3.05 TWX Group Covenants. Subject to the immediately following sentence, TWX shall not, nor shall TWX permit any other member of the TWX Group to, engage in any act, or purposefully omit to do any act, that materially impairs or materially adversely affects, individually or in the aggregate, the rights of AOL or any other member of the AOL Group in and to the TWX Patent Matters. Notwithstanding the immediately preceding sentence, a TWX Group member may abandon any TWX Patent Matter; provided, however, that with regard to those U.S. patents and patent applications listed on Annex C (the “Annex C Patent Matters”), such TWX Group member shall: (i) provide a written notice to AOL of such determination and such intention to abandon any Annex C Patent Matter as soon as reasonably practicable after such determination (and prior to any such abandonment) and (ii) if requested by AOL, transfer such Annex C Patent Matter to an AOL Group member identified by AOL at no cost to AOL or such AOL Group member (other than reasonable and customary patent transfer registration fees (if any)); provided further that, with regard to all other TWX Patent Matters not listed on Annex C, such TWX Group member shall: (i) use commercially reasonable efforts to provide a written notice to AOL of such determination and such intention to abandon such TWX Patent Matter as soon as reasonably practicable after such determination (and prior to any such abandonment); and (ii) if requested by AOL, transfer such TWX Patent Matter to an AOL Group member identified by AOL at no cost to AOL or such AOL Group member (other than reasonable and customary patent transfer registration fees (if any)). If, after the Effective Date, any TWX Patent Matter is

 

7


transferred to any Affiliate of TWX or sold or otherwise transferred to any third party, then TWX shall cause such Affiliate or third party, as applicable, to enter into an agreement, license or sublicense to provide AOL and the other members of the AOL Group with the benefits of any such intellectual property on the same terms and conditions as set forth in this Agreement.

SECTION 3.06 Existing Intellectual Property Rights. AOL acknowledges and agrees that any TWX Patent Matter and TWX Covenant Intellectual Property created, owned, used or controlled by TWX or any other member of the TWX Group, shall remain the exclusive property of TWX or its applicable TWX Group member and, except for the rights and licenses granted hereunder, none of AOL and the other members of the AOL Group shall have any rights to such TWX Patent Matter or TWX Covenant Intellectual Property; provided, however, that any Improvements to any TWX Patent Matter or any TWX Covenant Intellectual Property by any member of the AOL Group after the Effective Date shall be owned in accordance with applicable Law. AOL shall not, nor shall it permit any AOL Group member to, do any act, or purposefully omit to do any act, that shall in any way impair the rights of TWX or any other member of the TWX Group in and to the TWX Patent Matters or TWX Covenant Intellectual Property.

SECTION 3.07 TWX Group Membership. If a member of the TWX Group ceases to be a Subsidiary of TWX (such member, an “ex-TWX member”): (i) the license of AOL Patent Matters to the ex-TWX member pursuant to this Agreement and the covenant not to sue set forth in Section 2.02 of this Agreement each shall not terminate and shall remain in effect with respect to all AOL Patent Matters licensed to such ex-TWX member and all AOL Covenant Intellectual Property, as applicable, in each case, that are related to products and services of such ex-TWX member existing immediately prior to such ex-TWX member ceasing to be a Subsidiary of TWX; and (ii) the license of any TWX Patent Matter granted by an ex-TWX member pursuant to this Agreement to the AOL Group and the covenant not to sue set forth in Section 3.02 of this Agreement shall each remain in effect with respect to all TWX Patent Matters and all TWX Covenant Intellectual Property, as applicable, owned, in whole or in part, by the ex-TWX member.

SECTION 3.08 No Obligation. Nothing in this Agreement shall be interpreted to obligate TWX or any other member of the TWX Group to license to any Person other than AOL and the other members of the AOL Group any TWX Patent Matter.

ARTICLE IV

Enforcement; Infringement; Termination

SECTION 4.01 No Enforcement Against Third Party. Notwithstanding any provision of this Agreement, in no event shall any party be required to enforce or otherwise assert against any Person any intellectual property rights in connection with the AOL Patent Matters or the TWX Patent Matters.

 

8


SECTION 4.02 Infringement by Third Parties. (a) AOL Patent Matters. TWX shall cooperate with AOL in the protection and enforcement of the AOL Patent Matters. TWX shall promptly notify AOL in writing of any infringement, misappropriation or illegal use by any third party of the AOL Patent Matters of which it becomes aware. AOL may, in its sole discretion, commence or prosecute and effect the disposition of any claims or suits relative to the infringement, misappropriation and/or illegal use of the AOL Patent Matters in its own name. At the request and expense of AOL, TWX shall cooperate with AOL in connection with any such claims or suits and shall furnish reasonable assistance to AOL in the conduct of all proceedings in regard thereto. TWX shall not take any action to protect or enforce, nor shall any of the TWX Group members settle any claim for infringement of, any of the AOL Patent Matters without the prior written consent of AOL.

(b) TWX Patent Matters. AOL shall cooperate with TWX in the protection and enforcement of the TWX Patent Matters. AOL shall promptly notify TWX in writing of any infringement, misappropriation or illegal use by any third party of the TWX Patent Matters of which it becomes aware. TWX may, in its sole discretion, commence or prosecute and effect the disposition of any claims or suits relative to the infringement, misappropriation and/or illegal use of the TWX Patent Matters in its own name. At the request and expense of TWX, AOL shall cooperate with TWX in connection with any such claims or suits and shall furnish reasonable assistance to TWX in the conduct of all proceedings in regard thereto. AOL shall not take any action to protect or enforce, nor shall any of the AOL Group members settle any claim for infringement of, any of the TWX Patent Matters without the prior written consent of TWX.

SECTION 4.03 Termination. Upon termination of any license granted hereunder, all rights in the AOL Patent Matters or the TWX Patent Matters, as applicable, shall automatically revert to the applicable licensor and the applicable licensee shall have no further rights in, and shall immediately cease all use of, such intellectual property.

SECTION 4.04 Representations and Warranties. Each party represents and warrants to the other party that such party has the legal right, power and authority to enter into and perform its obligations under this Agreement. AOL represents and warrants as of the date hereof and as of the Effective Date that: (i) the AOL Group owns, in whole or in part, the AOL Patent Matters; (ii) no AOL Group member has granted any other license or other right to use any of the AOL Patent Matters that would conflict with the rights granted to TWX and the TWX Group hereunder; and (iii) there are no consents or approvals needed from any party in connection with the granting to the TWX Group of the rights under this Agreement. TWX represents and warrants as of the date hereof and as of the Effective Date that: (i) the TWX Group owns, in whole or in part, the TWX Patent Matters; (ii) no TWX Group member has granted any other license or other right to use any of the TWX Patent Matters that would conflict with the rights granted to AOL and the AOL Group hereunder; and (iii) there are no consents or approvals needed from any party in connection with the granting to the AOL Group of the rights under this Agreement.

 

9


ARTICLE V

Disclaimer of Representations and Warranties

EXCEPT AS MAY OTHERWISE EXPRESSLY BE SET FORTH IN THIS AGREEMENT: (A) NONE OF AOL OR TWX OR THEIR RESPECTIVE AFFILIATES MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY OTHER MATTER INVOLVING THE AOL PATENT MATTERS OR THE AOL COVENANT INTELLECTUAL PROPERTY OR THE TWX PATENT MATTERS OR THE TWX COVENANT INTELLECTUAL PROPERTY, AS APPLICABLE; (B) ALL OF THE PATENT MATTERS THAT SHALL BE LICENSED IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT SHALL BE LICENSED ON AN “AS IS, WHERE IS BASIS” WITHOUT ANY SUPPORT, ASSISTANCE, MAINTENANCE OR WARRANTIES OF ANY KIND WHATSOEVER, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A SPECIFIC PURPOSE, TITLE ENFORCEABILITY OR NON-INFRINGEMENT OR OTHERWISE OR ANY WARRANTY THAT ANY LICENSED PATENT MATTER IS “ERROR-FREE” SHALL BE EXPRESSLY DISCLAIMED; AND (C) NONE OF THE PARTIES HERETO OR ANY OTHER PERSON MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION, DOCUMENTS OR MATERIAL MADE AVAILABLE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

ARTICLE VI

Miscellaneous

SECTION 6.01 No Other Rights. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NO OTHER RIGHTS OR LICENSES TO ANY INTELLECTUAL PROPERTY SHALL BE GRANTED.

SECTION 6.02 Further Assurances. Each of the parties shall, and shall cause its Affiliates to: (i) execute and deliver such instruments and documents as another party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement; and (ii) use commercially reasonable efforts to take, or cause to be taken, all actions, and do, or cause to be done, all other things necessary, proper or advisable under applicable Law and agreements to consummate and make effective the transactions contemplated by this Agreement.

SECTION 6.03 Assignability. Notwithstanding anything in this Agreement to the contrary, no rights licensed under this Agreement may be assigned without the express prior written consent of the licensor, except that such rights may be transferred (in whole or in part) without the consent of the applicable licensor: (i) to any Affiliate of the licensee; or (ii) otherwise by operation of Law; provided, however, that in

 

10


the case of (i) and (ii) above, the applicable Affiliate or assignee, as applicable, enters into a legal, valid, binding and enforceable written agreement contemporaneously with any such assignment acknowledging and agreeing to be bound by all the terms and conditions set forth in this Agreement. For the avoidance of doubt, the above portion of this Section 6.03 shall not apply to or have any effect on the operation of Sections 2.07 and 3.07 herein. Subject to the limits on assignment stated above, this Agreement will inure to the benefit of, be binding upon, and be enforceable against, each of the parties hereto and their respective successors and assigns.

SECTION 6.04 Sublicensing. Notwithstanding anything in this Agreement to the contrary, no rights licensed under this Agreement may be sublicensed without the express prior written consent of the applicable licensor except as set out in either subsection (a) or (b) of this Section 6.04.

(a) Any TWX Group member may grant a non-exclusive sublicense under any Annex B Patent Matter to make, have made, use, sell, offer to sell, import into any country, and export from any country all claimed inventions therein, to any third party engaged in the provision of services or products associated with, or that facilitates the conduct of, such TWX Group member’s business; provided, however, that (i): such sublicense includes a written provision providing that such sublicense may be terminated by AOL by written notice delivered to TWX and the sublicensee if: (A) such sublicensee and an AOL Group member or AOL Affiliate are then parties to any AOL Litigation (as defined below); and (B) an AOL Litigation Notice (as defined below) has been delivered to TWX and is effective at the time of delivery of such notice of termination to TWX and such sublicensee; and (ii) that such third party agrees in writing to comply with the applicable licensee’s obligations under this Agreement. Notwithstanding the foregoing, a TWX Group member shall not be permitted to sublicense an Annex B Patent Matter if, prior to the applicable TWX Group member granting any such sublicense, AOL has provided written notice to TWX (such notice, an “AOL Litigation Notice”) that: (x) the potential sublicensee is a party in a legal action to which an AOL Group member or AOL Affiliate is also a party in which such Annex B Patent Matter is or will be at issue; or (y) the potential sublicensee has filed suit against AOL and AOL has determined that an AOL Group member or AOL Affiliate will assert such Annex B Patent Matter in a separate parallel legal action against such potential sublicensee (any such legal action referred to in (x) or (y), an “AOL Litigation”).

In order to be valid, any AOL Litigation Notice must: (i) include the name of the potential sublicensee that is a party to the AOL Litigation and a reasonably detailed description of the AOL Litigation; (ii) identify the AOL Group member or AOL Affiliate involved in such AOL Litigation and the Annex B Patent Matter that may not be sublicensed to such potential sublicensee; and (iii) confirm that the Annex B Patent Matter specified in subclause (ii) of this sentence is or will be at issue in such AOL Litigation; provided, however, that if: (x) AOL does not confirm in writing to TWX that a claim of infringement has been asserted by such AOL Group member or AOL Affiliate with respect to such Annex B Patent Matter in such AOL Litigation within 6 months from the date of TWX’s receipt of the AOL Litigation Notice; and (y) another AOL Litigation Notice is not effective as of the end of such 6-month period with respect to the

 

11


same Annex B Patent Matter that is at issue in, and the same potential sublicensee that is involved in, a different AOL Litigation proceeding, then the restriction on the TWX Group members’ ability to sublicense such Annex B Patent Matter to such potential sublicensee pursuant to this Section 6.04(a) shall terminate. AOL shall advise TWX of any material development with respect to any AOL Litigation, including any settlement, court order, final and non-appealable judgment with respect to, or stay of, such AOL Litigation, as soon as reasonably practicable after any such development, and if: (x) such AOL Litigation has been settled or if a final and non-appealable judgment with respect to such AOL Litigation has been entered; and (y) another different AOL Litigation Notice with respect to the same Annex B Patent Matter that was at issue in, and the same potential sublicensee that was involved in, such AOL Litigation is not effective as of the date of AOL’s advice to TWX with respect to such settlement or final and non-appealable judgment, then the restriction on the TWX Group members’ ability to sublicense such Annex B Patent Matter to such potential sublicensee pursuant to this Section 6.04(a) shall terminate to the extent that any such sublicense by a TWX Group member would not have an adverse impact on any such settlement or final and non-appealable judgment. TWX may, at any time after the date falling 3 months after the date of receipt of an AOL Litigation Notice, deliver a written request to AOL (a “TWX Request”) asking AOL to confirm in writing (an “AOL Confirmation”) that the Annex B Patent Matter and potential sublicensee identified in such AOL Litigation Notice continues to be, or will within the next 3 months be, at issue in, or continues to be a party to, as applicable, the AOL Litigation identified in such AOL Litigation Notice, and otherwise confirming and updating the information in such AOL Litigation Notice. If TWX does not receive an AOL Confirmation confirming the information required in the preceding sentence within 30 days of the date of the TWX Request, then the AOL Litigation Notice identified in the TWX Request shall automatically expire on the last day of such 30-day period.

(b) Any AOL Group member may grant a non-exclusive sublicense under any Annex C Patent Matter to make, have made, use, sell, offer to sell, import into any country, and export from any country all claimed inventions therein, to any third party engaged in the provision of services or products associated with, or that facilitates the conduct of, such AOL Group member’s business; provided, however, that: (i) such sublicense includes a written provision providing that such sublicense may be terminated by TWX by written notice delivered to AOL and the sublicensee if: (A) such sublicensee and a TWX Group member or TWX Affiliate are then parties to any TWX Litigation (as defined below); and (B) a TWX Litigation Notice (as defined below) has been delivered to AOL and is effective at the time of delivery of such notice of termination to AOL and such sublicensee; and (ii) that such third party agrees in writing to comply with the applicable licensee’s obligations under this Agreement. Notwithstanding the foregoing, an AOL Group member shall not be permitted to sublicense an Annex C Patent Matter if, prior to the applicable AOL Group member granting any such sublicense, TWX has provided written notice to AOL (such notice, a “TWX Litigation Notice”) that: (x) the potential sublicensee is a party in a legal action to which a TWX Group member or TWX Affiliate is also a party in which such Annex C Patent Matter is or will be at issue; or (y) the potential sublicensee has filed suit against TWX and TWX has determined that a TWX Group member or TWX Affiliate will assert such Annex C Patent Matter in a separate parallel legal action against such potential sublicensee (any such legal action

 

12


referred to in (x) or (y), a “TWX Litigation”).

In order to be valid, any TWX Litigation Notice must: (i) include the name of the potential sublicensee that is a party to the TWX Litigation and a reasonably detailed description of the TWX Litigation; (ii) identify the TWX Group member or TWX Affiliate involved in such TWX Litigation and the Annex C Patent Matter that may not be sublicensed to such potential sublicensee; and (iii) confirm that the Annex C Patent Matter specified in subclause (ii) of this sentence is or will be at issue in such TWX Litigation; provided, however, that: if (x) TWX does not confirm in writing to AOL that a claim of infringement has been asserted by such TWX Group member or TWX Affiliate with respect to such Annex C Patent Matter in such TWX Litigation within 6 months from the date of AOL’s receipt of the TWX Litigation Notice; and (y) another TWX Litigation Notice is not effective as of the end of such 6-month period with respect to the same Annex C Patent Matter that is at issue in, and the same potential sublicensee that is involved in, a different TWX Litigation proceeding, then the restriction on the AOL Group members’ ability to sublicense such Annex C Patent Matter to such potential sublicensee pursuant to this Section 6.04(b) shall terminate. TWX shall advise AOL of any material development with respect to the TWX Litigation, including any settlement, court order, final and non-appealable judgment with respect to, or stay of, such TWX Litigation, as soon as reasonably practicable after any such development, and if: (x) such TWX Litigation has been settled or if a final and non-appealable judgment with respect to such TWX Litigation has been entered; and (y) another different TWX Litigation Notice with respect to the same Annex C Patent Matter that was at issue in, and the same potential sublicensee that was involved in, such TWX Litigation, is not effective as of the date of TWX’s advice to AOL with respect to such settlement or final and non-appealable judgment, then the restriction on the AOL Group members’ ability to sublicense such Annex C Patent Matter to such potential sublicensee pursuant to this Section 6.04(b) shall terminate to the extent that any such sublicense by an AOL Group member would not have an adverse impact on any such settlement or final and non-appealable judgment. AOL may, at any time after the date falling 3 months after the date of receipt of a TWX Litigation Notice, deliver a written request to TWX (an “AOL Request”) asking TWX to confirm in writing (a “TWX Confirmation”) that the Annex C Patent Matter and potential sublicensee identified in such TWX Litigation Notice continues to be, or will within the next 3 months be, at issue in, or continues to be a party to, as applicable, the TWX Litigation identified in such TWX Litigation Notice, and otherwise confirming and updating the information in such TWX Litigation Notice. If AOL does not receive a TWX Confirmation confirming the information required in the preceding sentence within 30 days of the date of the AOL Request, then the TWX Litigation Notice identified in the AOL Request shall automatically expire on the last day of such 30-day period.

(c) Either party may request from the other party a written list of the sublicensees that such other party has granted a sublicense to pursuant to Section 6.04(a) or 6.04(b), as applicable, since the Effective Date. The responding party shall endeavor to provide such list in a timely fashion after receipt of such written request; provided, however, that the failure of the responding party to comply with such request in any

 

13


respect shall be deemed not to be a breach of this Agreement and no cause of action or liability or otherwise shall arise with respect to any such failure.

SECTION 6.05 Third Party Beneficiaries. The provisions of this Agreement (other than Sections 2.02 and 3.02) are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder. There are no third party beneficiaries of this Agreement (other than Sections 2.02 and 3.02) and this Agreement (other than Sections 2.02 and 3.02) shall not provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

SECTION 6.06 Confidential Information. (a) Each of TWX and AOL, on behalf of itself and each person in its respective Group, shall hold, and cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, but no less than a reasonable degree of care, that it applies to its own confidential and proprietary information pursuant to policies in effect as of the Effective Date, all Information concerning the other Group or its business that is either in its possession (including Information in its possession prior to the Effective Date) or furnished by the other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, except, in each case, to the extent that such Information is: (i) in the public domain through no fault of any member of the TWX Group or the AOL Group, as applicable, or any of its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives; (ii) later lawfully acquired from other sources by any of TWX, AOL or its respective Group, employees, directors or agents, accountants, counsel and other advisors and representatives, as applicable, which sources are not themselves bound by a confidentiality obligation to the knowledge of any of TWX, AOL or Persons in its respective Group, as applicable; (iii) independently generated without reference to any proprietary or confidential Information of the TWX Group or the AOL Group, as applicable; or (iv) required to be disclosed by Law; provided, however, that the Person required to disclose such Information gives the applicable Person prompt, and to the extent reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use commercially reasonable efforts to cooperate, at the expense of the requesting Person, in seeking any reasonable protective arrangements requested by such Person. In the event that such appropriate protective order or other remedy is not obtained, the Person that is required to disclose such Information shall furnish, or cause to be furnished, only that portion of such Information that is legally required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Information. Notwithstanding the foregoing, each of TWX and AOL may release or disclose, or permit to be released or disclosed, any such Information concerning the other Group to their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of the obligations hereunder with respect to such Information) or otherwise as permitted by this Agreement.

 

14


(b) Without limiting the foregoing, when any Information concerning the other Group or its business is no longer needed for the purposes contemplated by this Agreement, each of TWX and AOL will, promptly after request of the other party, either return all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party, as applicable, that it has destroyed such Information (and used commercially reasonable efforts to destroy all such Information electronically preserved or recorded within any computerized data storage device or component (including any hard-drive or database)).

SECTION 6.07 Counterparts. This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party.

SECTION 6.08 Entire Agreement. This Agreement and the annexes hereto contain the entire agreement between the parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the parties with respect to the subject matter hereof other than those set forth or referred to herein.

SECTION 6.09 Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any of the transactions contemplated hereby.

SECTION 6.10 Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when: (a) delivered in person; (b) sent by telecopier (except that, if not sent during normal business hours for the recipient, then at the opening of business on the next business day for the recipient) to the fax numbers set forth below; or (c) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

If to TWX, to:

Time Warner Inc.

One Time Warner Center

New York, NY 10019

Attn: General Counsel

Facsimile: (212) 484-7167

 

15


with a copy to:

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attn: Eric Schiele

Facsimile: (212) 474-3700

If to AOL to:

AOL Inc.

770 Broadway

New York, NY 10003

Attn: General Counsel

Facsimile: (703) 265-7404

Either party may, by notice to the other party, change the address to which such notices are to be given.

SECTION 6.11 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon any such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the parties.

SECTION 6.12 Force Majeure. Neither party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

SECTION 6.13 Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

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SECTION 6.14 Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall remain in full force and effect.

SECTION 6.15 Waivers of Default. Waiver by any party hereto of any default by the other party hereto of any provision of this Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default.

SECTION 6.16 Specific Performance. Notwithstanding the procedures set forth in Section 6.02, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other party shall not oppose the granting of such relief. The parties to this Agreement agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.

SECTION 6.17 Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party hereto, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each party. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of either party to assert any of its rights hereunder shall not constitute a waiver of any such rights.

SECTION 6.18 Separation and Distribution Agreement. The parties agree that, in the event of a conflict between the terms of this Agreement and the Separation Agreement, the terms of this Agreement shall govern.

SECTION 6.19 Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof”, “herein” and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the annexes hereto) and not to any particular provision of this Agreement. Article, Section and Appendix references are to the articles, sections and appendices of or to this Agreement unless otherwise specified. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 6.17. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”, unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representative.

 

AOL INC.,
  by  

 

    Name:
    Title:
TIME WARNER INC.,
  by  

 

    Name:
    Title:

 


ANNEX A

AOL BUSINESS

AOL Business” means the global mobile and other Internet products and services businesses conducted by the members of the AOL Group and AOL LLC, including but not limited to:

 

  (i) offering online content, products and services to consumers, publishers and advertisers, including:

 

  (a) publishing content licensed from third parties and original content produced through AOL’s network of content creators on a variety of websites with related applications and services, such as the AOL.com homepage; content offerings include but are not limited to the following: news and information content (including Engadget; DailyFinance; WalletPop; AOL Autos; Fan House; and PoliticsDaily); women and lifestyle (including StyleList; Lemondrop; and ParentDish); entertainment (including Moviefone; AOL Music; AOL TV; PopEater; and Games.com); targeted audiences (including Black Voices; and AOL Latino); local mapping (including MapQuest; AOL City Guide; City’s Best; and Digital City); local directories (including AOL Yellow Pages; AOL White Pages; and AOL Classifieds); local events (including Going.com; and When.com); and local sites, which aggregate news, events and directories for small communities and towns);

 

  (b) providing social networking, community and instant communication products and services (including AOL Mail (e-mail); AIM (instant messaging in the U.S.); and ICQ (instant messaging)); and

 

  (c) providing customers with general, Internet-based search results utilizing Google’s organic web search results with additional links to relevant AOL and third-party content and information, as well as providing a variety of other search-related features (including video search (Truveo) and news search (Relegence));

 

  (d) providing Internet advertising services and products; and

 

  (ii) managing and operating a subscription access service business, including as a distribution channel for such content, product and service offerings, including the AOL-branded Internet access service, as well as CompuServe and Netscape Internet access services.


ANNEX B

AOL U.S. PATENTS AND PATENT APPLICATIONS

 

Patent/
Application/

Publication
    Number    

  Title
5,826,242   Method Of On-line Shopping Utilizing Persistent Client State In A Hypertext Transfer Protocol Based Client-Server System
7,305,470   Method For Displaying Web User’s Authentication Status In A Distributed Single Login Network
7,437,457   Regulating Concurrent Logins Associated With A Single Account
7,325,065   Identifying Unauthorized Communication Systems Using A System-Specific Identifier
7,174,454   System And Method For Establishing Historical Usage-Based Hardware Trust
6,854,057   Digital Certificate Proxy
7,216,361   Adaptive Multi-Tier Authentication System
7,237,257   Leveraging A Persistent Connection To Access A Secured Service
  2005/0262564     Using Trusted Communication Channel To Combat User Name/Password Theft
2006/0048213   Authenticating A Client Using Linked Authentication Credentials
7,181,513   Restricting Access To Requested Resources
7,428,585   Local Device Access Controls
6,941,300   Internet Crawl Seeding
6,877,002   Fuzzy Database Retrieval
6,785,688   Internet Streaming Media Workflow Architecture
7,308,464   Method And System For Rule Based Indexing Of Multiple Data Structures
7,181,444   System And Process For Searching A Network
6,847,977   Grouping Multimedia And Streaming Media Search Results
2007/0094247   Real Time Query Trends With Multi-Document Summarization
6,757,691   Predicting Content Choices By Searching A Profile Database
6,944,669   Sharing The Personal Information Of A Network User With The Resources Accessed By That Network User
7,039,683   Electronic Information Caching
6,757,707   Displayed Complementary Content Sources In A Web-Based TV System
6,677,968   User Definable On-Line Co-User Lists
2007/0005389   Method And System For Managing Digital Assets
11/538,620   Identifying Events Of Interest Within Video Content
7,567,958   Filtering System For Providing Personalized Information In The Absence Of Negative Data
2005/0027593   System And Method For Segmenting And Targeting Audience Members
2008/0126567   System And Method For Preserving Consumer Choice
7,386,798   Sharing On-Line Media Experiences
6,754,904   Informing Network Users Of Television Programming Viewed By Other Network Users
7,599,990   Buddy List-Based Sharing Of Electronic Content


ANNEX C

TWX U.S. PATENTS AND PATENT APPLICATIONS

 

Patent/
Application/
Publication
    Number    
  Title
6,351,776   Shared Internet Storage Resource, User Interface System, And Method
6,985,927   Shared Internet Storage Resource, User Interface System, And Method
7,171,472   Shared Internet Storage Resource, User Interface System, And Method
7,337,207   Shared Internet Storage Resource, User Interface System, And Method
7,496,578   Shared Internet Storage Resource, User Interface System, And Method
6,496,855   Web Site Registration Proxy System
7,237,024   Cross-Site Timed Out Authentication Management
7,415,500   Facilitating Negotiations Between Users Of A Computer Network Through Messaging Communications Enabling User Interaction
7,415,718   Receiving and Processing Vertical Blanking Interval Data
7,571,234   Authentication Of Electronic Data
2005/0190911   System And Method For Using A Streaming Protocol
EX-10.5 9 dex105.htm EXHIBIT 10.5 EXHIBIT 10.5

Exhibit 10.5

EXECUTION COPY

IT APPLICATION AND DATABASE AGREEMENT

THIS IT APPLICATION AND DATABASE AGREEMENT (the “Agreement”) is made on                     , 2009, between AOL INC., a Delaware Corporation (“AOL”) and Time Warner Inc., a Delaware corporation (“Time Warner”).

WHERAS, Each party has developed information technology applications that are used by the other party, and/or its respective affiliates and subsidiaries, or in other cases used by the corporate parent for the benefit of the company as a whole, and as more fully described in Exhibit A attached hereto and made a part hereof (the “Homegrown Applications”);

WHEREAS, Time Warner licenses information technology applications from third parties that are in some cases used by Time Warner affiliates (including AOL) directly, or in other cases used by the corporate parent for the benefit of the company as a whole, and as more fully described in Exhibit B attached hereto and made a part hereof (the “Third Party Applications” and together with the Homegrown Applications, the “Applications”);

WHEREAS, Time Warner provides access to AOL to one certain specified Time Warner network application (the “TW Network Application”) as more fully described in Exhibit C;

WHEREAS, certain of the Applications and/or TW Network Applications contain a database component (each, a “Database”) that contains information about AOL and its operations, as more fully described in Exhibit D;

WHEREAS, the board of directors of Time Warner have determined that it is in the best interest of Time Warner and its shareholders to distribute its entire interest in AOL to its shareholders of Time Warner common stock, by way of various corporate transactions (the “Separation”) pursuant to the Separation and Distribution Agreement (“SDA”).

WHEREAS, in contemplation of the Separation, AOL and Time Warner have agreed to transition certain Applications and Databases or extracts thereof and to provide post-Separation access to two certain TW Network Applications.

NOW, THEREFORE, the parties agree as follows:

1. Homegrown Applications.

(a)    Within five (5) days of the execution of this Agreement, each party shall promptly deliver to the other copies of the Homegrown Applications (which definition shall include any proprietary modules or components owned by a party that relate to any Third Party Applications) used by or for the benefit of the other party and/or its affiliates and subsidiaries, including both object code and source code.    Each party hereby grants to the other party, its permitted assignees, and its and its permitted assignees’ current and future Affiliates and Subsidiaries (as defined in the SDA) a


worldwide, non-exclusive, irrevocable and perpetual, fully paid-up license to exercise all intellectual property rights in, to and under all such Homegrown Applications (including their object and source code) and the documentation in Section 1(b), which for the purposes of clarity shall include the right to use, distribute, copy, store, save and make derivative works of the Homegrown Applications and documentation. Each party shall be responsible for procuring any third-party licenses required in order to use the Homegrown Applications of the other party, all of which are set forth in Exhibit E hereto. The license rights granted under this section extend to and may be exercised by a party’s third party contractors and consultants acting on its behalf. This section shall survive any termination or expiration of this Agreement.

(b) To the extent that documentation exists with respect to any Homegrown Application, each party shall provide a copy of such documentation to the other party. Neither party shall be obligated to create documentation for the other party.

(c) The parties agree that Section 2.04 of the SDA (Disclaimer of Representations and Warranties) shall apply to the Homegrown Applications and corresponding documentation provided under this Agreement, and consistent with the foregoing and without limiting the same, each party disclaims all warranties, express or implied, with respect to the Homegrown Applications and documentation, including, without limitation, warranties of merchantability, non-infringement, accuracy, completeness and fitness for a particular purpose.

2. Databases. Time Warner will promptly provide AOL with all Databases or provide an extract of all applicable data from a Database (each, a “Data Transfer”) and deliver the same to AOL in accordance with the time frames stated in Exhibit D, then:

(a) AOL shall be responsible for any of its own costs associated with any Data Transfer;

(b) as necessary, AOL shall contract with third-party vendors acceptable to Time Warner to provide services to enable the Data Transfer, provided that AOL shall cause any third-party vendor to provide Time Warner with the opportunity to review and approve the deliverable associated with the Data Transfer prior to delivery to AOL. For the avoidance of doubt, any such review will be limited to that necessary to ensure the deliverable associated with the Data Transfer does not include non-AOL data or otherwise include data not intended or agreed by the parties to be transferred to AOL. Time Warner will conduct its review promptly and shall provide its approval no later than five (5) business days after the date the deliverable is ready for delivery to AOL.

(c) any third-party vendors retained by AOL shall sign a Non-Disclosure Agreement or agree to be bound by confidentiality terms which are no less restrictive than those terms ordinarily entered into between AOL and its third party vendors prior to Time Warner providing any Database;

(d) AOL acknowledges and agrees that all information and data included in any Data Transfer is provided to AOL on an “as is” basis and Time Warner disclaims all warranties, express or implied, with respect to the information and data provided, including, without limitation, warranties of merchantability, non-infringement, accuracy, completeness and fitness for a particular purpose; and

 

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(e) In the event that, after a Data Transfer, either party discovers information that should have or should not have been included in such Data Transfer, the party shall immediately notify the other party and such other party shall use reasonable best efforts to promptly return or destroy such information at the other party’s direction.

3. Access to Network Applications.

(a) From and after the Distribution Date, to the extent permitted by Time Warner’s license for the relevant applications, Time Warner shall continue to provide access to AOL to the two TW Network Applications set forth in Exhibit C to this Agreement.

(b) To the extent that documentation exists with respect to any TW Network Application, Time Warner shall provide a copy of such documentation to AOL. Time Warner shall not be obligated to create documentation for AOL.

(c) The parties agree that Section 2.04 of the SDA (Disclaimer of Representations and Warranties) shall apply to the TW Network Applications and corresponding documentation provided under this Agreement, and consistent with the forgoing and without limiting the same, each party disclaims all warranties, express or implied, with respect to the TW Network Applications and documentation, including, without limitation, warranties of merchantability, non-infringement, accuracy, completeness and fitness for a particular purpose.

4. Term. This Agreement shall commence on the date hereof and remain in effect until May 31, 2010, provided that any provisions with respect to a particular service or third-party agreement herein shall expire in accordance with their terms.

5. Support: Time Warner agrees to provide reasonably necessary assistance to AOL post Separation in order for AOL to install and implement certain of the Homegrown Applications (as indicated in Exhibit A) and Databases and/or Data Extracts identified in Exhibit D, which assistance shall not exceed one hundred (100) hours in the aggregate and shall not extend past sixty (60) days from the latest of (i) the date such Homegrown Application or Database/Data Extract is installed at AOL, (ii) the date of the last data import into the application or Database/Data Extract or (iii) the Distribution Date, as defined in the SDA (the “Distribution Date.”). The parties agree that support shall not apply to any Databases and/or Data Extracts that have been completed prior to separation (as evidenced by a written sign off or other acknowledgement by both parties). Except as set forth above or in an applicable Exhibit, neither party shall be obligated to provide any ongoing maintenance and/or support, including updates, upgrades, routine maintenance or future documentation for any Homegrown Applications.

6. Indemnification and Limitation of Liability. Each party shall indemnify and hold harmless the other party and its employees, agents, affiliates, officers, directors, stockholders, successors and assigns from and against all third-party claims, obligations, fines, liens, penalties, actions, damages, liabilities, costs, charges and expenses of whatever nature (including reasonable attorneys’ fees) arising from or related to (i) its use of any information or data contained in a Database or Data Transfer, (ii) its performance of this Agreement and (iii) it’s failure to obtain any third-party licenses required to run

 

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the Homegrown Applications or Third Party Applications or to house any Database. Notwithstanding anything to the contrary, except with respect to its indemnification obligations, each party’s liability to the other for any claim, cause of action or event arising out of this Agreement shall not exceed $500,000 in the aggregate, and neither party shall be liable to the other for any incidental, consequential, punitive, special or other similar damages. This Section 7 shall expressly survive the termination or expiration of this Agreement.

7. Miscellaneous.

(a) This Agreement shall be governed in accordance with the laws of the State of New York, without regard to the conflicts of law or choice of law principles thereof. The parties agree that any cause of action arising from or in relation to this Agreement shall be brought exclusively in the state and federal courts located within New York County.

(b) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement.

(c) Neither party shall assign, delegate or transfer this Agreement or any right, interest or benefit under this Agreement, or allow this Agreement to be assumed by, any third party without the prior written consent of the other party and any such assignment, delegation, transfer or assumption without such prior consent shall be wholly void and invalid. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.

(d) This Agreement sets forth the entire agreement and understanding among the parties as to the subject matter hereof and merges and supersedes all prior discussions and agreements.

(e) The parties agree that, in the event of a conflict between the terms of this Agreement and the SDA, the terms of this Agreement shall govern.

(f) Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating a relationship of principal and agent, partnership or joint venture between the parties

(g) Each party hereby acknowledges that confidential information of such party may be exposed to employees and agents of the other party as a result of the activities contemplated by this Agreement. Each party agrees that such party’s obligation to use and keep confidential the information of the other party shall be governed by the SDA.

(h) Except as otherwise expressly provided herein, the provisions of this Agreement are solely for the benefit of the parties and are not intended to confer upon any person except the parties any rights or remedies hereunder.

(i) If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions

 

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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, Time Warner and AOL 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.

(j) This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. By an instrument in writing AOL, on the one hand, or TWX, on the other hand, may waive compliance by the other with any term or provision of this Agreement that such other party, was or is obligated to comply with or perform. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of either party to assert any of its rights hereunder shall not constitute a waiver of any such rights.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the date first written above.

 

AOL INC.
By:    
  Name:
  Title:
TIME WARNER INC.
By:    
  Name:
  Title:

 

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Exhibit A

Homegrown Applications

Time Warner Supplied Homegrown Applications

 

  1. Markit*

 

  2. Domain Tracker*

 

  3. Ethics Incident Tracking System

 

  4. Audit Tracking and Planning

 

* Notwithstanding Paragraph 1(d) of the Agreement, TW agrees to provide to AOL the next version of the Markit application, which is an integrated version of both Domain Tracker and Markit, once the integrated version is completed. Except as may be otherwise agreed by the parties in writing, TW will provide such version to AOL no later than fifteen (15) days after the integrated version is placed into production at TW. Section 1(d) of the Agreement shall apply to Markit, Domain Tracker and the integrated version thereof, but not to the Ethics Incident Tracking System or the Audit Tracking and Planning.

AOL Supplied Homegrown Applications

 

  1. PCHAD (“Passive Client Header Anomaly Detection”) Security Module


Exhibit B

Third Party Applications

AOL is receiving a data extract from each of the following Third Party Applications currently utilized at Time Warner Corporate:

 

  1. Teammate

 

  2. Brassring

 

  3. Webdocumentz

 

  4. eRooms

 

  5. Ariba

 

  6. OneWorld


Exhibit C

Access to TW Network Applications

 

Name of Application    Number of Users    Period of Access
Khalix (network) – to be accessed through VPN   

Only those AOL employees with user name and password for login to application that was assigned prior to the Distribution Date and whose names were provided to Time Warner prior to the Separation

 

   Distribution Date through January 31, 2010
OneWorld    Only those AOL employees with user name and password for login to application that was assigned prior to the Distribution Date and whose names were provided to Time Warner prior to the Separation    ¨    Distribution Date through January 31, 2010

 

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Exhibit D

Databases/Data Extracts

Time Warner is providing data to AOL from the following applications, in the form of databases or data files, where dictated by business need:

Markit

Domain Tracker

Human Resources Data Central (HRDC)

Ethics Incident Tracking System (EITS)

Audit Tracking and Planning (APT)

IA Portal

Teammate

Brassring

Webdocumentz

eRooms

Ariba

OneWorld

RMIS

Claims Tracking

TWICCER

The Databases/Data Extracts identified in this Exhibit shall, unless otherwise agreed to by the parties, be provided no later than five (5) days after the Distribution Date.

 

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Exhibit E

Third Party Applications Underlying Homegrown Applications

[[This Exhibit E shall identify all third party licenses necessary to use the Homegrown Applications, including any third party code incorporated into the Homegrown Applications, a list of third party applications required for the Homegrown Applications to operate, and any licenses resolving any IP infringement claims or litigation.]]

Tools supporting the Development and/or Deployment of Time Warner Supplied Homegrown Applications

Development Tools:

1. MS Visual Studio 2005

2. MS SQL Server Management Studio

3. Infragistics 7.1

4. AJAX Tool kit

Deployment Tools:

1. MS SQL Server 2005

2. Windows 2003 32 bit

3. .NET framework 2.0

4. AJAX Tool kit

5. Infragistics 7.1

6. Crystal 10.2

7. Crystal 10.2 hotfix

Italicized tools above are freeware or are run-time applications that do not require a license, but are the intellectual property of the original developer.

Tools supporting the Development and/or Deployment of AOL Supplied Homegrown Applications

 

  1. PCHAD (**Client Header Anomaly Detection) Security Module Description: PCHAD has two open source libraries (statically linked, compiled), LIBPCAP, licensed pursuant to BSD License, and LIBNIDS, licensed pursuant to the GNU General Public License. Linux OS.

 

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EX-10.66 10 dex1066.htm EXHIBIT 10.66 EXHIBIT 10.66

Exhibit 10.66

AMENDMENT TO AGREEMENT AND PLAN OF MERGER

This AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this “Amendment”) is made as of May 5, 2008 by and among AOL LLC, a Delaware limited liability company (“Parent”), Bebo, Inc., a Delaware corporation (the “Company”), and, solely in his capacity as Stockholder Representative, Michael Birch, and this Amendment hereby amends that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 12, 2008, by and among Parent, Buckingham Acquisition Corp., a Delaware corporation, the Company and, solely with respect to certain provisions specified therein, the Stockholders Representative. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.

WHEREAS, in accordance with Section 11.3 of the Merger Agreement, the parties hereto wish to amend the Merger Agreement as specified herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledge, the parties hereby agree as follows:

1.        Amendments.

(a)        The parties agree that the “Indebtedness Amount” as contemplated by the Merger Agreement shall be the amount determined by the definition thereof contained in the Merger Agreement plus, in connection with the Company’s execution and delivery of the Agreements (as defined in Schedule 1(a) hereto), twenty seven million dollars ($27,000,000) (it being understood that the remaining three million dollars ($3,000,000) payable pursuant to the Agreements shall neither be included in the calculation of the Indebtedness Amount nor otherwise reduce the Merger Consideration and shall be paid by the Surviving Corporation following the Effective Time, as and when the same becomes due and payable thereunder).

(b)        The second sentence of Section 3.1(f) of the Merger Agreement is hereby deleted in its entirety and the following text is hereby inserted in lieu thereof:

“At least seven (7) days prior to the Effective Time, the Company shall send to each holder of a Company Stock Option (“UK Options”) issued to Persons subject to taxation in the United Kingdom an exercise form (in the forms attached as Exhibit K) that enables such holder to exercise his or her UK Options, effective immediately prior to the Effective Time, which UK Options shall be subject to the prior modification set forth in Section 7.4(g)(ii), if applicable, and conditional upon the Effective Time, on the terms and subject to the conditions of this Agreement, including those set forth in Section 10.2, on a “cashless” basis (meaning Parent shall advance the funds necessary to pay the aggregate exercise prices to the Company immediately prior to the Effective Time on the holders’ behalf, it being understood that payments in respect of Company Common Stock underlying such exercised UK Options will be reduced by the amounts of such advances), subject to withholding, if any, as required by applicable Law.”

(c)        The first sentence of Section 7.4(g)(i) of the Merger Agreement is hereby deleted in its entirety and the following text is hereby inserted in lieu thereof:


“Promptly following the date of this Agreement, the Company shall engage The Brenner Group, Inc. to prepare valuation reports (“Valuation Reports”) for shares of the Company Common Stock as of the close of business on each of August, 15, 2007, September 12, 2007, November 5, 2007, January 8, 2008 and February 1, 2008 (as applicable, the “Grant Dates”).”

(d)        The introductory language of Section 7.4(g)(ii) of the Merger Agreement is hereby amended by deleting the words “At least ten (10) days prior to the Closing,” and inserting the words “At least seven (7) days prior to the Closing, and, where applicable, subject to the stockholder approval to the extent required by Section 6.5,” in lieu thereof.

(e)        The introductory language of Section 7.4(g)(ii) of the Merger Agreement is hereby further amended by deleting the words “September 12” and inserting the words “August 15” in lieu thereof.

(f)        Clause (h) of Section 7.4 of the Merger Agreement is hereby amended by re-titling such clause as clause “(i)”.

(g)        Section 7.4 of the Merger Agreement is hereby amended by inserting the following clause (h) to follow clause (g) thereof:

“(h)     Prior to the Effective Time, the Company shall make the payment and take the actions specified on 
Schedule 7.4(h).”

(h)        The Merger Agreement is hereby amended by inserting a new Exhibit K to the Merger Agreement to read as set forth on Annex A to this Amendment.

(i)        The Company Disclosure Schedule is hereby amended by inserting a new Schedule 7.4(h) to the Company Disclosure Schedule to read as set forth on Annex B to this Amendment.

(j)        Schedules 4.4(b), 4.15(i) and 4.15(k) of the Company Disclosure Schedule are each hereby amended by deleting the phrase:

“There may be Company Stock Options that were granted on or after September 12, 2007 with an exercise price per share of Company Common Stock that was less than the fair market value of such share on the applicable grant date.”

and inserting in place of each such occurrence the phrase:

“There may be Company Stock Options that were granted on or after August 15, 2007 with an exercise price per share of Company Common Stock that was less than the fair market value of such share on the applicable grant date.”

(k)        Schedules 4.7, 4.8(a), 4.10(a), 4.10(g), 4.15(c), 4.15(g) and 4.18(a) of the Company Disclosure Schedule are each hereby amended by deleting the phrase:

 

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“As a result of the possible miscalculation of fair market value of the Company Common Stock in respect of grants of Company Stock Options and grants or purchases of Restricted Stock on and after September 12, 2007,”

and inserting in place of each such occurrence the phrase:

“As a result of the possible miscalculation of fair market value of the Company Common Stock in respect of grants of Company Stock Options and grants or purchases of Restricted Stock on and after August 15, 2007,”

2.        Representations and Warranties.

(a)        Each party hereto represents and warrants to the other parties hereto that: (i) it has all requisite corporate power and authority, or if an individual, legal capacity, to execute and deliver this Amendment, to perform its obligations under this Amendment, and to consummate the transactions contemplated hereby; (ii) the execution and delivery of this Amendment, and the consummation of the transactions contemplated hereby, have been duly and validly authorized, and no other corporate proceedings are necessary to authorize this Amendment, or to consummate the transactions contemplated hereby; (iii) this Amendment has been duly and validly executed and delivered by such party and, assuming the due authorization, execution and delivery by the other parties hereto, this Amendment constitutes the legal, valid and binding obligations of such party, enforceable against such party in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(b)        The Company represents and warrants to Parent that the board of directors of the Company has, at a meeting duly called and held prior to the execution of this Amendment, (i) unanimously approved and declared advisable this Amendment, (ii) determined that the transactions contemplated hereby and thereby are advisable and fair to and in the best interests of the stockholders of the Company, (iii) resolved to recommend and has recommended the adoption of this Amendment to the stockholders of the Company and (iv) directed that this Amendment be submitted to the holders of Company Capital Stock for their adoption and approval. The Company has received (and delivered to Parent) correct and complete copies of an Action by Written Consent (the “Written Consent”) duly approving and adopting this Amendment. The Written Consent was delivered by the holders of the Company Requisite Vote. The Company Requisite Vote is the only approval of the holders of any class or series of Company Capital Stock necessary to approve and adopt this Amendment and no further vote or approval on the part of any holder of Company Capital Stock or of any other security of the Company will be required to approve or adopt this Amendment, and the transactions contemplated hereby.

(c)        The foregoing representations and warranties shall be considered made by the applicable party hereto in the Merger Agreement for all purposes thereunder,

 

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including for purposes of Article X thereof, and shall not be subject to the De Minimis Amount or the Deductible.

3.        Effectiveness and Ratification. All of the provisions of this Amendment shall be effective as of the date hereof. Except as specifically provided for in this Amendment, the terms of the Merger Agreement are hereby ratified and confirmed and remain in full force and effect.

4.        Effect of Amendment. Whenever the Merger Agreement is referred to in the Merger Agreement or in any other agreements, documents or instruments, such reference shall be deemed to be to the Merger Agreement as amended by this Amendment.

5.        Counterparts. This Amendment may be executed and delivered in multiple counterparts (including by facsimile or electronic transmission), each of which will be deemed to be an original copy of this Amendment and all of which, when taken together, will be deemed to constitute one and the same agreement.

6.        Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware applicable to contracts made and performed in such state without reference to such state’s principles of conflicts-of-law.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Agreement and Plan of Merger as of the date first written above.

 

PARENT:
AOL LLC
By:   /s/ Nisha Kumar
  Name:   Nisha Kumar
  Title:   Chief Financial Officer

 

THE COMPANY:
BEBO, INC.
By:   /s/ Michael Birch
  Name:   Michael Birch
  Title:   Chief Executive Officer

 

STOCKHOLDER REPRESENTATIVE:
/s/ Michael Birch
Name:   Michael Birch

[Signature Page to Amendment to Merger Agreement]


Schedule 1(a) to Amendment

Annex A - UK Option Exercise Forms

Exhibit B - Certain Employee Payments and Actions

Annex B to Amendment - Schedule 7.4(h) - Certain Employee Payments and Actions

 

 

 

 

 

 

EX-10.67 11 dex1067.htm EXHIBIT 10.67 EXHIBIT 10.67

Exhibit 10.67

September 29, 2009

Mr. Jim Tait

SVP AOL Technologies

AOL, LLC

22000 AOL Way

Dulles, Virginia 20166

 

Re: Amended and Restated Agreement for Delivery of Service between Level 3 Communications, LLC (“Level 3”) and AOL LLC (f/k/a/ America Online, Inc.) (“Customer”) effective as of April 18, 2000, as amended (the “Managed Modem Agreement”).

Dear Mr. Tait:

This letter agreement (the “Letter Agreement”) is intended to supplement that certain letter agreement by and between Level 3 and Customer dated September 1, 2009 by inserting one provision inadvertently omitted from the letter agreement, as follows:

 

  1. [****]:    Effective September 1, 2009, Customer and Level 3 agree that [****].

 

  2. Other existing terms and conditions:    All other terms and conditions in the Managed Modem Agreement not specifically addressed herein will remain in effect. In the event of any conflicts between the terms of the Managed Modem Agreement and this Letter Agreement, the terms of this Letter Agreement shall govern.

If you are in agreement with the foregoing, please execute one copy of this letter and return it to the undersigned at your earliest convenience.

 

Sincerely,
LEVEL 3 COMMUNICATIONS, LLC

 

Accepted and agreed:
AOL LLC

 

 

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EX-10.68 12 dex1068.htm EXHIBIT 10.68 EXHIBIT 10.68

Exhibit 10.68

EXECUTION VERSION

 

 

 

 

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

AOL LLC,

PUMPKIN MERGER CORPORATION,

PATCH MEDIA CORPORATION

AND

JON BROD,

AS THE STOCKHOLDERS’ AGENT

DATED AS OF MAY 30, 2009

 

 

 

 

 


TABLE OF CONTENTS

 

               
        Page

ARTICLE I DEFINITIONS

   1
 

1.1

   Certain Definitions    1
 

1.2

   Table of Defined Terms    7

ARTICLE II THE MERGER

   9
 

2.1

   [Intentionally Omitted]    9
 

2.2

   The Merger    9
 

2.3

   Effective Time    9
 

2.4

   Effect of the Merger    9
 

2.5

   Directors and Officers    9
 

2.6

   Conversion of Company Capital Stock    10
 

2.7

   Treatment of Stock Held by the Company    10
 

2.8

   Dissenting Shares    10
 

2.9

   Restricted Shares; Stock Options    11
 

2.10

   Payments Certificate    12
 

2.11

   Capital Stock of Merger Sub    13
 

2.12

   Payment Mechanics    13
 

2.13

   Escrow    14
 

2.14

   Further Ownership Rights    15
 

2.15

   Lost, Stolen or Destroyed Certificates    15
 

2.16

   Closing    15

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   15
 

3.1

   Organization and Qualification; Subsidiaries    16
 

3.2

   Organizational Documents    16
 

3.3

   Capitalization    16
 

3.4

   Authority; Enforceability    17
 

3.5

   Required Vote    18
 

3.6

   No Conflict; Required Filings and Consents    19
 

3.7

   Material Contracts    19
 

3.8

   Compliance    20
 

3.9

   Financial Statements    20
 

3.10

   Absence of Certain Changes or Events    20
 

3.11

   No Undisclosed Liabilities; No Indebtedness    21
 

3.12

   Absence of Litigation, Claims and Orders    21
 

3.13

   Employee Benefit Plans    22
 

3.14

   Employment and Labor Matters    25
 

3.15

   Absence of Restrictions on Business Activities    27
 

3.16

   Title to Properties, Rights and Assets; Leases    27
 

3.17

   Taxes    28
 

3.18

   Intellectual Property    30
 

3.19

   Privacy and Security    32
 

3.20

   Insurance    33
 

3.21

   No Restrictions on the Merger; Takeover Statutes    33

 

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3.22

   Brokers    34
 

3.23

   Certain Business Practices    34
 

3.24

   Interested Party Transactions    34
 

3.25

   Sole Representations and Warranties    34

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

   34
 

4.1

   Organization; Formation of Merger Sub    34
 

4.2

   Authority; Enforceability    35
 

4.3

   No Conflict; Required Filings and Consents    35
 

4.4

   Absence of Litigation, Claims and Orders    36

ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER

   36
 

5.1

   Conduct of Business by the Company Pending the Merger    36
 

5.2

   Access to Information; Confidentiality    38
 

5.3

   Commercially Reasonable Efforts; Further Assurances    38
 

5.4

   Notification of Certain Matters    40
 

5.5

   Negotiation With Others    40
 

5.6

   Tax Matters    41
 

5.7

   Public Announcements    43

ARTICLE VI ADDITIONAL AGREEMENTS

   43
 

6.1

   Stockholder Approval; Information Statement    43
 

6.2

   Notification of Certain Matters    44
 

6.3

   Consent Agreement    45
 

6.4

   Employee Matters    45
 

6.5

   Escrow Agreement    46
 

6.6

   Company Transaction Expenses    46
 

6.7

   Delivery of Closing Date Balance Sheet    47

ARTICLE VII CONDITIONS OF MERGER

   47
 

7.1

   Conditions to Obligation of Each Party to Effect the Merger    47
 

7.2

   Additional Conditions to Obligations of Parent and Merger Sub    47
 

7.3

   Additional Conditions to Obligations of the Company    50

ARTICLE VIII TERMINATION; FEES AND EXPENSES

   50
 

8.1

   Termination    50
 

8.2

   Effect of Termination    51
 

8.3

   Fees and Expenses    51

ARTICLE IX SURVIVAL AND INDEMNIFICATION

   51
 

9.1

   Escrow Amount    51
 

9.2

   Survival of Representations and Warranties    52
 

9.3

   Indemnification    52
 

9.4

   Calculation of Losses    53
 

9.5

   Distribution After the Expiration of the Claim Period    53
 

9.6

   Indemnification Procedures    53

 

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9.7

   Objections to Claims    54
 

9.8

   Resolution of Conflicts    54
 

9.9

   Third-Party Claims    55
 

9.10

   Mitigation    55
 

9.11

   Non-Exclusive Remedy for Fraud or Willful Misconduct    55
 

9.12

   Adjustment to Purchase Price    56
 

9.13

   Enforcement    56

ARTICLE X THE STOCKHOLDERS’ AGENT

   56
 

10.1

   The Stockholders’ Agent    56

ARTICLE XI MISCELLANEOUS

   60
 

11.1

   Amendment    60
 

11.2

   Waiver    60
 

11.3

   Notices    60
 

11.4

   Company Disclosure Schedule    61
 

11.5

   Interpretation    62
 

11.6

   Severability    62
 

11.7

   Entire Agreement    62
 

11.8

   Assignment    62
 

11.9

   No Third Party Beneficiaries    63
 

11.10

   Failure or Indulgence Not Waiver; Remedies Cumulative    63
 

11.11

   Governing Law    63
 

11.12

   Dispute Resolution    63
 

11.13

   Counterparts    63

EXHIBITS

 

Exhibit A — Form of Consent Agreement

Exhibit B — Form of Amended and Restated Certificate of Incorporation of the Surviving Corporation

Exhibit C — Form of Amended and Restated Bylaws of the Surviving Corporation

Exhibit D — Form of FIRPTA Certificate

Exhibit E — Form of Waiver of Certain Liquidation Rights

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of May 30, 2009 (this “Agreement”), is by and among AOL LLC, a Delaware limited liability company (“Parent”), PUMPKIN MERGER CORPORATION, a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), PATCH MEDIA CORPORATION, a Delaware corporation (the “Company”), and Jon Brod, in his capacity as the Stockholders’ Agent.

WHEREAS, the Boards of Directors of 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, the Board of Managers of Parent and the Boards of Directors of Merger Sub and the Company have each approved the merger (the “Merger”) of Merger Sub with and into the Company, in accordance with the Delaware General Corporation Law (the “DGCL”) 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, the Board of Directors of the Company has unanimously (i) approved and declared the Merger advisable upon the terms and subject to the conditions set forth in this Agreement, (ii) directed that this Agreement and the transactions contemplated hereby be submitted for consideration and approval of and adoption by the Stockholders and (iii) recommended the adoption of the Merger and this Agreement by the Stockholders; and

WHEREAS, as a condition to the willingness of, and an inducement to, Parent and Merger Sub to enter into this Agreement, all of the holders of Company Capital Stock have entered into a Consent Agreement dated as of the date hereof pursuant to which, among other things, such Stockholders will have agreed (a) to execute and deliver, in accordance with the requirements of the DGCL, the Stockholder Approval and (b) to vote all shares of the Company Capital Stock owned by them in favor of the adoption of this Agreement, the Merger and the other transactions contemplated hereby.

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 hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(a) “Affiliate” means any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person, including, with respect to the Company, any corporation, partnership, limited liability company or joint venture in which the Company has, directly or indirectly, an interest of 10% or more.


(b) “Aggregate Exercise Price” means the aggregate exercise price of all Stock Options (whether or not then vested and exercisable) outstanding immediately prior to the Effective Time that are In The Money.

(c) “Aggregate Series A-l Preferred Liquidation Payment” means the Series A-l Per Share Amount multiplied by the number of shares of Series A-l Preferred Stock outstanding immediately prior to the Effective Time.

(d) “Business Day” means any day other than a Saturday, Sunday or day on which banks are permitted to close in the State of New York.

(e) “Calculation Amount” means an amount equal to (i) $7,000,000, plus (ii) the Aggregate Exercise Price, minus (iii) any Company Transaction Expenses that are unpaid as of the Closing, minus (iv) the Aggregate Series A-l Preferred Liquidation Payment, minus (v) the amount of any Indebtedness of the Company as of the Closing.

(f) “Claim” means any claim, suit, action, arbitration, cause of action, complaint, allegation, criminal prosecution, investigation, demand letter or proceeding, whether at law or at equity, before or by any Court or Governmental Authority, any arbitrator or other tribunal.

(g) “Common Per Share Amount” means (i) the Calculation Amount divided by (ii) the Fully Diluted Common Number.

(h) “Company Bylaws” means the bylaws of the Company, as in effect on the date hereof.

(i) “Company Capital Stock” means the Common Stock and the Preferred Stock.

(j) “Company Charter” means the Amended and Restated Certificate of Incorporation of the Company, as in effect on the date hereof.

(k) “Company Disclosure Schedule” means the Company Disclosure Schedule delivered by the Company to Parent concurrently with the execution of this Agreement.

(1) “Company Stock Option Plan” means the Patch Media Corporation 2008 Stock Option and Equity Incentive Plan.

(m) “Company Transaction Expenses” means all costs, fees and expenses incurred prior to the Effective Time (whether or not invoiced) by the Company in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of advisors, investment bankers, lawyers and accountants arising out of, relating to or incidental to the discussion, evaluation, financing, negotiation and documentation of the transactions contemplated hereby, and further including any unpaid Taxes of the Company that are allocable to any Pre-Closing Tax Period; provided that Company Transaction Expensesshall include fifty percent (50%) of the Transfer Taxes.

 

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(n) “Consent Agreement” means the Consent Agreement in the form attached as Exhibit A hereto.

(o) “Contract” means any contract, plan, undertaking, understanding, arrangement, agreement, license, sublicense, consent, lease, sublease note, mortgage or other binding commitment, whether written or oral.

(p) “Control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, 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.

(q) “Court” means any court or arbitration tribunal of the United States, any domestic state, any foreign country and any political subdivision or agency thereof.

(r) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

(s) “Fully Diluted Common Number” means, without duplication, (i) the total number of shares of Common Stock outstanding immediately prior to the Effective Time, plus (ii) the total number of shares of Common Stock issuable upon exercise of all Stock Options (whether or not exercisable) that are In The Money and outstanding immediately prior to the Effective Time.

(t) “Governmental Authority” means any governmental agency or authority of the United States, any domestic state, any foreign country and any political subdivision or agency thereof (including any agency or authority having governmental or quasi-governmental powers), including any administrative agency or commission.

(u) “In The Money” means with respect to any Stock Option, that the exercise price per share of Common Stock issuable upon exercise of such Stock Option is less than the Common Per Share Amount.

(v) “Indebtedness” means (i) all indebtedness (whether or not contingent) for borrowed money, (ii) all obligations (contingent or otherwise) for the deferred purchase price of assets, property or services, (iii) all obligations evidenced by notes, bonds, debentures or other similar instruments, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property, (v) all obligations under capital leases, (vi) all obligations, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (vii) all obligations under any currency, interest rate or other hedge agreement or any other hedging arrangement, (viii) all obligations for accrued Taxes, (ix) all direct or indirect guarantee, support or keep-well obligations in respect of obligations of the kind referred to in clauses (i) through (viii) above and (x) all obligations of the kind referred to in clauses (i) through (ix) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and Contract rights) owned by the Company, whether or not the Company has assumed or become liable for the payment of such obligation.

 

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(w) “Intellectual Property” means all United States, state, multinational and foreign intellectual property, including, without limitation, (i) trademarks, service marks, trade names, URLs, Internet domain names, slogans, logos, trade dresses and other source indicators, together with all goodwill related to the foregoing, (ii) copyrights and copyrightable works (including Systems, Software, advertising and promotional material and any other works of authorship), including all translations, adaptations, derivations, and combinations thereof, (iii) patents, technology, trade secrets, other proprietary and confidential information, know-how, processes, formulae, techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals, discoveries and inventions, (iv) all accounts, profiles, memberships and registrations owned, controlled or otherwise used by or on behalf of the Company, for services operated by third parties, including, but not limited to, social networking and content sharing websites (the “Company Accounts”), (v) all content, text, graphics, images, audio, video, data, and Software included on or used to operate and maintain the Company Accounts and the Internet sites owned and/or operated by the Company (the “Company Websites”), including all documentation, ASP, HTML, DHTML, SHTML, and XML files, cgi and other scripts, all programming code (source and object), subscriber data, archives, and server and traffic logs relating to the Company Websites, (vi) the right to sue for unfair competition, passing off, trespass to chattels, rights of publicity and other similar or related rights, (vii) all registrations, applications, recordings, disclosures, renewals, continuations, continuations-in-part, divisions, reissues, reexaminations, foreign counterparts, and other legal protections and rights related to the Intellectual Property in clauses (i) through (vi), (viii) all other proprietary rights, and (ix) all copies and tangible embodiments thereof, in each instance in whatever form or medium.

(x) “Knowledge” means, with respect to the Company, knowledge of a particular fact or matter if (i) any officer or director of the Company is actually aware of such fact or matter or (ii) a prudent individual would be expected to discover or otherwise become aware of such fact or matter in the course of conducting a reasonable investigation concerning the existence of such fact or matter.

(y) “Law” means all laws (including any common law), statutes, ordinances, directives, Regulations and similar mandates of any Governmental Authority, including all Orders of Courts having the effect of law in any jurisdiction.

(z) “Liability” means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated and whether due or to become due), including, without limitation, any liability for Taxes.

(aa) “Lien” means any mortgage, pledge, security interest, attachment, encumbrance, lien (statutory or otherwise), license, claim, option, conditional sale agreement, right of first refusal, first offer or co-sale, termination, participation or purchase or charge of any kind (including any agreement to give any of the foregoing); provided, however, that the term “Lien” shall not include (i) statutory liens for Taxes that are not yet due and payable or that are being contested in good faith, (ii) statutory or common law liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises rented, (iii) deposits or pledges made in connection with, or to secure payment of, workers’ compensation,

 

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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 (v) restrictions on transfer of securities imposed by applicable state, federal and foreign securities Laws.

(bb) “Material Adverse Effect” means any fact, event, change, development, circumstance or effect that (i) is materially adverse to the business, condition (financial or otherwise), or results of operations of the Company other than any fact, event, change, development, circumstance or effect resulting from (A) changes in general economic conditions, (B) general changes or developments in the industries in which the Company operates or (C) changes in any Laws or generally accepted accounting principles in the United States (“GAAP”) (but only, in the case of the foregoing clauses (A), (B) and (C), to the extent that such changes or developments occur after the date hereof and do not have a disproportionate impact on the Company relative to the other participants in the industries in which it operates) or (D) the Company entering into this Agreement and consummating the transactions contemplated hereby or (ii) would materially impair or delay the ability of the Company to perform its obligations hereunder, including the consummation of the Merger.

(cc) “Order” means any judgment, order, decision, writ, injunction, ruling or decree of, or any settlement under the jurisdiction of, any Court or Governmental Authority.

(dd) “Paying Agent” means any bank or trust company organized under the Laws of the United States or any of the states thereof and having a net worth in excess of $100 million designated and appointed by Parent to act as the Paying Agent in the Merger.

(ee) “Per Share Amount” means any of the Common Per Share Amount and the Series A-l Per Share Amount.

(ff) “Permits” mean all franchises, authorizations, consents, approvals, licenses, registrations, certificates, orders, permits or other rights and privileges issued by any Governmental Authority.

(gg) “Person” means an individual, corporation, partnership, association, trust, unincorporated organization, limited liability company or other entity or group (as defined in Section 13(d)(3) of the Exchange Act).

(hh) “Post-Closing Tax Period” means any taxable period, and that portion of any Straddle Period, that begins after the Closing Date.

(ii) “Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and that portion of any Straddle Period ending on the Closing Date.

(jj) “Proceedings” means any legal, administrative, arbitral or other proceedings, claims, suits, actions or governmental or regulatory investigations or inquiries of any nature.

(kk) “Purchase Agreements” means those Restricted Stock Agreements between the Company and any other Person.

 

5


(ll) “Series A Preferred Stock” means the Series A Preferred Stock, $0.001 par value per share, of the Company.

(mm) “Series A-l Per Share Amount” means, with respect to each share of Series A Preferred Stock, $.082828.

(nn) “Series A-l Preferred Stock” means the Series A-l Preferred Stock, $0.001 par value per share, of the Company.

(oo) “Regulation” means any rule, regulation, policy or interpretation of any Governmental Authority.

(pp) “Software” means any and all computer programs, software (in object and source code), firmware, middleware, applications, API’s, web widgets, code and related algorithms, models and methodologies, files, documentation and all other tangible embodiments thereof.

(qq) “Stock Option” means any option that is exercisable for shares of Company Common Stock and that was granted under the Company Stock Option Plan.

(rr) “Stockholder” means any holder of Company Capital Stock.

(ss) “Straddle Period” means any taxable period beginning before and ending after the Closing Date.

(tt) “Subsidiary,” with respect to any Person, means any corporation, partnership, joint venture, limited liability company or other legal entity of which such Person owns, directly or indirectly, greater than 50% of the capital stock or other equity interests that are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture, limited liability company or other legal entity or to vote as a general partner thereof.

(uu) “Systems” means servers, hardware systems, websites, database, circuits, networks and other computer and telecommunications assets and equipment.

(vv) “Tax” or “Taxes” means, with respect to any entity, (i) all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits) and all estimated, gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, premium, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties and other taxes, fees, assessments or charges of any kind whatsoever, together with all interest and penalties, additions to tax and other additional amounts imposed by any taxing authority (domestic or foreign) on such entity and (ii) any Liability of such entity for the payment of any amount of the type described in the immediately preceding clause (i) above as a result of being a “transferee” (within the meaning of Section 6901 of the Code or any other applicable Law) of another entity or a member of an affiliated, consolidated, unitary or combined group.

 

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(ww) “Tax Returns” means all returns, declarations, reports, estimates, and information statements and returns required or permitted to be filed with a Governmental Authority relating to Taxes, including, but not limited to, original returns and filings, amended returns, claims for refunds, information returns, ruling requests, administrative or judicial filings, accounting method change requests, responses to revenue agents’ reports (federal, state, foreign, municipal or local) and settlement documents, and any schedules attached to any of the foregoing.

(xx) “Transaction Documents” means this Agreement, the Consent Agreement and such other instruments and agreements required by this Agreement to be executed and delivered hereunder.

1.2 Table of Defined Terms. Terms that are not defined in Section 1.1 have the meanings set forth in the following Sections:

 

Accrued Vacation Amount

   3.14(a)

Agreement

   Preamble

Ambrose

   3.13(a)

Ambrose Contract

   3.13(a)

Annual Financial Statements

   3.9

Approvals

   3.1(a)

Balance Sheet Date

   3.9

Certificates

   2.12(c)

Certificate of Merger

   2.3

Claim Notice

   9.6

Claim Notice Waiting Period

   9.7(a)

Claim Period

   9.6

Closing

   2.16

Closing Agreement

   3.17(d)

Closing Date

   2.16

COBRA Coverage

   3.13(d)

Code

   2.12(f)

Common Merger Consideration

   2.6(a)(ii)

Common Stock

   2.6(a)(ii)

Company

   Preamble

Company Closing Balance Sheet

   6.7

Company Closing Balance Sheet Date

   6.7

Company Returns

   3.17(a)

Continuing Employees

   6.4(b)

Delivered Financial Statements

   3.9

DGCL

   Recitals

Dissenting Shares

   2.8(b)

Effective Time

   2.3

Employees

   6.4(b)

Employee Plans

   3.13(a)

End Date

   8.1(b)

ENNNI

   7.2(o)

ERISA

   3.13(a)

ERISA Affiliates

   3.13(a)

Escrow Agreement

   6.5

Escrow Amount

   2.13(a)

Escrow Fund

   2.13(a)

Execution Period

   5.1

GAAP

   1.1(bb)

Indemnified Persons

   9.3

Indemnity Claim

   10.1(a)

Information Statement

   6.1(b)

Infringe

   3.18(e)

IRS

   3.13(a)

Losses

   9.3

Material Contracts

   3.7(a)

Merger

   Recitals

Merger Consideration

   2.6(a)(ii)

Merger Sub

   Preamble

Merger Sub Common Stock

   2.11

Multiemployer Plan

   3.13(c)

Multiple Employer Welfare Arrangement

   3.13(c)

Option Consideration

   2.9(b)

Parent

   Preamble

Parent Representatives

   5.2(a)

Payments Certificate

   2.10(a)

Payoff Instructions

   6.6

Payor

   2.12(f)

PEO

   3.13(a)

Personal Information

   3.19(a)

Privacy Laws

   3.19(a)

Prohibited Transaction

   5.5

Real Property

   3.16(b)

 

7


Restricted Shares

   2.9(a)

Retained Escrow Amount

   9.5(a)

Rules

   11.12

Series A-l Merger Consideration

   2.6(a)(i)

Sharing Percentage

   2.13(b)

Stockholder Approval

   3.5

Stockholders’ Agent

   10.1(a)

Survival Period

   9.1

Surviving Corporation

   2.2

Takeover Statutes

   3.21

Tax Claim

   5.6(d)

Third-Party Claim

   9.9(a)

Threshold

   9.4(a)

Transfer Taxes

   5.6(f)

WARN

   3.14(d)

 

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ARTICLE II

THE MERGER

2.1 [Intentionally Omitted]

2.2 The Merger. At the Effective Time, subject to and upon the terms and conditions of this Agreement and in accordance with the DGCL, (a) Merger Sub shall be merged with and into the Company, (b) the separate corporate existence of Merger Sub shall cease, and (c) the Company shall, as the surviving corporation in the Merger, continue its existence under the DGCL as a wholly owned Subsidiary of Parent. The Company as the surviving corporation after the Merger is sometimes referred to herein as the “Surviving Corporation.”

2.3 Effective Time. At the Closing, Merger Sub and the Company shall cause the Merger to be consummated by filing a certificate of merger with respect to the Merger (the “Certificate of Merger”) with the Secretary of State of the State of Delaware in such form as required by and executed in accordance with the relevant provisions of the DGCL (the 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”).

2.4 Effect of the Merger.

(a) At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL, including Section 251 thereof. Without limiting the foregoing, from and after the Effective Time, the Surviving Corporation shall have all the properties, rights, privileges, purposes and powers, and debts, duties, and liabilities, of the Company.

(b) Unless otherwise determined by Parent prior to the Effective Time:

(i) At the Effective Time, the certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated as of the Effective Time so as to read as set forth on Exhibit B and as so amended and restated shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with the DGCL and such certificate of incorporation.

(ii) At the Effective Time, the bylaws of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated as of the Effective Time so as to read as set forth on Exhibit C and as so amended and restated shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with the DGCL and the certificate of incorporation and bylaws of the Surviving Corporation.

2.5 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 the bylaws of the Surviving Corporation 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 or

 

9


incorporation and bylaws. Unless otherwise determined by Parent prior to the Effective Time, the officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation.

2.6 Conversion of Company Capital Stock.

(a) Subject to the provisions of this ARTICLE II (including Section 2.13) and ARTICLE IX, at the Effective Time, by virtue of the Merger and without any action on the holders thereof:

(i) each share of Series A-l Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Series A-l Preferred Stock to be canceled or which remain outstanding pursuant to Section 2.7 and Dissenting Shares) will be converted automatically into the right to receive the Series A-l Per Share Amount in cash, without interest thereon and less any applicable withholding Taxes (the “Series A-l Merger Consideration”); and

(ii) each share of Common Stock, $0.001 par value per share, of the Company (the “Common Stock”) issued and outstanding immediately prior to the Effective Time (other than any shares of Common Stock to be canceled or which remain outstanding pursuant to Section 2.7 and Dissenting Shares) will be converted automatically into the right to receive the Common Per Share Amount in cash, without interest thereon and less any applicable withholding Taxes (the “Common Merger Consideration,” and any of the Common Merger Consideration or the Series A-l Merger Consideration is also referred to as the “Merger Consideration”).

(b) Upon conversion of the Company Capital Stock pursuant to Section 2.6, each holder of a Certificate representing any such Company Capital Stock shall cease to have any rights with respect thereto, except the right to receive, subject to this ARTICLE II and ARTICLE IX, the applicable Merger Consideration to be paid in consideration therefor upon surrender of such Certificate in accordance with Section 2.12 hereof (or upon compliance with Section 2.15), without interest thereon and less any applicable withholding Taxes.

2.7 Treatment of Stock Held by the Company. Any shares of Common Stock owned by the Company, Parent or Merger Sub immediately prior to the Effective Time shall be canceled without any conversion thereof pursuant to Section 2.6(a), and no payment shall be made with respect thereto. Each share of the Company Capital Stock owned by any direct or indirect wholly owned Subsidiary of Parent (other than Merger Sub) shall remain outstanding as shares in the Surviving Corporation, and no payment shall be made with respect thereto, and no conversion thereof shall be made pursuant to Section 2.6.

2.8 Dissenting Shares.

(a) The Company shall comply with all requirements of Section 262 of the DGCL and shall keep Parent promptly informed of all matters relating thereto.

 

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(b) Notwithstanding anything in this Agreement to the contrary but only to the extent required by the DGCL, any shares of Company Capital Stock outstanding immediately prior to the Effective Time held by any holder who has not voted in favor of the Merger and is otherwise entitled to demand, and who properly demands, to receive payment of the fair value for such shares of Company Capital Stock in accordance with Section 262 of the DGCL (such shares, “Dissenting Shares”) shall not be converted pursuant to Section 2.6(a) into the right to receive the applicable Merger Consideration unless such holder fails to perfect or otherwise effectively withdraws or loses such holder’s right to receive payment of the fair value of such Dissenting Shares. If, after the Effective Time, such holder fails to perfect or loses its right to demand or receive such payment, such shares of Company Capital Stock shall be treated as if they had been converted as of the Effective Time into the right to receive the applicable Merger Consideration, without interest thereon, pursuant to Section 2.6(a).

(c) The Company shall give Parent (i) prompt notice and a copy of any notice of a Stockholder’s demand for payment or objection to the Merger, of any request to withdraw a demand for payment and of any other instrument delivered to it pursuant to Section 262 of the DGCL and (ii) the opportunity to direct all negotiations and proceedings with respect to such demands, objections and requests. Except with the prior written consent of Parent, the Company shall not make any payment with respect to any such demands, objections and requests and shall not settle (or offer to settle) any such demands, objections and requests or approve any withdrawal of the same.

2.9 Restricted Shares; Stock Options.

(a) Subject to the provisions of this ARTICLE II (including Section 2.13) and ARTICLE IX, immediately prior to the Effective Time, each share of Common Stock issued and outstanding immediately prior to the Effective Time that is subject to vesting, repurchase by the Company or other lapse restrictions pursuant to the Purchase Agreements or otherwise (collectively, “Restricted Shares”) shall vest and become free of such restrictions and be converted into only the right to receive an amount in cash, without interest thereon and subject to any applicable withholding Taxes, equal to the Common Merger Consideration.

(b) Subject to the provisions of this ARTICLE II (including Section 2.13) and Article IX, immediately following the Effective Time, each Stock Option that is outstanding and not exercised immediately prior to the Effective Time (whether or not then vested or exercisable) shall be canceled and extinguished and converted into only the right to receive an amount of cash, without interest thereon and subject to any applicable withholding Taxes, equal to (i) the excess, if any, of (A) the Common Merger Consideration over (B) the exercise price per share of such Stock Option, multiplied by (ii) the number of shares of Common Stock for which such Stock Option is exercisable (assuming for this purpose, full exercisability with full acceleration of and lapse of any vesting restrictions) immediately prior to the Effective Time (such amount payable in respect of each share of Common Stock covered by such a Stock Option, the “Option Consideration”). Notwithstanding anything to the contrary herein, no Option Consideration shall be paid in respect of any Stock Option more than five years after the Closing Date. At the Effective Time, each Stock Option for which the exercise price per share exceeds the Common Per Share Amount shall be cancelled and terminated without any consideration paid therefor and without any further obligation or liability on the part of the Company.

 

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(c) Prior to the Effective Time, the Company shall take all actions necessary (including obtaining any necessary holder consents and passing any necessary resolutions of its Board of Directors) (i) to give effect to the actions contemplated by this Section 2.9 and (ii) to terminate, effective as of the Effective Time, the Company Stock Option Plans and all awards thereunder so that on and after the Effective Time no employee, consultant or independent contractor of the Company or any participant under any Company Stock Option Plan shall have any Stock Option to purchase shares of Company Capital Stock, or any right to receive Restricted Shares or any other equity interest in the Company (in each case, without the creation of any additional liability of the Company).

(d) To the extent any deductions attributable to payments to the holders of Stock Options and Restricted Shares pursuant to this Section 2.9 may be allocable to the Closing Date, they shall be treated for United States federal income tax purposes (and any similar provisions under state, local or foreign Laws) as occurring on the day after the Closing Date pursuant to the “next day rule” of Section 1.1502-76(b)(1)(ii)(B) of the U.S. Treasury Regulations.

2.10 Payments Certificate.

(a) No later than five (5) days prior to the Effective Time, the Company and the Stockholders’ Agent shall deliver to Parent a certificate, in form and substance reasonably satisfactory to Parent, of its President (the “Payments Certificate”) setting forth the Company’s and the Stockholders’ Agent’s estimate as of the Closing of:

(i) the Calculation Amount, specifying separately all components thereof (including Indebtedness of the Company as of the Effective Time, Aggregate Exercise Price, Company Transaction Expenses and Aggregate Series A-l Preferred Liquidation Payment);

(ii) the Fully Diluted Common Number; and

(iii) the following information relating to each Stockholder: (A) name, address (as listed in the corporate record books of the Company) and social security number or tax identification number (if known by the Company); (B) the number and class or series of shares of Company Capital Stock (including the number of any Restricted Shares) held by, or subject to the Stock Options held by, such Person and the respective certificate numbers (if applicable); (C) the Merger Consideration and/or Option Consideration payable to such Person, with a separate indication of all components thereof (including the Per Share Amounts); (D) with respect to each holder of Stock Options, the number, class and series of Company Capital Stock subject to such Stock Options and the exercise price per share of such Stock Options; and (E) the portion thereof to be deposited into the Escrow Fund in accordance with Section 2.13 and the Sharing Percentage to which each such Person is entitled upon any disbursements thereof.

 

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(b) Each of the Company and the Stockholders’ Agent understands that Parent and the Paying Agent shall be entitled to rely on such certificate for the purposes of making any payments hereunder.

2.11 Capital Stock of Merger Sub. Each share of common stock, par value $0.001 per share, of Merger Sub (“Merger Sub Common Stock”) issued and outstanding immediately prior to the Effective Time shall be automatically converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation. Each stock certificate representing any shares of Merger Sub Common Stock shall continue after the Effective Time to represent ownership of such shares of capital stock of the Surviving Corporation.

2.12 Payment Mechanics.

(a) Designation of Paying Agent. Prior to the Effective Time, Parent shall designate a bank or trust company to act as the Paying Agent in the Merger.

(b) Deposit With Paying Agent. As soon as practicable following the Effective Time and in all events within two (2) Business Days following the Effective Time, Parent shall remit to the Paying Agent cash in an amount necessary to pay to all Stockholders (other than holders of Dissenting Shares) the applicable Merger Consideration and Option Consideration to which they are entitled hereunder, less any amounts to be deposited into the Escrow Account pursuant to Section 2.13.

(c) Mailing of Letters of Transmittal; Exchange. 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”) that represented immediately prior to the Effective Time outstanding shares of Company Capital Stock and to each holder of Stock Options to be exchanged pursuant to Sections 2.6 or 2.9, as applicable, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates (if applicable) shall pass, only upon delivery of the Certificates (if applicable) to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify, including acknowledgement of the provisions of ARTICLE IX) and instructions for use in effecting the surrender of the Certificates in exchange for payment of the applicable Merger Consideration or Option Consideration therefor. Upon surrender of a Certificate (if applicable) to the Paying Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor payment of the applicable Merger Consideration or Option Consideration that such holder has the right to receive pursuant to Section 2.6 or 2.9 (but subject to Section 2.13), after giving effect to any applicable withholding Taxes, and the Certificate (if applicable) so surrendered shall forthwith be canceled.

(d) Non-Registered Holders. If any portion of the Merger Consideration or Option Consideration is to be paid to a Person other than the Person in whose name the Certificate (if applicable) for the related shares of Company Capital Stock or the Person in whose

 

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name the Stock Option surrendered in exchange therefor is registered, then it will be a condition to such payment that (i) the Certificate (if applicable) so surrendered will be properly endorsed and otherwise in proper form for transfer and (ii) the Person requesting such exchange will have paid any transfer or other Taxes required by reason of such payment in a name other than the registered holder or will have established to the satisfaction of Parent (or any agent designated by Parent) that such Tax has been paid or is not applicable.

(e) Unclaimed Amounts. At any time following six (6) months after the Effective Time, all cash deposited with the Paying Agent pursuant to Section 2.12(b) that remains undistributed to the Stockholders shall be delivered to Parent upon demand, and thereafter the affected Stockholders shall be entitled to look only to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof and subject to this ARTICLE II. In addition, notwithstanding anything to the contrary in this Agreement, none of the Paying Agent, Parent, Merger Sub, the Surviving Corporation or the Stockholders’ Agent shall be liable to any Stockholder for any amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(f) Withholding of Tax. Parent, the Surviving Corporation and the Paying Agent and the Escrow Agent (each, a “Payor”) will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Stockholder such amounts as the applicable Payor shall determine in good faith that it is required to deduct and withhold with respect to the making of such payment under the U.S. Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder (the “Code”), or any provision of federal, state, local or foreign Laws relating to Taxes, (i) with respect to payroll tax and income tax withholding, in accordance with the amounts set forth on Schedule 2.12(f) attached hereto, subject to adjustments at Closing, and (ii) otherwise (including with respect to backup withholding), in accordance with applicable Laws as determined in good faith by the Payor. To the extent that amounts are so withheld by a Payor, such withheld amounts shall be paid to the applicable Governmental Authority and will be treated for all purposes of this Agreement as having been paid to Stockholder in respect of which such deduction and withholding were made. Notwithstanding the foregoing, prior to the Closing, the Company shall be responsible for determining, in compliance with all applicable Law, and Schedule 2.12(f) attached hereto shall include, all payroll tax, withholding, and reporting obligations with respect to the holders of Restricted Shares and Stock Options. The Company shall deliver Schedule 2.12(f) to Parent no later than three (3) Business Days prior to the Effective Time.

2.13 Escrow.

(a) Notwithstanding anything to the contrary in this ARTICLE II, at the Effective Time and subject to and in accordance with the provisions of ARTICLE IX and the Escrow Agreement, Parent shall pay to the Escrow Agent, for deposit into an escrow fund (the “Escrow Fund”) on behalf of the Stockholders and Stock Option holder, an aggregate amount equal to $700,000 (as increased from time to time by the amount of any interest, dividends, earnings and other income on such amount, the “Escrow Amount”), which amount shall be deemed to reduce the Merger Consideration payable under this ARTICLE II and which shall be held by the Escrow Agent in accordance with ARTICLE IX and the Escrow Agreement.

 

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(b) The Escrow Fund shall be held in escrow and shall be available to compensate the Indemnified Persons as provided in ARTICLE IX. To the extent not used for such purposes, such funds shall be released as provided in ARTICLE IX hereof. Each Stockholder and Stock Option holder shall be deemed to have contributed an amount to the Escrow Fund equal to (i) the Escrow Amount multiplied by (ii) a fraction, the numerator of which is the aggregate amount of consideration payable to such holder under this ARTICLE II and the denominator of which is the aggregate amount of consideration payable to all such holders (including holders of Dissenting Shares, if any, assuming that they had not asserted appraisal rights) under this ARTICLE II. Each Stockholder’s allocable interest in the Escrow Fund (calculated as a percentage based on such Stockholder’s contribution amount pursuant to the foregoing sentence relative to all contributed amounts to the Escrow Fund) is referred to herein as a Stockholder’s “Sharing Percentage.”

2.14 Further Ownership Rights. The Merger Consideration and Option Consideration paid in accordance with the terms of this ARTICLE II (including amounts paid into the Escrow Fund pursuant to this ARTICLE II) shall be deemed to have been paid in full satisfaction of all rights pertaining to the Company Capital Stock (including any rights to receive accumulated but undeclared dividends on such Company Capital Stock). At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter there shall be no further registration of transfers of shares of Company Capital Stock on the records of the Surviving Corporation, and from and after the Effective Time, the Stockholders shall cease to have any rights (including any rights to receive accumulated but undeclared dividends on any Company Capital Stock) with respect thereto except as otherwise provided for herein. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this ARTICLE II.

2.15 Lost, Stolen or Destroyed Certificates. In the event any Certificates representing Company Capital Stock shall have been lost, stolen or destroyed, the Paying Agent shall pay the applicable Merger Consideration in exchange for such lost, stolen or destroyed Certificates only upon the making of an affidavit of that fact by the holder thereof and the delivery of such other documents reasonably requested by the Paying Agent and Parent.

2.16 Closing. Unless this Agreement shall have been terminated and the transactions contemplated by this Agreement abandoned pursuant to the provisions of Section 8.1, and subject to the satisfaction of the conditions set forth in ARTICLE VII, the closing of the Merger (the “Closing”) will take place at 10:00 a.m. (Eastern Standard Time) on the date (the “Closing Date”) that is the third (3rd) Business Day after all the conditions set forth in ARTICLE VII shall have been satisfied (or waived in accordance with Section 11.2), unless another time and/or date is agreed to by Parent and the Company. The Closing shall take place at the offices of Arnold & Porter LLP, 1600 Tysons Boulevard, Suite 900, McLean, Virginia 22102 or such other place as Parent and the Company otherwise agree.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Parent and Merger Sub as of the date hereof and as of the Closing Date as follows:

 

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3.1 Organization and Qualification; Subsidiaries.

(a) The Company is a corporation duly organized, validly existing and in good standing under Delaware Law and has all the requisite corporate power and authority, and is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, waivers, qualifications, certificates, Orders and approvals (collectively, “Approvals”) necessary, to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to possess such Approvals has not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company 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 where the failure to be so qualified or licensed has not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(b) At no time has the Company had, and the Company does not have, any Subsidiaries, and except as set forth in Section 3.1(b) of the Company Disclosure Schedule, the Company does not own 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.

3.2 Organizational Documents. The Company has heretofore furnished to Parent a true and complete copy of the Company Charter and the Company Bylaws, as modified, supplemented, amended or restated as of the date of this Agreement. The Company Charter and the Company Bylaws are in full force and effect, and no other organizational documents are applicable to or binding upon the Company.

3.3 Capitalization.

(a) The authorized capital stock of the Company consists of 197,369,393 shares, consisting of (i) 109,500,000 shares of Common Stock and (ii) 87,869,393 shares of Preferred Stock, of which (x) 23,869,393 shares have been designated as Series A Preferred Stock and (y) 64,000,000 shares have been designated as Series A-l Preferred Stock. With respect to such authorized capital stock, (i) (x) 6,179,786 shares of Common Stock are issued and outstanding, and (y) 7,608,178 shares of Common Stock are duly reserved for future issuance pursuant to the Company Stock Option Plan, (ii) (x) there are no shares of Series A Preferred Stock issued and outstanding and (y) 64,000,000 shares of Series A-l Preferred Stock are issued and outstanding, and (iii) no shares of Common Stock and no shares of Preferred Stock are owned beneficially or of record by the Company. Section 3.3(a) of the Company Disclosure Schedule sets forth the following information relating to each Stockholder: (i) its name, address (as listed in the corporate record books of the Company) and social security number or tax identification number (if known by the Company) and (ii) the number and class or series of shares of Company Capital Stock (including the number of any Restricted Shares) held by such Person and the respective certificate numbers.

(b) None of the outstanding shares of Company Capital Stock are subject to, nor were they issued in violation of, any purchase option, call option, right of first refusal, first

 

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offer, co-sale or participation, preemptive right, subscription right or any similar right. Except as set forth in Section 3.3(a), no shares of voting or non-voting capital stock, other equity interests or other voting securities of the Company are issued, reserved for issuance or outstanding. All Stock Options have been granted under the Company Stock Option Plan. Section 3.3(b) of the Company Disclosure Schedule sets forth a true and complete list of the Stock Options and all other options and rights to purchase Company Capital Stock, together with the number of shares of Company Capital Stock subject to such security, the extent to which such security is vested and/or exercisable, the date of grant or issuance, the exercise price, whether such option is a non-qualified stock option or an incentive stock option, the expiration date of such security and the total number of shares of Company Capital Stock subject to such securities. Other than the Option Consideration, no Stock Option shall entitle the holder thereof to receive anything after the Merger in respect of such Stock Option. All outstanding shares of Company Capital Stock are validly issued, fully paid and nonassessable and not subject to any purchase option, call option, right of first refusal, first offer, co-sale or participation, preemptive right, subscription right or similar right. Except for the Company Capital Stock, there are no bonds, debentures, notes, other Indebtedness or any other securities of the Company with voting rights (or other than the Stock Options, convertible into, or exchangeable for, securities with voting rights) on any matters on which Stockholders may vote.

(c) Except as described in Sections 3.3(a), 3.3(b) and 3.3(c) of the Company Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, convertible or exchangeable securities or Contracts or obligations of any kind (contingent or otherwise) to which the Company is a party or by which it is bound obligating the Company, directly or indirectly, to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, Contract or obligation. There are no outstanding obligations of the Company (contingent or otherwise) to repurchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock (or options or warrants to acquire any such shares) of the Company. There are no stock-appreciation rights, stock-based performance units, “phantom” stock rights or other Contracts or obligations of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, stock price performance or other attribute of the Company or its business or assets or calculated in accordance therewith (other than payments or commissions to sales representatives of the Company based upon revenues generated by them without augmentation as a result of the transactions contemplated hereby, in each case in the ordinary course of business consistent with past practice) to cause the Company to register its securities or which otherwise relate to the registration of any securities of the Company. Except for the Consent Agreement, there are no voting trusts, proxies or other Contracts of any character to which the Company or, to the Knowledge of the Company, any of the Stockholders is a party or by which any of them is bound with respect to the issuance, holding, acquisition, voting or disposition of any shares of capital stock or similar interests of the Company.

3.4 Authority; Enforceability. Each of the Company and the Stockholders’ Agent has all necessary corporate or other power and authority to execute and deliver this Agreement, each Transaction Document to which it is a party and each instrument required to be executed and delivered by it on or prior at the Closing and to perform its obligations hereunder and

 

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thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company and the Stockholders’ Agent of this Agreement, each other Transaction Document and each instrument required to be executed and delivered by it on or prior to the Closing, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Company’s Board of Directors and the comparable governing body of the Stockholders’ Agent, if applicable, and have been duly and validly authorized by all corporate or similar action, and no other corporate or similar proceedings on the part of the Company or the Stockholders’ Agent are necessary to authorize this Agreement, any Transaction Document to which they are a party or any instrument required to be executed and delivered by them on or prior to the Closing or the consummation of transactions contemplated hereby or thereby, other than the Stockholder Approval, which shall be duly and effectively given immediately after the execution of this Agreement. Each of this Agreement, the other Transaction Documents to which the Company and the Stockholders’ Agent are party and each instrument required to be executed and delivered by them on or prior to the Closing has been duly and validly executed and delivered by the Company and the Stockholders’ Agent and, assuming the due authorization, execution and delivery thereof by Parent and Merger Sub, constitutes a legal, valid and binding obligation of each of the Company and the Stockholders’ Agent, enforceable against each of them in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).

3.5 Required Vote. The Board of Directors of the Company has by written consent prior to the execution of each Transaction Document to which the Company is a party, (a) unanimously approved and declared advisable this Agreement and each other Transaction Document to which the Company is a party, (b) determined that the transactions contemplated hereby and thereby are advisable, fair to and in the best interests of the Stockholders, (c) resolved to recommend and has recommended the approval and adoption of this Agreement and the Merger to the Stockholders and (d) directed that this Agreement and the Merger be submitted to the Stockholders for their approval and adoption. The affirmative vote of (i) holders of a majority of all the outstanding shares of Common Stock and Preferred Stock, voting together as a single class on an as-converted to Common Stock basis, and (ii) holders of a majority-in-interest of all the outstanding shares of Preferred Stock, voting together as a single class (collectively, such vote referred to in clauses (i) and (ii), the “Stockholder Approval”) are the only votes, approvals or other corporate actions of the holders of Company Capital Stock or of any other security of the Company necessary to approve, authorize and adopt this Agreement, the Merger, the other Transaction Documents and the other transactions contemplated hereby and thereby and to consummate the Merger and the other transactions contemplated hereby and thereby. After receipt of the Stockholder Approval, which will occur immediately after the execution of this Agreement, the Merger and this Agreement will be duly and validly adopted and approved, and no further vote, approval or other action on the part of any holder of Company Capital Stock or of any other security of the Company will be required to approve or adopt this Agreement, the Merger, the other Transaction Documents and the other transactions contemplated hereby and thereby or to consummate the Merger and the other transactions contemplated hereby and thereby. The Stockholders that are party to the Consent Agreement own (beneficially and of record) and have the right to cast, in the aggregate, at least 89% of the total votes entitled to be

 

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cast by holders of issued and outstanding shares of Common Stock and Preferred Stock, voting together as a single class on an as-converted-to-Common-Stock basis and 100% of the total votes entitled to be cast by holders of issued and outstanding shares of Preferred Stock, voting together as a single class.

3.6 No Conflict; Required Filings and Consents. The execution and delivery by the Company and the Stockholders’ Agent of this Agreement, the other Transaction Documents to which they are a party or any instrument required by this Agreement to be executed and delivered by them on or prior to the Closing do not, and the performance of this Agreement, the other Transaction Documents to which they are a party and any instrument required by this Agreement to be executed and delivered by them on or prior to the Closing shall not, (a) except as set forth in Section 3.6(a) of the Company Disclosure Schedules, conflict with or violate the Company Charter or the Company Bylaws, (b) conflict with or violate any Law or Order applicable to the Company by which any of its properties, rights or assets is bound or affected, except any such conflict or violation that could not reasonably be expected to have a Material Adverse Effect, (c) result in any breach or violation of, or constitute a default (or an event that with or without notice or lapse of time or both would become a default) under, or impair the Company’s or the Stockholders’ Agent’s rights or alter the rights or obligations of any party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties, rights or assets of the Company pursuant to, any bond, indenture, Contract, permit, franchise or other instrument or obligation to which the Company is a party or by which such Person or its properties, rights or assets is bound or affected, except any such breach, violation or default that could not reasonably be expected to have a Material Adverse Effect, or (d) except as set forth in Section 3.6(d) of the Company Disclosure Schedules, require the Company or the Stockholders’ Agent to obtain any Approval of any Person or Governmental Authority, observe any waiting period imposed by, or make any filing with or notification to, any Person or Governmental Authority, except for, in the case of this clause (d), (i) the Stockholder Approval and (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with Delaware Law.

3.7 Material Contracts.

(a) Section 3.7(a) of the Company Disclosure Schedule sets forth (in subsections corresponding to the subsections hereof) a true and complete list, and if oral, an accurate and complete summary, of all Contracts to which the Company is a party or by which it or its properties, rights or assets are bound that are material to the Company or the operation of its business as conducted (collectively, the “Material Contracts”). True and complete copies of all Material Contracts have been delivered to Parent by the Company. Section 3.7(a) of the Company Disclosure Schedule indicates by an asterisk (“*”) any Contract that would purport to bind Parent or any of its Affiliates (other than the Surviving Corporation) following the consummation of the Merger.

(b) Each Material Contract is in full force and effect, is a valid and binding obligation of the Company and, to the Knowledge of the Company, of each other party thereto and is enforceable in accordance with its terms against the Company and against each other party, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general

 

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equitable principles (whether considered in a proceeding in equity or at law), and such Material Contracts will continue to be valid, binding and enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law), and in full force and effect immediately following the consummation of the transactions contemplated hereby, with no alteration or acceleration or increase in fees or liabilities as a result thereof. The Company is not or, to the Knowledge of the Company, is not alleged to be, and no other party, to the Knowledge of the Company, is or is alleged to be, in default under, or in breach or violation of, any Material Contract, and, to the Knowledge of the Company, no event has occurred which, with the giving of notice or passage of time or both, would constitute such a default, breach or violation which could reasonably be expected to have a Material Adverse Effect.

3.8 Compliance. Except as set forth in Section 3.8 of the Company Disclosure Schedules, the Company is and has been in compliance with, and is not in default or violation of, (a) the Company Charter and or the Company Bylaws, (b) any Law or Order by which it or any of its properties, rights or assets are bound or affected and (c) the terms of all bonds, indentures, Contracts, permits, franchises and other instruments or obligations to which it is a party or by which it or any of its properties, rights or assets are bound or affected, except any such failure to comply or default or violation in the case of clauses (b) and (c) above that could not reasonably be expected to have a Material Adverse Effect. The Company is in material compliance with the terms of all applicable Approvals. The Company has not received written or, to the Company’s Knowledge, oral notice of any revocation or modification of any material Approval of any Governmental Authority or that the Company is not in compliance with any Approval or any Law or Order.

3.9 Financial Statements. Section 3.9 of the Company Disclosure Schedule contains a true and complete copy of the (i) unaudited consolidated balance sheet of the Company as of December 31, 2008 and the related unaudited consolidated statement of operations, statement of changes in stockholders’ deficiency and consolidated statement of cash flows for the fiscal year then ended (the “Annual Financial Statements”), and (ii) the unaudited consolidated balance sheet of the Company as of March 31, 2009 and the related consolidated statement of operations and consolidated statement of cash flows for the fiscal periods then ended (collectively, the “Delivered Financial Statements”). March 31, 2009 is referred to herein as the “Balance Sheet Date.” The Delivered Financial Statements were prepared on the basis of the books and records of the Company kept in the ordinary course consistent with past practice and in accordance in all material respects with GAAP applied on a consistent basis throughout the periods indicated and fairly present the consolidated financial position of the Company as of the respective dates thereof and for the periods indicated.

3.10 Absence of Certain Changes or Events. Since the Balance Sheet Date:

(a) There has not been any fact, event, change, development, circumstance or effect that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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(b) The Company has conducted its business only in the ordinary course of business consistent with past practice.

(c) Except as set forth on Section 3.10(c) of the Company Disclosure Schedule, (i) there has not been any change by the Company in its accounting or cash management methods, principles or practices (including with respect to reserves, revenue recognition, timing for payments of payments of accounts payable and collections of accounts receivable) or any revaluation by the Company of any of its assets, including writing down the value of inventory or writing off notes or accounts receivable, and (ii) there has not been any action or event, and the Company has not agreed in writing or otherwise to take any action, that would have required the consent of Parent pursuant to Section 5.1 had such action or event occurred or been taken after the date hereof and prior to the Effective Time.

3.11 No Undisclosed Liabilities; No Indebtedness. The Company has no liabilities or obligations of any nature (whether absolute, accrued, fixed, contingent or otherwise), and there is no existing fact, condition or circumstance that could reasonably be expected to result in such liabilities or obligations, except liabilities or obligations (i) disclosed in the Delivered Financial Statements, (ii) incurred since March 31, 2009 in the ordinary course of business consistent with past practice (but excluding any incurrence of Indebtedness), or (iii) disclosed on Section 3.11 of the Company Disclosure Schedule, in each case however in amounts that are not material to the Company. Except for liabilities (including accounts payables) incurred in the ordinary course of business since the Company Closing Balance Sheet Date, on the Closing Date, the Company shall have no accounts payable or other material liability, whether absolute, contingent, fixed, matured, unmatured, liquidated, unliquidated, choate, inchoate, secured, unsecured or otherwise and whether due or to become due that would be required by GAAP to be reflected on the Company Closing Balance Sheet if the Company Closing Balance Sheet were prepared as of the Closing Date (rather than the Company Closing Balance Sheet Date) that are not properly reflected on the Company Closing Balance Sheet.

3.12 Absence of Litigation, Claims and Orders. There is no (a) Claim pending or, to the Knowledge of the Company, threatened on behalf of or against the Company or any of its properties, rights or assets (including cease and desist letters or requests for a license) which if determined adversely to the Company could be reasonably expected to have a Material Adverse Effect, (b) Order outstanding to which the Company or any of its properties, rights or assets is subject which could be reasonably expected to have a Material Adverse Effect or (c) Claim pending or, to the Knowledge of the Company, threatened on behalf of or against the Company that questions or challenges (i) the validity of this Agreement or any other Transaction Document to which it is a party or (ii) any action taken or to be taken by it pursuant to this Agreement or any other Transaction Document to which it is a party or in connection with the transactions contemplated hereby and thereby. The Company is not subject to any outstanding Claim or Order, and the Company has not received a Claim or demand for payment, or has no Knowledge of any basis for the same, against it in respect of this Agreement, any Transaction Document to which it is a party or the transactions contemplated hereby and thereby.

 

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3.13 Employee Benefit Plans.

(a) Section 3.13(a)(i) of the Company Disclosure Schedule lists all Employee Plans. “Employee Plans” means all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of ERISA) and all bonus, stock option, stock purchase, stock appreciation, incentive, deferred compensation, retirement, supplemental retirement, severance, change in control, golden parachute, vacation, welfare, cafeteria, dependent care, medical care, employee assistance, education or tuition assistance, fringe and all other employee benefit plans, programs agreements, policies or arrangements and all employment, consulting, advisory, executive compensation or severance Contracts, agreements or funds, whether or not subject to ERISA, formal or informal, written or oral, (i) for the benefit of any present or former employee, director, independent contractor, consultant or other service provider of the Company, which is or has been entered into, contributed to, established by, participated in and/or maintained by the Company or any of its “ERISA Affiliates” (defined as 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 within the meaning of Section 414 of the Code) or any professional employer organization (“PEO”) (including, without limitation, Ambrose Employer Group, LLC (together with its Affiliates, “Ambrose”) or (ii) under which the Company or any of its ERISA Affiliates has or may have any liability or obligation, whether or not such plan is terminated. With respect to each Employee Plan, the Company has provided to Parent current, correct and complete copies of (where applicable) (A) any and all plan documents (including trust agreements), summary plan descriptions, summaries of material modifications, amendments and resolutions related to such Employee Plans, (B) the most recent determination letters or opinion letters received from the Internal Revenue Service (the “IRS”), if any, and all material communications to or from the IRS or any other Governmental Authority relating to each Employee Plan, if any, and all material employee communications relating to each Employee Plan, (C) the three (3) most recent Form 5500 Annual Reports, if any, (D) the most recent audited financial statements and actuarial valuation reports if any, and (E) any and all insurance Contracts and other Contracts related to each such Employee Plan. Except as set forth in Section 3.13(a)(ii) of the Company Disclosure Schedule, there are no restrictions on the ability of the Company to terminate its participation in any Employee Plan or on the ability of the sponsor of each Employee Plan to amend or terminate any Employee Plan, and each Employee Plan may be transferred by the Company or Ambrose to Parent. Neither the Company nor any ERISA Affiliate has any formal plan or commitment, whether legally binding or not, to create any additional plan or modify or change any existing Employee Plan that would affect any current or former employee, director, independent contractor, consultant or other service provider of or to the Company or any ERISA Affiliate. For purposes of this Agreement, any person who performs (or has performed) services for the Company pursuant to a Contract with Ambrose (an “Ambrose Contract”) shall be deemed to be (or have been) an employee (or former employee) of the Company. Except for the Ambrose Contract, the Company is not a party (and has never been a party) to any Contract with any PEO.

(b) (i) There has been no non-exempt “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code) with respect to any Employee Plan; (ii) the Company has no Knowledge of any Claims pending with respect to any Employee Plan (other than routine claims for benefits) or Claims threatened or anticipated against any

 

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Employee Plan or against the assets of any Employee Plan, or against the Company, any ERISA Affiliate, or, to the Knowledge of the Company, Ambrose nor are there any current or, to the Knowledge of the Company, threatened, Liens on the assets of any Employee Plans; or Liens on the assets of the Company or any ERISA Affiliate under ERISA or Subchapter D of Chapter 1 of the Code, nor, to the Knowledge of the Company, does any condition exist that presents a material risk of any such Lien arising; (iii) to the Knowledge of the Company, no facts or circumstances exist that could reasonably be expected to give rise to any such Claims; (iv) no written or oral communication has been received from any Governmental Authority concerning the funded status of any Employee Plan or any transfer of assets or liabilities from or to any Employee Plan; (v) to the Knowledge of the Company, there is no judgment, decree, injunction, rule or order of any Court, Governmental Authority or arbitrator outstanding against or in favor of any Employee Plan, and there are no pending or, to the Knowledge of the Company, threatened audits or investigations by any Governmental Authority involving any Employee Plan; (vi) each Employee Plan and the Ambrose Contract conform to, and in operation and administration have been established and administered in all material respects in compliance with, the terms thereof and requirements of any and all applicable Laws, including but not limited to ERISA and the Code; (vii) the Company, its ERISA Affiliates and, to the Knowledge of the Company, Ambrose have performed in all material respects all obligations required to be performed by them under each Employee Plan and are not in default under or violation of, and have no Knowledge of any default or violation by any other Person with respect to, any of the Employee Plans; (viii) each Employee Plan intended to qualify under Section 401(a) of the Code has received or is the subject of a favorable determination or opinion letter from the IRS, and nothing has occurred which may be expected to adversely affect such qualification or require the filing of a submission under the IRS’s employee plans compliance resolution system or the taking of other corrective action pursuant to such system in order to maintain the qualified status of such Employee Plan; (ix) all contributions required to be made to any Employee Plan pursuant to its terms, the requirements of ERISA or the Code or any collective bargaining agreement, or otherwise, have been made on or before their due dates and all obligations in respect of each Employee Plan have been properly accrued and reflected in the Delivered Financial Statements; (x) to the Knowledge of the Company no event has occurred and no condition exists that would subject the Company, either directly or by reason of its affiliation with any ERISA Affiliate, to any Tax, fine, Lien, penalty or other liability imposed by ERISA or Chapter 43 of the Code, or to any other material liability; (xi) each of the Employee Plans that is intended to satisfy the requirements of Sections 125, 423 or 501(c)(9) of the Code satisfies such requirements; (xii) to the Knowledge of the Company, no “reportable event” (as such term is defined in Section 4043 of ERISA) has occurred with respect to any Employee Plan; (xiii) for each Employee Plan with respect to which a Form 5500 has been filed, no material change has occurred with respect to the matters covered by the most recent filing since the date thereof; (xiv) all payments, awards, grants or bonuses made or other property provided pursuant to any Employee Plan have been, or will be, fully deductible by the Company notwithstanding the provisions of Sections 162(m) and 280G of the Code and the Regulations promulgated thereunder.

(c) No Employee Plan is an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) subject to Title IV of ERISA, and neither the Company nor any of its ERISA Affiliates has ever incurred any liability under Title IV of ERISA, and no condition exists that presents a material risk to the Company or any of its ERISA Affiliates of incurring any liability under such Title. No Employee Plan is subject to Sections 302, 303, 304

 

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or 305 of ERISA or Sections 412, 430, 431 or 432 of the Code. None of the Company or any of its ERISA Affiliates has incurred any liability under such Sections, and no condition exists that presents a material risk to the Company or any of its ERISA Affiliates of incurring a liability under such Sections. Except as set forth in Section 3.13(c) of the Company Disclosure Schedule, no Employee Plan is a “multiemployer plan” (within the meaning of Section 4001(a)(3) of ERISA) (a Multiemployer Plan), a “multiple employer welfare arrangement” (within the meaning of Section 3(40) of ERISA) (a Multiple Employer Welfare Arrangement), or single employer plan that has two or more contributing sponsors, at least two of whom are not under common control (within the meaning of Section 4063(a) of ERISA), and none of the Company or any of its ERISA Affiliates has ever contributed to or had an obligation to contribute, or incurred any liability in respect of a contribution, to any Multiemployer Plan, any Multiple Employer Welfare Arrangement or any single employer plan that has two or more contributing sponsors at least two of whom are not under common control.

(d) Each Employee Plan that is a “group health plan” (within the meaning of Code Section 5000(b)(1)) has been operated in compliance in all material respects with the group health plan continuation coverage requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA (COBRA Coverage) or similar state law, Section 4980D of the Code and Sections 701 through 707 of ERISA, Title XXII of the U.S. Public Health Service Act and the provisions of the U.S. Social Security Act, to the extent such requirements are applicable. Except as set forth in Section 3.13(d) of the Company Disclosure Schedule, no Employee Plan obligates the Company to provide benefits (whether or not insured) to any current or former employee, consultant or other service provider of or to the Company following such current or former employee’s or consultant’s or service provider’s termination of employment or consultancy with the Company, other than COBRA Coverage or coverage mandated by state Law. No Employee Plan is funded through a “welfare benefit fund” as defined in Section 419 of the Code.

(e) Each compensation arrangement between the Company and a service provider and each Employee Plan that is subject to Code Section 409A complies with Section 409A of the Code (and has so complied for the entire period during which Section 409A of the Code has applied to such arrangement or Employee Plan). None of the transactions contemplated by this Agreement will constitute or result in a deferral of compensation subject to Code Section 409A.

(f) Except as set forth in Section 3.13(f) of the Company Disclosure Schedule, neither the execution of this Agreement, any other Transaction Document, the Stockholder Approval, nor the consideration of the transactions contemplated by this Agreement (whether alone or in connection with any other events), could result in or is a precondition to (i) any current or former employee, director or service provider of or to the Company or any Subsidiary of the Company becoming entitled to any severance pay or any increase in severance pay upon any termination of employment or (ii) the acceleration of the time of payment or vesting of, or any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, or any increase in the amount payable under, or in any other material obligation pursuant to, any of the Employee Plans.

 

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(g) There are no Employee Plans and there are no other Contracts, plans or arrangements (written or otherwise) covering any current or former employee, director, officer, shareholder or independent contractor of the Company that, individually or collectively, could give rise to the payment of any amount or benefit that would not be deductible pursuant to the terms of Section 280G of the Code.

(h) Except as set forth in Section 3.13(h) of the Company Disclosure Schedule, no Employee Plan subject to Title I of ERISA holds any “employer security” or “employer real property” (each as defined in Section 407(d) of ERISA).

(i) All workers’ compensation benefits paid or payable to any current or former employee, director or other service provider of or to the Company are fully insured by a third party insurance carrier.

(j) No Employee Plan is maintained outside the jurisdiction of the United States.

(k) Each Person who performs or renders services to or for the Company has been, and is, properly classified by the Company and Ambrose as an employee, contractor or consultant. All Persons classified as contractors or consultants of the Company satisfy and have at all times satisfied the requirements of applicable Law to be so classified. The Company and Ambrose have fully and accurately reported such Persons’ compensation on IRS Forms 1099 or similar forms when required to do so. The Company does not have and has not had any obligations to provide benefits with respect to such Persons under any Employee Plan or otherwise. The Company does not employ, and has not ever employed, any “leased employees” as defined in Section 414(n) of the Code.

3.14 Employment and Labor Matters.

(a) Section 3.14(a)(l) of the Company Disclosure Schedule identifies, with respect to each of calendar years 2009 and 2008, (i) all directors and officers of the Company and their respective titles, (ii) all employees and consultants employed or engaged by the Company and (iii) for each individual identified in clause (i) or (ii), such Person’s W-2 compensation for 2008, year-to-date compensation, annual base salary and bonus opportunity for 2009, job title and date of hire (provided that the Company shall furnish an updated schedule with respect to clauses (ii) and (iii) for new hires and terminations after the date hereof, subject to Section 5.1, in an updated Section 3.14(a)(l)(ii) and 3.14(a)(l)(iii) of the Company Disclosure Schedule, as of the Closing Date. Section 3.14(a)(2) of the Company Disclosure Schedule sets forth a true, complete and accurate list of all accrued vacation time for all employees of the Company as of the date hereof and the value of all such accrued vacation time based on each such employees’ compensation level in effect (the Accrued Vacation Amount) as of the Effective Time.

(b) Except as set forth on Section 3.14(b) of the Company Disclosure Schedule, there are no employment, consulting, collective bargaining, severance pay, continuation pay, separation, termination or indemnification agreements or other similar Contracts of any nature (whether in writing or not) between the Company, on the one hand, and

 

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any current or former Stockholder, Affiliate, officer, director, employee, consultant, labor organization or other representative of any of the Company’s employees, on the other hand, nor is any such Contract presently being negotiated.

(c) The Company is not delinquent in payments to any of its employees, consultants or independent contractors for any wages, salaries, commissions, bonuses, benefits, contributions or other compensation for any services or otherwise arising under any policy, practice, Contract, plan, program or Law. The Company is not liable for any severance pay or other payments to any employee, consultant or independent contractor or former employee, consultant or independent contractor arising from the termination of employment or other service relationships, nor will the Company have any liability under any benefit or severance policy, practice, Contract, plan, program or Law which exists or arises, or may be deemed to exist or arise, as a result of or in connection with the transactions contemplated hereunder or as a result of the termination by the Company of any Persons employed by or under contract with the Company on or prior to the Effective Time. None of the Company’s employment policies or practices are currently being audited or investigated by any Governmental Authority or Court. There is no pending or, to the Knowledge of the Company, threatened Claim, unfair labor practice charge or other charge or inquiry against the Company brought by or on behalf of any current, prospective or former employee, consultant, independent contractor, retiree, labor organization or other representative of the Company’s employee or other individual or any Governmental Authority with respect to employment practices brought by or before any Court or Governmental Authority, nor is there or has there been any audit or investigation related to the Company’s classification of independent contractors and consultants. The Company has properly classified its employees as exempt or non-exempt in accordance with the Fair Labor Standards Act.

(d) (i) There are no material controversies pending or threatened, between the Company and any of its employees, consultants or independent contractors; (ii) the Company is not a party to any collective bargaining agreement or other labor union Contract applicable to Persons employed by the Company nor are there any activities or proceedings of any labor union to organize any such employees, consultants or independent contractors of the Company; (iii) there have been no strikes, slowdowns, work stoppages, disputes, lockouts or threats thereof by or with respect to any employees, independent contractors or consultants of the Company; (iv) there are no employment-related grievances or any internal investigation of any complaints of employment Law violations pending or threatened; (v) there are no pending workers’ compensation claims regarding employees of the Company; and (vi) the Company is not a party to, or otherwise bound by, any consent decree with, or citation or other Order by, any Governmental Authority relating to employees or employment practices. The Company is in compliance in all material respects with all applicable Laws, Contracts and policies relating to employment, employment practices, wages, hours and terms and conditions of employment, including the obligations of the U.S. Worker Adjustment and Retraining Notification Act of 1988, as amended (WARN), and any similar state or local statute, rule or regulation, and all other notification and bargaining obligations arising under any collective bargaining agreement, by Law or otherwise. The Company has not effectuated a “plant closing” or “mass layoff” (as those terms are defined in WARN or similar Laws) affecting in whole or in part any site of employment, facility, operating unit or employee of the Company without complying with all provisions of WARN or similar Laws or implemented any early retirement, separation or

 

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window program, nor has the Company planned or announced any such action or program for the future.

(e) Neither the Company nor, to the Knowledge of the Company, any of the Company’s employees, consultants or independent contractors is obligated under any Contract (including licenses, covenants or commitments of any nature) or subject to any judgment, decree or Order of any Court or Governmental Authority that would interfere with the use of such Person’s best efforts to promote the interests of the Company or that would conflict with the Company’s business as conducted and as proposed to be conducted.

(f) Except as set forth in Schedule 3.14(f), no employee of the Company has provided any notice to the Company of his or her intent, or to the Knowledge of the Company, has any intent, to terminate his or her employment with the Company.

(g) All of the Company’s employees are “at will” employees, subject to any termination notice provisions included in its employment agreements or required under applicable Law, and there is no circumstance that could give rise to a valid claim by a current or former employee, independent contractor or consultant of the Company for compensation on termination of employment.

3.15 Absence of Restrictions on Business Activities. There is no Contract or Order binding upon the Company or any of its properties, rights or assets that would be binding on Parent or any of its Affiliates (other than the Surviving Corporation) or their respective properties, rights or assets following the consummation of the Merger and the other transactions contemplated hereby. The consummation of the Merger and the other transactions contemplated hereby will not (a) result in the granting by Parent or any of its Affiliates of any rights or licenses to any Intellectual Property (other than Intellectual Property of the Surviving Corporation) to a third party (including any covenant not to sue) or (b) subject Parent or its Affiliates (other than the Surviving Corporation) to any non-competition, non-solicitation, standstill, exclusive dealing or similar restriction on their respective businesses.

3.16 Title to Properties, Rights and Assets; Leases.

(a) The Company has good and marketable title to all of its material real or personal properties (whether owned or leased, tangible or intangible), rights and assets, free and clear of all Liens.

(b) The Company does not own any real property or other interest therein, other than interests in the Real Property as described in Section 3.16(b) of the Company Disclosure Schedule. Section 3.16(b) of the Company Disclosure Schedule contains a list of all leases of, licenses and other interests in real property to which the Company is a party or in which it holds a leasehold interest, license or other interest (collectively, Real Property). With respect to such Real Property, (i) each Real Property lease, license or interest to which the Company is a party is in full force and effect and enforceable against the Company and the counterparty thereto in accordance with its terms, (ii) all rents, additional rents and or other payments due to date from the Company on each such lease, license or other interest have been paid, (iii) the Company has not received notice that it is in default thereunder and (iv) there exists

 

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no default by the Company under such lease, license or other interest. There are no leases, subleases, licenses, concessions or any other Contracts to which the Company is a party granting to any Person other than the Company any right to possession, use occupancy or enjoyment of any of the Real Property or any portion thereof. The Company is not obligated under or bound by any option, right of first refusal, purchase Contract or other Contract to sell or otherwise dispose of any Real Property or any other interest in any Real Property.

3.17 Taxes. For purposes of this Section 3.17, except subsections (n) and (o), the term “Company” includes both the Company and Polar News Company, LLC in its capacity as predecessor as the owner and operator of the Company’s business and assets.

(a) Except as disclosed herein and as disclosed in Section 3.17 of the Company Disclosure Schedule, the Company (i) has filed, in a timely and proper manner, consistent with applicable Laws, all material federal, state, local and foreign Tax Returns required to have been filed (the Company Returns) with the appropriate governmental agencies in all jurisdictions in which Company Returns are required to be filed; (ii) has timely paid all material Taxes of the Company required to have been paid by the Company, and (iii) currently is not the beneficiary of an extension of time within which to file any Tax Return. All such Company Returns so filed were correct and complete in all material respects at the time of filing. Patch Media Corporation has not filed any Tax Returns and is not required to file any federal income Tax Returns for any period prior to January 1, 2009. Polar News Company, LLC has not filed any Tax Returns for any period prior to January 1, 2009; its 2008 federal income Tax Return is on extension.

(b) Except as disclosed in Section 3.17 of the Company Disclosure Schedule, all material Taxes of the Company attributable to all periods up to and including December 31, 2008 have been previously paid and the Company will not accrue a Tax Liability from December 31, 2008 up to and including the Closing Date, other than a Tax Liability accrued in the ordinary course of business or accrued in connection with the transactions expressly required or permitted under this Agreement.

(c) The Company has not been notified in writing or, to the Knowledge of the Company, otherwise, by the IRS or any state, local or foreign taxing authority that any issues have been raised in connection with any Company Return, and no waivers of statutes of limitations have been given with respect to the Company that are still in effect. Except as disclosed in Section 3.17 of the Company Disclosure Schedule, to the Knowledge of the Company, no audit, examination, investigation, deficiency, adjustment, refund claim, litigation or other proceeding with respect to the Company Returns, paid or unpaid Taxes or Tax attributes or status of the Company has been proposed, asserted or assessed (tentatively or otherwise) or is pending.

(d) The Company has not executed or entered into, and is not otherwise bound by, any agreement conceding or agreeing to any treatment of Taxes, including, without limitation, an IRS Form 870 or Form 870-AD, closing agreement or special closing agreement, affecting the Company pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law (each, a Closing Agreement).

 

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(e) The Company (i) has not incurred any “personal holding company tax” within the meaning of Section 541 of the Code and (ii) has not been a United States real property holding corporation within the meaning of Section 897(c) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company has not agreed to, and is not required to, make any adjustment under Section 481(a) of the Code (or any corresponding provision of state, local or foreign Tax law) by reason of a change in accounting method or otherwise, except for any such adjustment that may be required by the consummation of the Merger in accordance with this Agreement.

(f) The Company has never distributed the stock of any corporation or had its stock distributed by another Person in a transaction satisfying, or intended to satisfy, the requirements of Section 355 of the Code (or any corresponding provision of state, local or foreign Tax law).

(g) The Company has made no payment or benefit or provided, or paid, to any current or former employee, director or other service provider of or to the Company (including pursuant to this Agreement or any Transaction Document), nor is the Company obligated to make or provide any payment or benefit after the Closing, that will fail to be deductible for federal income Tax purposes by reason of Section 280G of the Code.

(h) The Company has never acquired assets from another corporation in a transaction in which the Company’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor.

(i) The Company has not engaged in any reportable transactions for purposes of Treasury Regulation §1.6011-4. The Company has no material item of income or gain reported for financial accounting purposes in a Pre-Closing Tax Period which is required to be included in taxable income in a Post-Closing Tax Period.

(j) The Company shall not be required to include in a Post-Closing Tax Period taxable income attributable to income of the Company that accrued in a Pre-Closing Tax Period but was not recognized in any Pre-Closing Tax Period for any reason, including (i) the installment method of accounting, (ii) the long-term contract method of accounting, or (iii) an election under Section 108(i) of the Code.

(k) The Company does not own shares of any controlled foreign corporations (as defined in Section 957 of the Code), passive foreign investment companies (as defined in Section 1297 of the Code) or foreign investment companies (as defined in Section 1246 of the Code).

(1) The Company does not own any interest in an entity that is treated as a partnership or disregarded entity for any Tax purposes.

(m) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, excluding, however, any amounts required to be withheld by the Company in connection with payments to the holders of Stock Options and

 

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Restricted Shares pursuant to Section 2.9 that are made on the Closing Date and that are described in Section 2.9(d).

(n) The Company has never been a member of any affiliated group of corporations within the meaning of Section 1504 of the Code or of any group that has filed a combined, consolidated or unitary return under state, local or foreign Tax law.

(o) The Company does not have any liability for the Taxes of any other Person under Treasury Regulation § 1.1502-6 (or any similar provision of state, local, or foreign Law), as a transferee (within the meaning of Section 6901 of the Code or any other applicable Law), as a successor by operation of law, by contract or otherwise.

3.18 Intellectual Property.

(a) Section 3.18(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property owned by the Company, a true and complete list of (i) all United States and foreign patent, copyright, trademark, service mark, trade dress, domain name and other registrations and applications, indicating for the applicable jurisdiction, registration number (or application number) and date issued or, if not issued, date filed, and (ii) all material unregistered Intellectual Property and copyrightable works and works of authorship (including Software and a summary description of material trade secrets).

(b) Except as set forth in Section 3.18(b) of the Company Disclosure Schedule, all registered Intellectual Property owned by the Company is (and applications therefor are), to the Company’s Knowledge, subsisting, unexpired, not abandoned, currently in compliance with all legal requirements (including timely filings, proofs and payments of fees), not subject to any filings, fees or other actions falling due within sixty (60) days after the Closing Date, valid and enforceable. No actions are necessary (including filing of documents or payment of fees) within sixty (60) days after the Closing Date to (i) maintain or preserve the validity, scope or status of any registered Intellectual Property, or (ii) to avoid a statutory bar to patentability of any material unregistered Intellectual Property.

(c) The Company owns (or has the valid right to use) all of the Intellectual Property used in the conduct of the Company’s business as currently conducted and as contemplated to be conducted free of all Liens. No royalties, honoraria or other fees are payable by the Company to any third parties with respect to any Intellectual Property.

(d) The Company has taken all actions and executed all agreements reasonably necessary to maintain, police and protect its material Intellectual Property, including its ownership of such Intellectual Property, and the validity, scope and value thereof. The Company has taken all actions reasonably necessary to ensure the trade secret status and confidentiality of its material trade secrets and of any other material proprietary information, and have disclosed such trade secrets only pursuant to written confidentiality agreements (true and complete copies of which have been provided to Parent) to the Persons set forth on Section 3.18(d) of the Company Disclosure Schedule. To the Knowledge of the Company, no other Person has or is attempting to acquire knowledge of the material trade secrets of the

 

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Company. There has been no unauthorized disclosure of any of the Company’s proprietary source code.

(e) (i) To the Company’s Knowledge, the conduct of the Company’s business as currently conducted and as contemplated to be conducted (and its employees’ and consultants’ performance of their duties in connection therewith) and the use of the Company’s Intellectual Property does not copy without permission, infringe, misappropriate, violate, impair or conflict with (“Infringe”) any Intellectual Property of any Person, and, to the Knowledge of the Company, the Intellectual Property of the Company is not being Infringed by any Person; (ii) without limiting the generality of clause (i), to the Company’s Knowledge, there are no patents, published patent applications or other patent applications that impede or limit or potentially impede or limit the current or contemplated operation of the Company’s business or use of Intellectual Property; and (iii) there is no Claim, Order or notice pending or outstanding or, to the Knowledge of the Company, threatened or imminent (including cease and desist letters or invitations to take a license), that seeks to limit or challenge or that concerns the ownership, use, validity, scope, registrability or enforceability of any Intellectual Property owned or used by the Company, and the Company has received no written notice of the same, and, to the Knowledge of the Company, there is no valid basis for the same.

(f) All Software and Systems owned or used in the Company’s business as currently conducted or as contemplated to be conducted (i) are free from any material defect, bug, virus, or programming, design or documentation error or corruptant, (ii) are fully functional and operate and run in a reasonable and efficient business manner and (iii) conform in all material respects to the specifications and purposes thereof.

(g) No other Person has any ownership interest in, or, except as set forth in Section 3.18(g) of the Company Disclosure Schedule, the right to use, any Intellectual Property purportedly owned, in whole or in part, by the Company and used in the Company’s business as currently conducted or as contemplated to be conducted, and the transactions contemplated hereby shall not grant to or allow any Person any ownership interest in, or the right to use, any Intellectual Property owned, in whole or in part, by the Company, Parent or any of their Affiliates. All material Intellectual Property purportedly owned by the Company is owned exclusively by it, free of any claims or interests of third parties (including current and former employees, consultants and contractors or any current or former employers of same). All Persons who have contributed to the creation, invention, modification or improvement of any material Intellectual Property purportedly owned by the Company, in whole or in part, have signed written agreements ensuring that all such Intellectual Property is owned exclusively by the Company. No material Intellectual Property purportedly owned by the Company has been given or licensed to a third party, including but not limited to public software projects. Except as set forth in Section 3.18(h) of the Company Disclosure Schedule, no Intellectual Property owned by a third party is material to the business of the Company as currently conducted or contemplated to be conducted.

(h) Except as set forth in Sections 3.18(g) and 3.18(h) of the Company Disclosure Schedule, none of the Intellectual Property owned or used by the Company uses, calls, incorporates, interacts with, is a derivative of or has embedded in it any source, object or other software code that is subject to an “open source,” “copyleft” or other similar type of license

 

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(including any GNU General Public License, Library General Public License, Lesser General Public License, Mozilla License, Berkeley Software Distribution License, Open Source Initiative License, MIT, Apache, Public Domain licenses and the like) (“Open Source License”). None of the past or present uses in the Company’s business of any software subject to an Open Source License, and none of the reasonably foreseeable uses of such software in the Company’s business as it currently is contemplated to be conducted (i) would subject any Software, other than the Software set forth in Section 3.18(g) of the Company Disclosure Schedule, purportedly owned by the Company to the terms of such open source license or (ii) would otherwise require the public distribution of such Software or impose limitations on the Company’s right to require payments in connection therewith.

(i) No Intellectual Property owned by the Company is subject to any agreement with any third party pursuant to which the Company has, or could be required to deposit into escrow such Intellectual Property or pursuant to which access to the source code of such Intellectual Property is or would be granted to a third party. There has been no unauthorized disclosure of any of the Company’s proprietary source code.

(j) The consummation of the transactions contemplated by this Agreement will not result in the material loss or impairment of, or payment of any material additional amounts with respect to, the Company’s right to own, use or hold for use any of the Intellectual Property owned, used or held for use by it in the conduct of its business as currently conducted.

(k) (i) The Company fully complies with all relevant Laws and regulations relating to Intellectual Property (including the U.S. Digital Millennium Copyright Act and any foreign equivalents), and (ii) the Company has operated its business to obtain, maintain and maximize all applicable protections under the “safe harbors” of 47 U.S.C. §230 and 17 U.S.C. §512 (including by following the procedures set forth on Section 3.18(k) of the Company Disclosure Schedule). The Company responds promptly to all complaints relating to Intellectual Property infringements, other violations of the Law and other inappropriate conduct occurring on, through or in connection with its Systems.

3.19 Privacy and Security.

(a) The Company complies (and requires and monitors the compliance of applicable third parties) with all U.S., state, foreign and multinational Laws (including the Children’s Online Privacy Protection Act, California S.B. 27, California Consumer Spyware Act, Utah Spyware Control Act and California Civil Code 1798.81.5), reputable industry practice, standards, self-governing rules and policies and their own published, posted and internal agreements and policies (which are in conformance with reputable industry practice) (“Privacy Laws”) with respect to: (i) personally identifiable information (including but not limited to name, address, telephone number, electronic mail address, social security number, bank account number or credit card number), sensitive personal information and any special categories of personal information regulated thereunder or covered thereby (“Personal Information”) (including such Personal Information of visitors who use the Company’s websites, clients and distributors), whether any of same is accessed or used by the Company or any of its business partners; (ii) non-personally identifiable information (including such Personal Information of visitors who use the Company’s websites, clients and distributors), whether any of same is

 

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accessed or used by the Company or any of its business partners; (iii) spyware and adware; (iv) the procurement and/or placement of advertising from or with reputable Persons and websites; (v) the use of Internet searches associated with or using particular words or terms; (vi) the sending of solicited or unsolicited electronic mail messages; and (vii) privacy generally.

(b) The Company posts all policies with respect to the foregoing on its websites in conformance with Privacy Laws. Except as set forth in Section 3.19(b) of the Company Disclosure Schedule, the Company does not use, collect, or receive any Personal Information or sensitive non-personally identifiable information and does not become aware of the identity or location of, or identify or locate, any particular Person as a result of any receipt of such Personal Information.

(c) (i) To the Company’s Knowledge, the advertisers and other Persons with which the Company has contractual relationships have not breached any agreements or any Privacy Laws pertaining to Personal Information and to non-personally identifiable information (including but not limited to Privacy Laws regarding spyware and adware), (ii) the Company does not serve advertisements into advertising inventory created by downloadable Software which launches without a user’s express activation, and (iii) the Company has not received (and does not have Knowledge of) a material volume of consumer complaints relative to Software downloads that resulted in the installation of any of the Company’s tracking technologies.

(d) The Company takes all necessary or desirable actions to protect the confidentiality, integrity and security of its Software and Systems and all information and transactions stored or contained therein or transmitted thereby against any unauthorized or improper use, access, transmittal, interruption, modification or corruption, and there have been no breaches of same. Without limiting the generality of the foregoing, the Company (i) uses adequate-strength encryption technology of at least 128-bit and (ii) has implemented a comprehensive security plan that (A) identifies internal and external risks to the security of the Company’s confidential information and Personal Information and (B) implements, monitors and improves adequate and effective safeguards to control those risks.

3.20 Insurance. Section 3.20 of the Company Disclosure Schedule sets forth a true and complete list of all insurance policies covering the assets, business, equipment, properties, operations, employees, consultants, officers and directors of the Company. There is no claim by the Company pending under any of such policies as to which coverage has been questioned, denied or disputed by the insurers of such policies. All premiums payable under all such policies have been paid, and the Company is otherwise in compliance with the terms of such policies. Such policies of insurance are of the type and in amounts customarily carried by Persons conducting businesses similar to those of the Company and reasonable in light of the assets and operations of the Company. There is not, to the Knowledge of the Company, any threatened termination of, or premium increase with respect to, any of such policies.

3.21 No Restrictions on the Merger; Takeover Statutes. The Company has taken all action required to be taken by it in order to exempt this Agreement, the Consent Agreement, the Merger and the transactions contemplated hereby and thereby (and this Agreement, the Consent Agreement, the Merger and the transactions contemplated hereby and thereby are exempt) from, any “fair price,” “moratorium,” “control share,” “affiliate transaction,” “business combination”

 

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or other applicable takeover Laws or Regulations of any state, local, foreign, municipality or other jurisdiction, including Section 203 of the DGCL (collectively, Takeover Statutes). The provisions of Section 203 of the DGCL do not apply to the Merger.

3.22 Brokers. No broker, financial advisor, finder or investment banker or other Person is entitled to any broker’s, financial advisor’s, 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.

3.23 Certain Business Practices. Neither the Company nor any director, officer, employee, consultant or agent of the Company has (a) used any funds for unlawful contributions, gifts, entertainment or other unlawful payments relating to political activity, (b) 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 U.S. Foreign Corrupt Practices Act of 1977, as amended, (c) consummated any transaction, made any payment, entered into any Contract or arrangement or taken any other action in violation of Section 1128B(b) of the U.S. Social Security Act, as amended, or (d) made any other similar unlawful payment under any similar foreign Laws.

3.24 Interested Party Transactions. Except as disclosed in Section 3.24 of the Company Disclosure Schedule, there are no existing, and there have been no, Contracts, transactions, Indebtedness, arrangements or any related series thereof, between the Company, on the one hand, and any of the directors, officers, employees, consultants, Stockholders or other Affiliates of the Company, or any of its Affiliates or family members, on the other hand, except with respect to amounts due (a) as salaries and bonuses in the ordinary course of business consistent with past practice and (b) in reimbursement of ordinary expenses in the ordinary course of business consistent with past practice. At or prior to the Closing, all such Contracts, transactions, Indebtedness and arrangements shall be terminated (except with respect to amounts due (i) as normal salaries and bonuses and in reimbursement of ordinary expenses in the ordinary course of business consistent with past practice and (ii) in reimbursement of ordinary expenses in the ordinary course of business consistent with past practice) without any liability or obligation of the Company. There is no Indebtedness owed to the Company by any of its directors, officers, employees, consultants, Stockholders or other Affiliates.

3.25 Sole Representations and Warranties. The representations and warranties set forth in this Article III and set forth in the Transaction Documents constitute the only representations and warranties of the Company in connection with this Agreement, Merger and the other transactions contemplated hereby and supersede any and all previous written or oral statements made by the Company.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub hereby, jointly and severally, represent and warrant to the Company as of the date hereof and as of the Closing Date as follows:

4.1 Organization; Formation of Merger Sub.

 

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(a) (i) Parent is a limited liability company duly organized, validly existing and in good standing under Delaware Law, and (ii) Merger Sub is a corporation duly organized, validly existing and in good standing under Delaware Law.

(b) Merger Sub is a newly-formed entity that has been formed solely for the purposes of the Merger and has not carried on any business or engaged in any activities other than those reasonably related to the Merger.

4.2 Authority; Enforceability. Each of Parent and Merger Sub has all necessary power and authority to execute and deliver this Agreement, each other Transaction Document to which it is a party and each instrument required to be executed and delivered by it on or prior to the Closing and 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, each other Transaction Document to which it is a party and each instrument required hereby to be executed and delivered by Parent and Merger Sub on or prior to the Closing, the performance of their respective obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been have been duly and validly approved by the Board of Managers of Parent, the Board of Directors of Merger Sub and by Parent as the sole stockholder of Merger Sub, and no other corporate or similar proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement, any other Transaction Document to which they are a party or any instrument required to be executed and delivered by them on or prior to the Closing or the consummation of the transactions contemplated hereby or thereby. Each of this Agreement, the other Transaction Documents to which Parent and Merger Sub are party and each instrument required to be executed and delivered by them on or prior to the Closing has been duly and validly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery thereof by the Company and the Stockholders’ Agent, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).

4.3 No Conflict; Required Filings and Consents. The execution and delivery by Parent and Merger Sub of this Agreement, the other Transaction Documents to which they are a party or any instrument required by this Agreement to be executed and delivered by them on or prior to the Closing do not, and the performance of this Agreement, the other Transaction Documents to which they are a party and any instrument required by this Agreement to be executed and delivered by them on or prior to the Closing shall not, (a) conflict with or violate the limited liability company agreement or certificate of formation of Parent or the certificate of incorporation or bylaws of Merger Sub, (b) conflict with or violate in any respect any Law or Order applicable to Parent or Merger Sub or by which any of their respective properties, rights or assets is bound or affected or (c) require Parent or Merger Sub to obtain any Approval of any Governmental Authority, observe any waiting period imposed by, or make any filing with or notification to, any Governmental Authority, except for, in the case of this clause (c), the filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with Delaware Law.

 

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4.4 Absence of Litigation, Claims and Orders. As of the date hereof, there is no Claim pending or threatened on behalf of or against Parent or Merger Sub that questions or challenges (a) the validity of this Agreement or any other Transaction Document to which they are a party or (b) any action taken or to be taken by them pursuant to this Agreement or any other Transaction Document to which they are a party or in connection with the transactions contemplated hereby and thereby. As of the date hereof, neither Parent nor Merger Sub is subject to any outstanding Claim or Order in respect of this Agreement, any Transaction Document to which they are a party or the transactions contemplated hereby and thereby.

ARTICLE V

CONDUCT OF BUSINESS PENDING THE MERGER

5.1 Conduct of Business by the Company Pending the Merger. During the period from the date of this Agreement and continuing through the Closing Date or the earlier termination of this Agreement pursuant to Section 8.1 hereof (the “Execution Period”), except as expressly contemplated or permitted by this Agreement, including as set forth in Section 5.1 of the Company Disclosure Schedule, or with the prior written consent of Parent, the Company shall (subject to applicable Law) (a) carry on its business in the ordinary course consistent with past practice; (b) use commercially reasonable efforts to preserve its present business organization and relationships; (c) use commercially reasonable efforts to keep available the present services of its employees and independent contractors; and (d) use commercially reasonable efforts to preserve its rights, franchises, goodwill and relations with its customers and others with whom it conducts business. Without limiting the generality of the foregoing, except as expressly permitted or required by this Agreement or as expressly set forth in Section 5.1 of the Company Disclosure Schedule or consented to in writing by Parent (which consent shall not be unreasonably withheld, delayed or conditioned), the Company shall not directly or indirectly:

(a) amend or agree to amend the Company Charter, or merge with or into or consolidate with, or agree to merge with or into or consolidate with, any other Person, subdivide or in any way reclassify any Common Capital Stock, or change or agree to change in any manner the rights of its Stockholders or liquidate or dissolve;

(b) (i) issue, sell, redeem or acquire any Company Capital Stock or any other ownership interest in the Company or create any Subsidiaries; (ii) issue, sell, grant or accelerate the timing of payment or vesting of any option, warrant, convertible or exchangeable security, right, “phantom” partnership (or other ownership) interest (or similar “phantom” security), restricted partnership (or other ownership) interest, subscription, call, unsatisfied pre-emptive right or other agreement or right of any kind to purchase or otherwise acquire (including by exchange or conversion) any ownership interest in the Company; or (iii) enter into any contracts, agreements or arrangements to issue, redeem, acquire or sell any Company Capital Stock or any other ownership interests in the Company;

(c) incur any long-term Indebtedness;

(d) incur any Indebtedness for borrowed money or guarantee the indebtedness of other Persons;

 

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(e) (i) make any change in its accounting methods or practices for Tax or accounting purposes, (ii) make any change in depreciation or amortization policies or rates adopted by it for Tax or accounting purposes, (iii) make, change or revoke any Tax election, (iv) waive any statute of limitation relating to Taxes, (v) enter into or approve any Closing Agreement or (vi) settle or compromise any Tax Liability, in each case if, as it relates to Taxes only (as opposed to accounting), doing so could reasonably be expected to adversely affect the Company or, following the Closing, Parent or any Affiliate of Parent;

(f) make any loan or advance to any of its Affiliates, officers, directors, employees, consultants, agents or other representatives (other than reasonable and customary travel advances made in the ordinary course of business);

(g) sell, transfer, lease, offer to sell, abandon or make any other disposition of any of its properties or other assets except in the ordinary course of business not in excess of $100,000 in the aggregate, or grant or suffer to exist, or agree to grant or suffer to exist, any Liens on any material amount of its assets;

(h) incur, assume or guarantee, or agree to incur, assume or guarantee, any Liability or obligation (whether or not currently due and payable) relating to its business or any of the assets except in the ordinary course of business in amounts not in excess of $100,000 in the aggregate;

(i) settle any Proceeding involving any Liability for money damages in excess of $100,000 in the aggregate or any restrictions upon any of its operations;

(j) create, renew, amend, terminate or cancel, any Material Contract other than in the ordinary course of business; provided that the Company may not enter into any contracts or agreements that include any non-competition or non-solicitation covenant or any exclusive dealing or similar arrangement that limits the ability of the Company to compete or operate (geographically or otherwise) in any line of business;

(k) declare or make any distributions of any kind;

(1) acquire or agree to acquire in any manner, including by way of merger, consolidation, or purchase of an equity interest or assets, any business of any Person or other business organization or division thereof;

(m) enter into, amend, modify, terminate or renew any written employment, consulting, severance or similar agreements or arrangements with any officers or employees or consultants of the Company, or grant any salary or wage increase or increase in severance or termination pay or increase or grant any employee benefit or hire or terminate any employee for a senior management position, or adopt, modify, terminate or amend any Employee Plan, except (i) reasonable and customary individual increases in compensation to non-officer employees in the ordinary course of business, and (ii) changes that are required by applicable Law;

(n) make or incur any capital expenditures in excess of $100,000 in the aggregate other than those that have been approved in writing or budgeted as of the date hereof and disclosed in writing to Parent prior to the execution of this Agreement;

 

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(o) cancel any Indebtedness or waive any Claims or rights in amounts in excess of $50,000 in the aggregate;

(p) enter into, renew or amend any lease of Real Property or material personal property or commitment to lease, or otherwise rent or occupy real property;

(q) fail to continually maintain any or all of the Company’s Permits;

(r) transfer ownership of, or grant any exclusive license to, any Company Intellectual Property to any Person; or

(s) authorize, commit or agree (by contract or otherwise) to do any of the foregoing.

5.2 Access to Information; Confidentiality.

(a) From and after the date hereof until the earlier of (x) the Closing Date or (y) the termination of this Agreement in accordance with its terms, upon reasonable notice, for purposes of integration planning and continuing due diligence the Company shall afford to the officers, employees, accountants, counsel and other representatives and agents of Parent (collectively Parent Representatives) full access to all its properties, records, databases, books, Contracts, commitments and other information (however stored) and furnish promptly to Parent all such information as Parent may reasonably request. The Company shall make available to Parent the appropriate individuals for discussion of its business, properties and personnel as Parent or the Parent Representatives may reasonably request; provided, however, that no investigation pursuant to this Section 5.2(a) shall affect any remedy available to Parent for any breach by the Company of its representations, warranties and agreements contained herein.

(b) Parent hereby agrees that it will hold, and will cause its Affiliates, directors, officers, employees, agents, representatives and advisors (including attorneys, accountants, consultants, bankers and financial advisors) to hold, as confidential any information regarding Company obtained pursuant to Section 5.2(a); provided, however, that Parent may issue press release(s) or make other public announcements in accordance with Section 5.7.

(c) Each of the Company and the Stockholders’ Agent hereby agrees that it will hold, and will cause its Affiliates, directors, officers, employees, agents, representatives and advisors (including attorneys, accountants, consultants, bankers and financial advisors) to hold, as confidential any information regarding Parent, the existence of this Agreement, any of the terms and conditions of this Agreement and the transactions contemplated hereby.

5.3 Commercially Reasonable Efforts; Further Assurances.

(a) Upon the terms and subject to the conditions set forth in this Agreement, each party hereto shall use commercially 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

 

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by the other Transaction Documents. In furtherance and not in limitation of the foregoing, each of the Company and Parent shall use commercially reasonable efforts to (i) as promptly as practicable, obtain all Approvals and deliver all notices (including those referred to in Section 3.6 hereof and any referred to in Section 3.6 of the Company Disclosure Schedule) necessary to consummate the transactions contemplated by this Agreement and the other Transaction Documents, (ii) make all filings 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 and (iii) furnish all information required for any application or other filing to be made pursuant to any Law or any applicable Regulations of any Governmental Authority in connection with the transactions contemplated by this Agreement and the other Transaction Documents.

(b) Notwithstanding anything herein to the contrary, neither Parent nor any of its Affiliates (including Time Warner Inc. and its Affiliates and, after the Effective Time, the Surviving Corporation and its Affiliates) shall be under any obligation to, nor, without Parent’s prior written consent, shall the Company make proposals, execute, agree or consent to or carry out agreements or submit to (i) any liability or payment obligation in order to obtain any Approval of any third Person, (ii) any Order or other commitment providing for the sale, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets, rights or categories of assets or rights of Parent, the Company or any of their Affiliates, the holding separate of any capital stock of any such Persons or imposing or seeking to impose any limitation on the ability of Parent, the Company or any of their Affiliates to own such assets or rights or to acquire, hold or exercise full rights of ownership of capital stock of the Company or (iii) any Order or other commitment imposing or seeking to impose any limitation whatsoever on the business activities of Parent or any of such Affiliates. If the Company shall fail to obtain any Approval required of a third Person with respect to the transactions contemplated hereby, then the Company shall use its commercially reasonable efforts, and will take any such actions reasonably requested by Parent, to limit the adverse effect upon the Company and Parent, Parent’s Subsidiaries, and their respective businesses resulting, or which would result after the Effective Time, from the failure to obtain such consent.

(c) In connection with any of the filings or efforts listed in clauses (i) through (iii) of Section 5.3(a), Parent and the Company will reasonably cooperate with each other, including promptly furnishing each other any information reasonably requested by the other, and provide copies of all filings to the other party and its advisors. The Company shall promptly notify Parent of any communication that it or any of its Affiliates receives from any Governmental Authority relating to the matters that are the subject of this Agreement and the transactions contemplated hereby and permit Parent and its advisors to review and comment upon in advance any proposed communication with any Governmental Authority. Subject to the Confidentiality Agreement, the parties to this Agreement will provide each other with copies of all material correspondence, filings and communications between them or any of their representatives or advisors, on the one hand, and any Governmental Authority or members of its staff, on the other hand, with respect to this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby. In addition, the parties will consult with each other and consider in good faith the other parties’ suggestions in connection with any analyses, appearances, presentations, memoranda, briefs, arguments and proposals made or submitted to

 

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any Governmental Authority with respect to this Agreement and the transactions contemplated hereby.

(d) Without limiting Section 5.3(a), each party hereto shall use its commercially reasonable efforts to satisfy or cause to be satisfied all of the conditions precedent set forth in ARTICLE VII that are applicable to it and to cause the transactions contemplated by this Agreement and the Transaction Documents to be consummated.

(e) Each party hereto, at the reasonable request of another party hereto, shall promptly 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, the Transaction Documents and the transactions contemplated hereby and thereby.

5.4 Notification of Certain Matters. Each Party shall give prompt notice to the other Parties, to the extent known by such Party, of (a) the occurrence, or failure to occur, of any event or existence of any condition that has caused or could reasonably be expected to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time after the date of this Agreement, up to and including the Closing Date, (b) the occurrence of any matter or event that would reasonably be expected to have a Material Adverse Effect, (c) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, (d) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the transactions contemplated by this Agreement, and (e) any lawsuit, action or proceeding pending or, to the applicable Party’s knowledge, threatened against the Party or the Parties relating to the transactions contemplated by this Agreement.

5.5 Negotiation With Others. During the Execution Period, the Company shall not authorize, cause or permit any of the Company’s Stockholders, employees, directors, officers, advisors, consultants or agents to, (a) directly or indirectly, solicit, initiate, encourage, entertain or engage (regardless of who initiates such action) in discussions or negotiations with, provide any information to, or take any other action that facilitates the efforts of, any third party relating to any agreement (whether binding or in principle) or other arrangement involving (i) the acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise); (ii) an investment in (including by way of a sale or transfer of the Company Capital Stock) or financing of the Company; or (iii) a sale, assignment, transfer, license, disposal of or encumbrance upon any material asset, right or property of the Company (including, without limitation, any of the Company’s proprietary technology or intellectual property) other than non-exclusive licenses granted by the Company in its ordinary course of business; or that would otherwise be inconsistent with the terms of this Agreement or that would prohibit the performance by the Company of its obligations under this Agreement or that could reasonably be expected to diminish the likelihood of or render impracticable the consummation of the transactions contemplated by this Agreement (each, a Prohibited Transaction); or (b) authorize or consummate a Prohibited Transaction. Upon execution and delivery of this Agreement, the Company shall: (x) terminate any and all discussions, negotiations or agreements, if any, they may be having regarding a Prohibited Transaction; and (y) immediately notify Parent in writing if it thereafter receives any inquiries or offers, directly or indirectly, from

 

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any Person regarding a Prohibited Transaction, which notice shall be sufficiently detailed as to identify the nature and structure of the Prohibited Transaction as proposed and to confirm that the inquiry regarding a Prohibited Transaction was definitively rejected, and the Company shall refuse to discuss and immediately reject such inquiry or offer. Neither the Company nor any of its Stockholders, officers, directors, employees, representatives or agents, including any investment banker, attorney or accountant engaged by any of them, shall amend, modify, waive or terminate, or otherwise release any Person from, any standstill, confidentiality or similar agreement or arrangement currently in effect in relation to an Prohibited Transaction. The Company shall cause its Stockholders, officers, directors, agents, advisors and representatives to comply with the provisions of this Section 5.5.

5.6 Tax Matters. For purposes of this Section 5.6, the term “Company” includes both the Company and Polar News Company, LLC in its capacity as predecessor as the owner and operator of the Company’s business and assets; provided, however, that in no event shall this Agreement be construed to require Parent or the Surviving Corporation to assume or pay any liabilities or obligations of Polar News Company, LLC.

(a) From and after the Closing, the Stockholders’ Agent shall prepare (or cause to be prepared) and timely file (or cause to be filed), subject to this Section 5.6(a), all federal, state, local or foreign income Tax Returns relating to the Company for any Tax period ending on or prior to December 31, 2008 that are required to be filed after the Closing Date. Except as otherwise required by applicable Law, all such Tax Returns shall be prepared in a manner that is consistent with the past practices of the Company. The Stockholders’ Agent shall deliver to Parent a copy of each such Tax Return at least fourteen (14) days prior to any filing and shall consider all comments made by Parent with respect thereto in good faith. Parent shall, and shall cause the Surviving Corporation to, cooperate reasonably with the Stockholders’ Agent and provide such powers of attorney or other authority documents as are reasonably requested by the Stockholders’ Agent to allow such Tax Returns to be filed in accordance with this Section 5.6(a).

(b) Except as set forth in Section 5.6(a), from and after the Closing, the Surviving Corporation shall prepare (or cause to be prepared) and timely file (or cause to be filed) all Tax Returns relating to the Company for any Tax period ending on or prior to the Closing Date (or any Straddle Period) that are required to be filed after the Closing Date. Except as otherwise required by applicable Law, all such Tax Returns shall be prepared in a manner that is consistent with the past practices of the Company. The Surviving Corporation will deliver to the Stockholders’ Agent a copy of each such Tax Return at least fourteen (14) days prior to any filing and will consider all comments made by the Stockholders’ Agent with respect thereto in good faith.

(c) The Stockholders shall be responsible for, and shall pay, (A) their allocable share of any Taxes of the Company with respect to any Pre-Closing Tax Period and (B) any Taxes of the Company arising as a result of the transactions contemplated by this Agreement (other than (i) Transfer Taxes, which shall be allocated in accordance with Section 5.6(f), and (ii) any employer-side employment Taxes attributable to any payments to the holders of Stock Options and Restricted Shares pursuant to this Section 5.6 may be allocable to the Closing Date, to the extent that any deductions attributable to such payments are treated for

 

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United States federal income tax purposes (and any similar provisions under state, local or foreign Laws) as occurring on the day after the Closing Date pursuant to Section 2.9(d), which Parent shall be responsible for and shall pay). Notwithstanding the foregoing, the Stockholders shall not be responsible for, and shall not be required to pay, Taxes to the extent that such Taxes have been taken into account as Company Transaction Expenses pursuant to this Agreement and have thereby reduced the Calculation Amount. Except to the extent that responsibility for Taxes is allocated to the Stockholders pursuant to this Section 5.6(c), Parent shall pay, or shall cause the Surviving Corporation to pay, any Taxes that are required to be paid in conjunction with the filing after the Closing Date of any Tax Returns for Pre-Closing Tax Periods.

(d) From and after the Closing, Parent or the Surviving Corporation shall notify the Stockholders’ Agent in writing within five (5) Business Days of the commencement of any Tax audit, any administrative or judicial proceeding or any demand or claim on the Company with respect to Taxes for a Pre-Closing Tax Period that, if determined adversely to the Company or after the lapse of time, would be grounds for indemnification under Section 9.4; provided, however, the failure to give such notice shall not affect the indemnification provided in Section 9.4 other than to the extent that the indemnifying Stockholders have been actually and materially prejudiced as a result of such failure. The Surviving Corporation shall have the right to control, through counsel of its own choosing subject to the written consent of the Stockholders’ Agent with such consent not to be unreasonably delayed or withheld, any audit, claim for refund or administrative or judicial proceeding involving any asserted Tax liability with respect to which indemnification may be sought under Section 9.4 (any such audit, claim for refund or proceeding relating to an asserted Tax liability is referred to herein as a Tax Claim), and the Stockholders’ Agent shall have the right, at its own expense, only to participate in such audit, claims and proceedings.

(e) The Stockholders’ Agent, the Stockholders, the Company, and Parent shall reasonably cooperate, and shall cause their respective Affiliates, directors, officers, employees, consultants, agents, auditors and other representatives to reasonably cooperate, in preparing and filing all Tax Returns and in resolving all disputes and audits with respect to all taxable periods relating to Taxes (including by maintaining and making available to each other all records necessary in connection with Taxes and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim).

(f) Parent shall pay all transfer, documentary, sales, use, stamp, registration and other substantially similar Taxes and fees (including any penalties, interest and expenses incurred in filing necessary Tax Returns) incurred in connection with this Agreement (collectively, Transfer Taxes) when due, and Parent will file (and provide simultaneous copies to the Stockholders’ Agent of) all necessary Tax Returns or other forms associated with Transfer Taxes and other documentation with respect to all such Transfer Taxes, provided that 50% of the Transfer Taxes shall be included in Company Transaction Expenses.

(g) The Company shall cause all Tax allocation, Tax indemnity or Tax sharing agreement or similar contracts or arrangements with respect to the Company to be terminated as of the Closing and shall ensure that such agreements are of no further force or effect as to the

 

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Company from and after the Closing, with no further liabilities or obligations imposed on the Company under any such agreements from and after the Closing.

(h) For purposes of this Agreement, in the case of any Straddle Period, the amount of Taxes to be allocable to the portion of the Straddle Period ending on the Closing Date shall be deemed (i) in the case of any Tax that is imposed on a periodic basis (such as real or personal property Taxes) to be (A) the amount of such Tax for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by (B) a fraction, the numerator of which is the number of calendar days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of calendar days in the entire relevant Straddle Period and (ii) in the case of any Tax not described in clause (i) above (such as franchise Taxes, Taxes that are based upon or measured by income, receipts or occupancy or imposed in connection with any sale or other transfer or assignment of property (whether real or personal, tangible or intangible)), to be the amount of any such Taxes that would be payable if the taxable year ended as of the close of business on the Closing Date.

5.7 Public Announcements. The Company and Parent shall mutually agree on the form and timing of an initial joint press release to be issued with respect to this Agreement and the transactions contemplated hereby. In addition, (a) the Stockholders’ Agent and the Company shall consult with and obtain the approval of Parent before issuing any press release or making any other public disclosure with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public disclosure prior to such consultation and approval (except as may be required by Law, in which event the Person proposing to issue such press release or make such public disclosure shall use its reasonable best efforts to consult in good faith with Parent before issuing any such press release or making any such public disclosure), and (b) Parent shall consult with the Company before issuing any other press release or making any other public disclosure with respect to this Agreement and the transactions contemplated hereby.

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Stockholder Approval; Information Statement.

(a) All of the Stockholders shall have executed and delivered, in accordance with Section 228 of the DGCL, the Consent Agreement and the related Stockholder Approval immediately following the execution hereof. The Stockholder Approval shall be irrevocable with respect to all shares of Common Stock that are owned beneficially or of record by the applicable consenting Stockholders or as to which they have, directly or indirectly, the right to vote or direct the voting thereof.

(b) Solely in the event that there are any Stockholders who are not party to the Consent Agreement immediately following the execution hereof, at Parent’s request (in its sole discretion), promptly after the execution hereof, the Company shall prepare and circulate to such Stockholders an information statement (the Information Statement) in connection with the Company’s solicitation of the adoption and approval by written consent of this Agreement and

 

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the Merger by such Stockholders, and the Company shall use reasonable best efforts to solicit their consent thereto and to cause them to deliver their executed counterpart to the Consent Agreement, in each case as soon as practicable after the date hereof. The Information Statement shall include the required notice under Delaware Law that the holders of Common Stock are or may be entitled to assert dissenters’ rights under such Law in connection with the Merger. The Company will promptly advise Parent if at any time prior to the Effective Time the Company shall obtain knowledge of any facts that might make it necessary to amend or supplement the Information Statement in order to make the statements contained therein not misleading or to comply with applicable Law. The Information Statement shall contain the unanimous recommendation of the Board of Directors of the Company that the holders of Common Stock approve the Merger and shall, in accordance with the requirements of Section 228(e) of the DGCL, notify any holder of Common Stock who did not execute the Stockholder Approval of the corporate action taken by those Stockholders who did execute the Stockholder Approval, and all such other information as Parent shall reasonably request. Any materials to be submitted to the Stockholders by the Company in connection with this Agreement or the transactions contemplated hereby shall be subject to Parent’s advance review and approval.

6.2 Notification of Certain Matters.

(a) The Company shall give prompt notice to Parent of the occurrence or non-occurrence of any event that results in the breach of any representation, warranty, covenant or agreement of the Company herein such that any closing condition contained in Sections 7.2(a) and 7.2(b) would not be satisfied (assuming that the Closing were to occur at such time); provided, however, that the delivery of any notice pursuant to this Section 6.2 shall not limit or otherwise affect the remedies available to Parent or Merger Sub hereunder.

(b) Parent shall give prompt notice to the Company of the occurrence or non-occurrence of any event that results in the breach of any representation, warranty, covenant or agreement of Parent herein such that any closing condition contained in Sections 7.3(a) and 7.3(b) would not be satisfied (assuming that the Closing were to occur at such time); provided, however, that the delivery of any notice pursuant to this Section 6.2(b) shall not limit or otherwise affect the remedies available to the Company hereunder.

(c) Each of the Company and Parent shall give prompt notice to the other of (i) any notice or other communication from any Person alleging that the Approval of such Person is or may be required in connection with this Agreement, the other Transaction Documents and the transactions contemplated hereby or thereby, (ii) any notice or other communication from any Governmental Authority in connection with this Agreement, the other Transaction Documents and the transactions contemplated hereby or thereby and (iii) any Claim relating to or involving or otherwise affecting such party that relates to this Agreement, the other Transaction Documents and the transactions contemplated hereby or thereby.

(d) The Company shall give prompt notice to Parent of any fact, event, change, development, circumstance or effect occurring after the date hereof (or of which it became aware after the date hereof) that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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6.3 Consent Agreement. The Company acknowledges and agrees to be bound by and comply with the provisions of Section 5.2 of the Consent Agreement with respect to transfers of record ownership of shares of the Company Capital Stock held by parties to the Consent Agreement and agrees to provide such documentation and use its commercially reasonable efforts to do such other things to effectuate the provisions of such Consent Agreement.

6.4 Employee Matters.

(a) The Company shall use its reasonable best efforts to cause Jon Brod to accept the employment offer contemplated by Section 7.2(f) and execute and deliver to Parent, and to comply with the terms of, such offer.

(b) As soon as practicable following the Closing Date, Parent shall (or shall cause one or more of its Subsidiaries to) provide employees of the Company (the Employees) as of immediately prior to the Effective Time and who continue their employment after the Effective Time (such Employees, the Continuing Employees) with employee benefits (other than equity-based awards) that are substantially similar in the aggregate to those employee benefits provided to similarly situated employees of Parent and its Subsidiaries as of immediately prior to the Effective Time.

(c) As soon as practicable following the Closing Date, Parent shall (or shall cause one or more of its Subsidiaries to) provide any Continuing Employees with service credit (if applicable) with respect to Parent’s vacation, Code Section 401(k), and any other defined contribution benefit plans in which the Continuing Employees become eligible to participate for such Continuing Employees’ service with the Company for purposes of eligibility, participation, vesting and, in the case of Parent’s vacation plan, benefit accrual (except to the extent such service credit or benefit accruals would result in a duplication of benefits). With respect to any welfare benefit plans maintained by Parent or its applicable Subsidiaries for the benefit of the Continuing Employees on and after the Closing Date, Parent shall (or shall cause its applicable Subsidiaries to) use commercially reasonable efforts to (i) give effect, in determining any deductible limitations, to any amounts paid by such Continuing Employees for calendar year 2009 with respect to similar plans maintained by the Company; and (ii) with respect to any health benefit plans maintained by Parent or its applicable Subsidiaries (excluding, for the avoidance of doubt, any disability plans maintained by them), ensure that no pre-existing condition limitations or exclusion shall apply with respect to the Continuing Employees (except to the extent any such limitation or exclusion applied prior to the Closing under the applicable Employee Plan).

(d) Prior to the Closing Date, the Company shall cooperate with Parent, if and to the extent requested by the Parent, to (i) allow Parent and its representatives to conduct employee orientation sessions (with such sessions to be held during scheduled work hours at times reasonably agreed to by the Company and Parent) and to meet with such employees of the Company as Parent shall identify during breaks, outside of scheduled work hours or as otherwise agreed to by the Company and Parent, and (ii) provide information to employees regarding Parent’s (or any of its Subsidiaries’) employee benefit plans and allow Parent and its representatives to conduct an open enrollment period to enable potential employees of the

 

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Surviving Corporation to make benefit enrollment elections under such employee benefit plans of Parent (or any of its Subsidiaries) that will be made available (if any) to employees of the Surviving Corporation on and after the Closing.

(e) The Company shall take all actions that may be requested by Parent in writing prior to the Closing Date with respect to (i) causing one or more Employee Plans or arrangements with any PEO, payroll, benefits or human resources service provider to the Company to terminate or be amended as of the Closing Date or as of the day immediately preceding the Closing Date (in each case as specified by Parent), (ii) causing benefit accrual or entitlement under any Employee Plan to cease as of the Closing Date, (iii) causing the continuation on and after the Closing Date of any insurance policy or arrangement relating to any Employee Plan and (iv) facilitating the merger of any Employee Plan into any employee benefit plan maintained by Parent (or any of its Subsidiaries).

(f) Nothing contained in this Section 6.4(f) or otherwise in this Agreement, express or implied, shall (i) be construed to restrict in any way the ability of Parent, the Surviving Corporation or any of their Affiliates to (A) amend, terminate or modify the duties, responsibilities or employment of any Employee, (B) to amend, terminate or modify any Employee Plan, compensation or benefit arrangement or any other employee benefit plans or programs maintained by Parent, the Surviving Corporation or their Affiliates at any time or from time to time or (C) grant any Employee any special right for compensation, (ii) be treated as an amendment or other modification of any compensation or benefit arrangement of Parent, the Company, or any of its Affiliates, including any Employee Plan, or (iii) be construed to create any third-party beneficiary rights in any present or former employee, service provider, independent contractor, consultant, any such Person’s alternate payees, dependents or beneficiaries or any other Person, whether in respect of continued service or resumed service, compensation, benefits or otherwise. Notwithstanding anything in this Agreement to the contrary, on and after the Closing, the employment of employees by the Surviving Corporation shall be subject to Parent’s usual terms, conditions and policies of employment, including, without limitation, Parent’s policies regarding modifications of the terms and conditions of employment.

6.5 Escrow Agreement. Promptly following the date hereof, Parent and the Stockholders’ Agent will execute and deliver, and will use commercially reasonable efforts to cause the Escrow Agent to execute and deliver, the Escrow Agreement contemplated by ARTICLE IX (the Escrow Agreement) in a form reasonably satisfactory to them and the Company.

6.6 Company Transaction Expenses. With respect to any Company Transaction Expenses that remain unpaid on the Closing Date or that will remain unpaid after the Closing, the Company shall submit to Parent reasonably satisfactory documentation setting forth the amounts of all such unpaid Company Transaction Expenses (including the identity of each recipient, dollar amounts, wire instructions and any other information necessary for Parent to effect the final payment in full thereof) and indicating that upon receipt of such amounts that all such Company Transaction Expenses shall have been paid in full (the Payoff Instructions). The Company hereby agrees that Parent and the Surviving Corporation shall not be responsible or liable to pay any Company Transaction Expenses that are not identified in the Payoff

 

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Instructions, and if Parent or the Surviving Corporation or any of their Subsidiaries has any liability therefor, then Parent shall be entitled to receive payment out of the Escrow Fund of any amounts necessary to satisfy such liability, including any related Losses.

6.7 Delivery of Closing Date Balance Sheet. The Company shall deliver to Parent true, correct and complete copies of (a) the unaudited balance sheet of the Company on or immediately prior to the Closing Date (the Company Closing Balance Sheet; and the date thereof being the Company Closing Balance Sheet Date), and (b) a schedule of all outstanding accounts receivable and accounts payable of the Company on the Closing as of the Closing Date.

ARTICLE VII

CONDITIONS OF MERGER

7.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of the Company, Parent and Merger Sub to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:

(a) Stockholder Approval. The Stockholder Approval shall have been obtained.

(b) No Injunctions or Restraints; Illegality. (i) There shall not be in effect any Order, injunction (whether temporary, preliminary or permanent) or other legal restraint or prohibition issued by any Court or Governmental Authority of competent jurisdiction that seeks to prevent the consummation of the transactions contemplated hereby on substantially the same terms contemplated herein or the conferring on Parent of substantially all of the rights and benefits as contemplated herein, nor shall there be pending any proceeding brought by any Governmental Authority seeking any of the foregoing, and (ii) there shall not be any Law or Order enacted, entered, enforced or deemed applicable (or purports to be applicable) to the transactions contemplated hereby that which makes (or seeks to make) illegal the consummation of the transactions contemplated hereby on substantially the same terms contemplated herein.

7.2 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. The representations and warranties of the Company contained in this Agreement and the other Transaction Documents (i) that are qualified or limited by materiality (including the words “material” and “Material Adverse Effect”) shall be true and correct on and as of the Closing Date with the same effect as if made on and as of the Closing Date (other than such representations and warranties that are made as of a specified date, which representations and warranties shall be true and correct as of such date) and (ii) that are not so qualified or limited shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of the Closing Date (other than such representations and warranties that are made as of a specified date, which representations and warranties shall be true and correct in all material respects as of such date). Parent shall have received a certificate to such effect signed by the Chief Executive Officer of the Company.

 

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(b) Covenants and Agreements. The Company and the Stockholders’ Agent shall have performed and complied in all material respects with all covenants and agreements required by this Agreement and the other Transaction Documents to be performed or complied with by them on or prior to the Closing Date. Parent shall have received a certificate to such effect signed by the Chief Executive Officer of the Company.

(c) No Governmental Restriction. There shall not be any pending or threatened Claim asserted by any Governmental Authority seeking (i) to obtain from Parent or any of its Subsidiaries any damages in connection with this Agreement or the other Transaction Documents that are material in relation to the aggregate of the Merger Consideration payable hereunder, (ii) to prohibit or limit the ownership, operation or conduct by the Company, Parent or any of Parent’s Subsidiaries of any material portion of the business or assets of the Company, Parent or any of Parent’s Subsidiaries or to cause the Company, Parent or any of their Affiliates to dispose of or hold separate any material portion of their business or assets of as a result of the Merger or any of the other transactions contemplated by this Agreement or the other Transaction Documents, (iii) to impose any material limitations on the ability of Parent to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of the Company, the Surviving Corporation or its Subsidiaries, (iv) to prohibit Parent from effectively controlling in any material respect the business or operations of the Company after the Effective Time or (v) to impair the conferring on Parent of substantially all the rights and benefits as contemplated herein.

(d) Approvals and Consents. Parent shall have received evidence, in form and substance reasonably satisfactory to it, that (i) all Approvals of Governmental Authorities necessary in connection with this Agreement or the other Transaction Documents and the transactions contemplated hereby or thereby and (ii) all Approvals of any other Person set forth in Section 3.6 hereof and Schedule 7.2(d) attached hereto have been obtained, in each case without any liability or obligation of the Company or Parent or any of their respective Affiliates or any restriction on their respective businesses or operations.

(e) Escrow Agreement. The Stockholders’ Agent and the Escrow Agent shall have executed and delivered the Escrow Agreement.

(f) Employee Arrangements. Jon Brod shall have (i) affirmatively accepted an offer of employment with the Surviving Corporation, Parent or their Affiliates on terms reasonably satisfactory to Parent; (ii) executed and delivered to Parent the applicable Confidentiality, Non-Competition and Proprietary Rights Agreement; and (iii) satisfied a standard background check to be conducted by Parent or its Affiliates. Nothing in this Agreement, whether express or implied, shall be construed to create any third-party beneficiary rights in any present or former employee, service provider, independent contractor or consultant of the Company or any such person’s alternate payees, dependents or beneficiaries, whether in respect of continued service or resumed service, compensation, benefits or otherwise.

(g) No Material Adverse Effect. There shall not have occurred any fact, event, change, development, circumstance or effect that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.

 

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(h) Company Transaction Expenses. The Company shall have (i) submitted to Parent documentation reasonably satisfactory to Parent from all advisors, investment bankers, lawyers, accountants and other professional advisors to the Company in connection with the transactions contemplated by this Agreement and the Transaction Documents evidencing that all Company Transaction Expenses that are payable to any of them and are not included in the Payoff Instructions have been paid by the Company in full in cash and stating the amount paid and (ii) shall have submitted to Parent the Payoff Instructions setting forth all amounts that will remain unpaid after the Closing in accordance with Section 6.6.

(i) Resignation of Directors and Officers. Parent shall have received the letters of resignation, effective as of the Effective Time, from each of the directors and officers of the Company.

(j) FIRPTA. The Company shall have delivered to Parent a duly executed and acknowledged certificate, in the form set forth on Exhibit D hereto and in accordance with the Code and Treasury Regulations, certifying such facts as to establish that the Merger and any other transactions contemplated hereby are exempt from withholding pursuant to Section 1445 of the Code.

(k) Waiver. The Company shall have delivered to Parent a duly executed and acknowledged Waiver of Certain Liquidation Rights, in the form set forth on Exhibit E hereto, whereby the applicable Stockholders shall have waived their rights pursuant to certain provisions of the certificate of incorporation of the Company with respect to the payment of the Merger Consideration pursuant to this Agreement.

(1) Assignment of Contracts. The Company and its Stockholders shall take all actions necessary to ensure that all Contracts to which either Polar News Company, LLC or Polar Capital Group, LLC is a party, that are for the benefit of the Company or the operation of its business as currently conducted, are, as of the Closing, in the name of, inure to the benefit of, and are enforceable by, the Company.

(m) Warrant. The Company shall have entered into an agreement with Jay Ackerman pursuant to which the Company and Jay Ackerman shall have agreed that Warrant No. C-l, issued by the Company to Jay Ackerman on November 6, 2008, will be (i) exercised by Jay Ackerman at Closing and the Common Stock that Jay Ackerman receives upon such exercise shall be subject to the terms and conditions of this Agreement, or (ii) repurchased by the Company.

(n) Termination of Contracts. The Contracts set forth on Schedule 7.2(n) attached hereto shall have been terminated.

(o) Invention Assignment. For each Employee that has not executed an Employee Nondisclosure, Noncompetition, Nonsolicitation and Inventions Agreement (“ENNNI”), and for each Employee that has executed an ENNNI that has an effective date that is not on or before the date of the Employee’s commencement of employment with the Company or the Company’s predecessor, as the case may be, the Company shall have provided to Parent an executed ENNNI or a written consent and acknowledgement, as applicable, pursuant to which

 

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the Employee acknowledges, agrees, and confirms that all terms and conditions of the ENNNI are effective as of the Employee’s start of employment with the Company or its predecessor, as the case may be.

(p) Waiver of Certain Equity Rights. John Celock shall have waived his right to receive a grant of 28,643 incentive stock options in connection with his offer letter dated as of April 28, 2009. Lindsay Wilkes-Edrington shall have waived her right to receive a grant of 28,643 incentive stock options in connection with her offer letter dated as of May 1, 2009.

7.3 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 (i) that are qualified or limited by materiality (including the words “material” or “Material Adverse Effect”) shall be true and correct on and as of the Closing Date with the same effect as if made on and as of the Closing Date (other than such representations and warranties that are made as of a specified date, which representations and warranties shall be true and correct as of such date) and (ii) that are not so qualified or limited shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of the Closing Date (other than such representations and warranties that are made as of a specified date, which representations and warranties shall be true and correct in all material respects as of such date). The Company shall have received a certificate to such effect signed by an authorized officer of Parent.

(b) Covenants and Agreements. Parent and Merger Sub shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date. The Company shall have received a certificate to such effect signed by an authorized officer of Parent.

(c) Escrow Agreement. Parent and the Escrow Agent shall have executed and delivered the Escrow Agreement.

ARTICLE VIII

TERMINATION; FEES AND EXPENSES

8.1 Termination. This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time (notwithstanding any approval thereof by the Stockholders):

(a) by mutual written consent of Parent and the Company;

(b) by either Parent or the Company, if the Merger shall not have been consummated on or before June 30, 2009 (the End Date); provided that the termination right under this Section 8.1(b) shall not be available to any party whose willful and material breach of this Agreement has been the cause of, or resulted in, the failure of the Merger to have been consummated on or before the End Date;

 

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(c) by either Parent or the Company, if a Court or Governmental Authority shall have issued an Order or taken any other action that is final and nonappealable and that restrains, enjoins or otherwise prohibits the Merger;

(d) by Parent, if neither Parent nor Merger Sub is in material breach of its obligations under this Agreement, and if (i) at any time any of the representations and warranties of the Company or the Stockholders’ Agent in this Agreement or in any Transaction Document become untrue or inaccurate such that the condition set forth in Section 7.2(a) would not be satisfied (treating such time as if it were the Closing for purposes of this Section 8.1(d)) or (ii) there has been a breach on the part of the Company of any of its covenants or agreements contained in this Agreement or in any Transaction Document such that the condition set forth in Section 7.2(b) would not be satisfied (treating such time as if it were the Closing for purposes of this Section 8.1(d)), and in each case such breach (if curable) has not been cured within thirty (30) days after notice thereof by Parent to the Company;

(e) by the Company, if it is not in material breach of its obligations under this Agreement, and if (i) at any time any of the representations and warranties of Parent or Merger Sub in this Agreement become untrue or inaccurate such that the condition set forth in Section 7.3(a) would not be satisfied (treating such time as if it were the Closing for purposes of this Section 8.1(e)) or (ii) there has been a breach on the part of Parent or Merger Sub of any of their covenants or agreements contained in this Agreement such that the condition set forth in Section 7.3(b) would not be satisfied (treating such time as if it were the Closing for purposes of this Section 8.1(e)), and in each case such breach (if curable) has not been cured within thirty (30) days after notice thereof by the Company to Parent; or

(f) by Parent, if any of the Stockholders that are party to the Consent Agreement shall have breached in any material respect any representation, warranty, covenant or agreement contained therein.

8.2 Effect of Termination. In the event that this Agreement is terminated pursuant to Section 8.1, (a) this Agreement will forthwith become void, (b) there will be no further liability or obligation on the part of any party hereto or any of their respective officers or directors, and (c) all further rights and obligations of any party hereto will cease; provided, however, that (i) this Section 8.2, Sections 5.3(b), 5.3(c), 5.7 and 8.3 and ARTICLE XI shall survive in accordance with their terms and (ii) no such termination will relieve any party from liability for any breach of this Agreement by such party that occurred prior to such termination.

8.3 Fees and Expenses. Except as set forth in Section 5.6(f) and this Section 8.3, all fees and expenses incurred in connection with this Agreement and the Transaction Documents and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated.

ARTICLE IX

SURVIVAL AND INDEMNIFICATION

9.1 Escrow Amount. The Escrow Amount, until disbursed in accordance with the terms of this ARTICLE IX, shall be governed by the terms set forth herein. The Escrow Amount

 

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shall be available to compensate, and serve as security for, the Indemnified Persons with respect to any indemnification obligations of the Stockholders during the Claim Period. The Escrow Amount shall be the sole and exclusive source for satisfying obligations of the Stockholders arising hereunder pursuant to this ARTICLE IX during the Claim Period, subject to the limitations set forth in this Agreement.

9.2 Survival of Representations and Warranties. All representations and warranties made by the Company in this Agreement shall survive the Closing Date and expire on the one (1) year anniversary of the Closing Date (the Survival Period). Notwithstanding anything herein to the contrary, if an indemnification claim in respect of any representation or warranty is made prior to the termination of the Survival Period, then such representation or warranty shall survive as to such indemnification claim until such claim has been finally resolved.

9.3 Indemnification. Subject to the limitations set forth in this ARTICLE IX, from and after the Closing, the Stockholders shall, severally and not jointly solely to the extent of their pro rata interest in the Escrow Amount, indemnify and hold harmless Parent, its Affiliates and their respective officers, directors, agents, representatives, employees, successors and permitted assigns (the Indemnified Persons) from and against any and all amounts, payments, losses, damages, diminution in value, claims, demands, actions or causes of action, liabilities settlements, judgments, costs, fees and expenses (including interest, penalties, attorneys’ fees and expenses and costs of Claims) (collectively, Losses) incurred by them arising out of, resulting from or relating to any of the following matters:

(a) the breach of any representation or warranty of the Company contained in this Agreement or in any Transaction Document or in any certificate delivered by the Company pursuant hereto;

(b) the breach by the Company of its covenants or agreements contained in this Agreement or any Transaction Document if such breach occurs prior to the Closing Date;

(c) any Taxes of the Company relating to a Pre-Closing Tax Period (taking into account Section 5.6(h)); provided that the Stockholders shall not be responsible for, and shall not be required to indemnify with respect to, Taxes to the extent that such Taxes have been taken into account as Company Transaction Expenses pursuant to this Agreement and have thereby reduced the Calculation Amount;

(d) any liability of the Company for Taxes of any other Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), as a transferee (within the meaning of Section 6901 of the Code or any other applicable Law), a successor by operation of law, by contract or otherwise, but only to the extent that such liability described in this clause (d) arises out of the Company’s activities on or before the Closing Date;

(e) any Company Transaction Expenses that remain unpaid following the Closing that did not result in a reduction of the Calculation Amount pursuant to Section 1.1(e); or

 

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(f) an amount equal to (i) the excess, if any, of (A) any amounts Parent, Merger Sub, the Company or the Surviving Corporation are required by a Court of competent jurisdiction to pay, or which such Persons pay in settlement, in respect of any demands made by any Stockholder in accordance with Section 262 of the DGCL over (B) the amount of the Merger Consideration payable hereunder to which any such Stockholder would have been entitled in the Merger had such Stockholder not made such demands in accordance with Section 262 of the DGCL, plus (ii) all reasonable out-of-pocket expenses (including reasonable attorneys fees) incurred in connection with any proceeding instituted by such Stockholder.

9.4 Calculation of Losses.

(a) The Indemnified Persons shall not be entitled to indemnification pursuant to Section 9.3(a) and 9.3(b) for any Losses until the aggregate amount of all Losses incurred by the Indemnified Persons exceeds $70,000 (the Threshold), in which case the Indemnified Persons shall be entitled to indemnification for Losses in excess of the Threshold.

(b) Notwithstanding anything herein to the contrary, except as set forth in Section 9.11, in no event shall the aggregate liability for indemnification pursuant to Section 9.3 exceed $700,000.

(c) For the avoidance of doubt, the limitations in Section 9.4(a) shall not apply to any claims for indemnification made by the Indemnified Persons under Sections 9.3(c), 9.3(d), 9.3(e) or 9.3(f). In addition, none of the provisions contained in this Section 9.4 or in this ARTICLE IX shall limit the liability of the Stockholders, whether arising out of this Agreement, for any breach by the Company of its representations, warranties, covenants and agreements if the Closing does not occur, which provisions in this Section 9.4 and this ARTICLE IX shall apply from and after the Closing only.

9.5 Distribution After the Expiration of the Claim Period.

(a) Promptly following the expiration of the claim Period, the Escrow Agent shall as soon as practicable distribute all amounts remaining in the Escrow Amount to the Stockholders based on their Sharing Percentage, after taking into account any requirement for withholding Taxes, less, subject to Sections 9.7 and 9.8, amounts (such amounts, the Retained Escrow Amount) that would be necessary to satisfy any then pending and unsatisfied or unresolved claims, for which Escrow Agent may hold back amounts in the Escrow Amount sufficient to satisfy any such claim (as determined in Escrow Agent’s good faith reasonable discretion) specified in any Claim Notice delivered to the Stockholders’ Agent prior to the termination of the Claim Period, subject to the limitations in Section 9.6.

(b) The Retained Escrow Amount shall be retained by Escrow Agent until the Claims related thereto have been resolved. Subject to the provisions of Section 2.9(b), as soon as all such claims have been resolved and related amounts, if any, paid out of the Escrow Amount, Escrow Agent shall as soon as practicable distribute any remaining Retained Escrow Amount no required to satisfy such claims to the Stockholders based on their Sharing Percentage.

9.6 Indemnification Procedures. Subject to Sections 9.7 and 9.8, if Parent delivers to the Stockholders’ Agent and the Escrow Agent on or before the thirtieth (30th) day following

 

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the date that is one year following the Closing Date (the Claim Period) a notice signed by Parent (a Claim Notice), stating that an indemnification claim or claims is or are being made (describing the basis for the claim and the claimed Losses with reasonable specificity), subject to any applicable limitations in Section 9.4, then, subject to the provisions of Sections 9.7 and 9.8, Escrow Agent shall forward to Parent an amount equal to the Losses claimed in the Claim Notice.

9.7 Objections to Claims.

(a) For a period of thirty (30) calendar days after delivery of the Claim Notice to the Stockholders’ Agent and the Escrow Agent (the Claim Notice Waiting Period), Escrow Agent shall make no payment pursuant to Section 9.6, unless the Stockholders’ Agent shall have provided express written authorization to make such payment. After the expiration of the Claim Notice Waiting Period, Escrow Agent shall make a payment in accordance with Section 9.6 as soon as practicable unless the Stockholders’ Agent shall have objected in a written statement delivered to Parent and the Escrow Agent prior to the expiration of the Claim Notice Waiting Period (describing the basis for any objection with reasonable specificity under the circumstances) to the claim made in the Claim Notice. Escrow Agent shall retain the disputed amounts, and in no event shall any amounts be released from the Escrow Amount, with respect to an item in dispute until such dispute has been finally resolved pursuant to Section 9.11.

(b) Upon the expiration of the Claim Period, if Escrow Agent has retained any Retained Escrow Amount, then Parent and Escrow Agent shall notify the Stockholders’ Agent of such retention by Escrow Agent. The Stockholders’ Agent shall have thirty (30) calendar days from receipt of such notice from Parent to object to Parent’s determination of such amount by delivery of a written statement (describing the basis for any objection with reasonable specificity under the circumstances), unless already objected to pursuant to Section 9.7(a). During such period, Escrow Agent shall retain the Retained Escrow Amount unless Escrow Agent shall have received written authorization from the Stockholder’s Agent to release such amounts. If the Stockholders’ Agent shall have objected to the Retained Escrow Amount in accordance with this Section 9.7(b) or Section 9.7(a), then the dispute shall be governed by the provisions of Section 9.8. If Stockholders’ Agent shall not have objected to the Retained Escrow Amount pursuant to this Section 9.7(b) or Section 9.7(a), then Stockholders’ Agent shall have waived any objection to the Retained Escrow Amount, and such amount shall thereafter be paid to Parent as the Retained Escrow Amount pursuant to Section 9.5. Until any dispute regarding the amount of the Retained Escrow Amount is resolved, Escrow Agent shall retain the full amount of the Retained Escrow Amount.

9.8 Resolution of Conflicts.

(a) If the Stockholders’ Agent shall object in writing to any claim or claims made in any Claim Notice or the amount of any Retained Escrow Amount, pursuant to Section 9.7, then the Stockholders’ Agent and Parent shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such disputes.

(b) If the Stockholders’ Agent and Parent should so agree within such thirty (30) day period, the Escrow Agent shall be entitled to rely on any such agreement and shall pay

 

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or retain, as applicable, the amount so agreed upon. If no such agreement can be reached after good faith negotiation during such thirty (30) day period, then Parent or Stockholders’ Agent may institute dispute resolution proceedings in accordance with Section 11.12 to resolve any such dispute. Each of Parent and the Stockholders’ Agent shall in all instances seek to resolve such disputes in as expeditious a manner as practicable.

9.9 Third-Party Claims.

(a) In the case of any claim for indemnification hereunder arising out of a claim, action, suit or proceeding brought or threatened to be brought by any third party, other than a claim for indemnification pursuant to Sections 9.3(c), 9.3(d) or 9.3(f) (a “Third-Party Claim”), Parent shall, in addition and at the same time of the delivery of a Claim Notice, give the Stockholders’ Agent copies of any written claims, process or legal pleadings with respect to such Third-Party Claim promptly after such documents are received by Parent.

(b) Except as otherwise provided in this Section 9.9(b), Parent shall be entitled to control the defense of any Third-Party Claim; provided, however, that the Stockholders’ Agent may elect, at the Stockholders’ Agent’s own cost and expense, to participate in any Third-Party Claim. If the Stockholders’ Agent elects to participate in the defense of a Third-Party Claim, the Stockholders’ Agent shall, within thirty (30) days of its receipt of the notice provided pursuant to Section 9.9(a) (or sooner, if the nature of such Third-Party Claim so requires), notify the Indemnified Person of its intent to do so. The Stockholders’ Agent and each Indemnified Person shall reasonably cooperate in the compromise of, or defense against, such Third-Party Claim. The Indemnified Person shall not consent to entry of any judgment or enter into any settlement of a Third-Party Claim without the prior written consent of Stockholders’ Agent, which consent shall not be unreasonably withheld. If Parent elects not to compromise or defend against a Third-Party Claim, Stockholders’ Agent shall control the defense of such Third-Party Claim. Stockholders’ Agent shall not consent to entry of any judgment or enter into any settlement of any such Third-Party Claim without the prior written consent of Parent (which consent shall not be unreasonably withheld), unless such judgment or settlement provides solely for money damages or other money payments for which each Indemnified Person is entitled to indemnification hereunder and includes as an unconditional term thereof the giving by the claimant or plaintiff to each such Indemnified Person of a release from all liability in respect of such Third-Party Claim.

(c) The Indemnified Persons’ costs and expenses incurred in connection with the defense of Third-Party Claims may constitute Losses incurred or suffered by Parent.

9.10 Mitigation. No payments under this ARTICLE IX shall be made for any Losses that are recovered by Indemnified Persons from any third party (including insurers). To the extent the Indemnified Persons receive any payment pursuant to any insurance policies as to a claim with respect to which it has previously received payment in accordance with this ARTICLE IX, then in such event the Indemnified Persons shall promptly reimburse such payment for the full amount previously received.

9.11 Non-Exclusive Remedy for Fraud or Willful Misconduct. Notwithstanding anything to the contrary in this ARTICLE IX for claims based on fraud or willful misconduct by

 

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the Company, the sole remedy of Indemnified Persons shall be against the recipient of Series A-l Merger Consideration in an amount not to exceed the Series A-1 Merger Consideration. For the avoidance of doubt, remedies for such claims may be sought without regard to the cap set forth in Section 9.4(b) or the expiration of any survival period set forth in Section 9.2, subject to applicable Law.

9.12 Adjustment to Purchase Price. The parties agree that any indemnification payments made pursuant to this Agreement shall be treated for tax purposes as an adjustment to the Merger Consideration, unless otherwise required by applicable Law.

9.13 Enforcement. The provisions of this ARTICLE IX are intended for the benefit of, and shall be enforceable by, each of the Indemnified Persons and their respective successors and permitted assigns.

ARTICLE X

THE STOCKHOLDERS’ AGENT

10.1 The Stockholders’ Agent.

(a) Appointment. Effective upon the Stockholder Approval and without any further action by the Stockholders, the Company and the Stockholders hereby appoint Jon Brod as agent and attorney-in-fact (the Stockholders’ Agent) for and on behalf of the Stockholders. The Stockholders’ Agent shall have full power and authority to represent all of the Stockholders and their successors with respect to all matters arising under this Agreement and the Escrow Agreement, and all actions taken by the Stockholders’ Agent hereunder and thereunder shall be binding upon all such Stockholders as if expressly confirmed and ratified in writing by each of them, and no Stockholders shall have the right to object, dissent, protest or otherwise contest the same. The Stockholders’ Agent shall take any and all actions that he believes are necessary or appropriate under this Agreement and the Escrow Agreement for and on behalf of the Stockholders as if the Stockholders were acting on their own behalf, including executing the Escrow Agreement as Stockholders’ Agent, giving and receiving any notice or instruction permitted or required under this Agreement or the Escrow Agreement by the Stockholders’ Agent or any Stockholders, interpreting all of the terms and provisions of this Agreement and the Escrow Agreement, authorizing payments to be made with respect hereto or thereto, defending all indemnity claims against the Stockholders pursuant to Section 9.3 of this Agreement (an Indemnity Claim), consenting to, compromising or settling all Indemnity Claims, conducting negotiations with Parent and its agents regarding such claims, dealing with Parent and the Escrow Agent under this Agreement and the Escrow Agreement with respect to all matters arising under this Agreement and the Escrow Agreement, taking any and all other actions specified in or contemplated by this Agreement and the Escrow Agreement and engaging counsel, accountants or other agents in connection with the foregoing matters. Without limiting the generality of the foregoing, the Stockholders’ Agent shall have full power and authority to interpret all the terms and provisions of this Agreement and the Escrow Agreement and to consent to any amendment hereof or thereof on behalf of all of the Stockholders.

(b) Authorization. By their approval and adoption of this Agreement, the Stockholders hereby authorize the Stockholders’ Agent, on the Stockholders’ behalf, to:

 

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(i) receive all notices or documents given or to be given to any of the Stockholders by Parent pursuant hereto or to the Escrow Agreement or in connection herewith or therewith and to receive and accept service of legal process in connection with any suit or proceeding arising under this Agreement or the Escrow Agreement; (ii) deliver to Parent at the Closing all certificates and documents to be delivered to Parent by any of the Stockholders pursuant to this Agreement, together with any other certificates and documents executed by any of the Stockholders and deposited with the Stockholders’ Agent for such purpose; (iii) engage counsel, and such accountants and other advisors for any of the Stockholders and incur such other expenses on behalf of any of the Stockholders in connection with this Agreement or the Escrow Agreement and the transactions contemplated hereby or thereby as the Stockholders’ Agent may in his sole discretion deem appropriate; and (iv) take such action on behalf of any of the Stockholders as the Stockholders’ Agent may in his sole discretion deem appropriate in respect of (A) taking such other action as the Stockholders’ Agent or any of the Stockholders is authorized to take under this Agreement or the Escrow Agreement, (B) receiving all documents or certificates and making all determinations, on behalf of any of the Stockholders, required under this Agreement or the Escrow Agreement, (C) all such other matters as the Stockholders’ Agent may in his sole discretion deem necessary or appropriate to consummate this Agreement or the Escrow Agreement and the transactions contemplated hereby and thereby and (D) all such action as may be necessary after the Closing Date to carry out any of the transactions contemplated by this Agreement and the Escrow Agreement, including, without limitation, the defense and/or settlement of any claims for which indemnification is sought pursuant to ARTICLE IX and any waiver of any obligation of Parent, Merger Sub or the Surviving Corporation. All actions, decisions and instructions of the Stockholders’ Agent shall be conclusive and binding upon all of the Stockholders, and no Stockholder shall have any claim or cause of action against the Stockholders’ Agent, and the Stockholders’ Agent shall have no liability to any Stockholder, for any action taken, decision made or instruction given by the Stockholders’ Agent in connection with this Agreement or the Escrow Agreement, except in the case of the Stockholders’ Agent’s gross negligence or willful misconduct. The Stockholders’ Agent may, in all questions arising under this Agreement, rely on the advice of counsel, and for anything done, omitted or suffered in good faith by the Stockholders’ Agent in accordance with such advice, the Stockholders’ Agent shall not be liable to the Stockholders or the Escrow Agreement.

(c) Indemnification of Stockholders’ Agent; Compensation. The Stockholders’ Agent shall be indemnified for and shall be held harmless by the Stockholders (but not out of the Escrow Fund) against any loss, liability or expense incurred by the Stockholders’ Agent relating to the Stockholders’ Agent’s conduct in his capacity as Stockholders’ Agent, other than such losses, liabilities or expenses resulting from the Stockholders’ Agent’s gross negligence or willful misconduct in connection with his performance under this Agreement and the Escrow Agreement. The indemnification under this Section 10.1(c) shall survive the termination of this Agreement. The costs of such indemnification (including the costs and expenses of enforcing this right of indemnification) shall be the responsibility of the Stockholders (but not out of the Escrow fund) based on their Sharing Percentage, and Parent shall have no liability therefor. The Stockholders’ Agent shall not receive any compensation for his services hereunder, other than reimbursement by the Stockholders, based on their Sharing Percentage, of out-of-pocket expenses incurred in the performance of the Stockholders’ Agent’s duties.

 

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(d) Access to Information. Subject to any attorney-client or similar legal privileges, Parent shall provide the Stockholders’ Agent reasonable access, subject to appropriate confidentiality restrictions, to information relating to any Indemnity Claim that is in the possession or control of Parent, and Parent shall make available the reasonable assistance of the Surviving Corporation’s officers and employees for purposes of performing the Stockholders’ Agent’s duties under this Agreement or the Escrow Agreement, including for the purpose of evaluating any Indemnity Claim; provided that the Stockholders’ Agent shall treat confidentially and shall not disclose any nonpublic information from or concerning any Indemnity Claim to any Person (other than, on a need-to-know basis, to (i) the Stockholders’ Agent’s attorneys, accountants or other advisers, (ii) the Stockholders and (iii) any arbitrators appointed to resolve disputes pursuant to this Agreement).

(e) Reasonable Reliance. In the performance of his duties hereunder, the Stockholders’ Agent shall be entitled to rely upon any document or instrument reasonably believed by him to be genuine, accurate as to content and signed by any Stockholder or Parent. The Stockholders’ Agent may assume that any person purporting to give any notice in accordance with the provisions hereof has been duly authorized to do so.

(f) Attornev-in-Fact. The Stockholders’ Agent is hereby appointed and constituted the true and lawful attorney-in-fact of each Stockholder, with full power in his, her or its name and on his, her or its behalf to act according to the terms of this Agreement and the Escrow Agreement in the absolute discretion of the Stockholders’ Agent and in general to do all things and to perform all acts, including executing and delivering the Escrow Agreement and any other agreements, certificates, receipts, instructions, notices or instruments contemplated by or deemed advisable in connection with this Agreement or the Escrow Agreement. Except as otherwise set forth in this Agreement, this power of attorney and all authority hereby conferred is granted and shall be irrevocable and shall not be terminated by any act of any Stockholder, by operation of law (whether by such Stockholder’s death, disability protective supervision) or any other event. Without limitation to the foregoing, this power of attorney is to ensure the performance of a special obligation, and, accordingly, each Stockholder hereby renounces its, his or her right to renounce this power of attorney unilaterally before the complete distribution of the Escrow Fund. Each Stockholder hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the Stockholders’ Agent taken in good faith under this Agreement or the Escrow Agreement. Notwithstanding the power of attorney granted in this Section 10.1(f), no agreement, instrument, acknowledgement or other act or document shall be ineffective by reason only of the Stockholders having signed or given such directly instead of the Stockholders’ Agent.

(g) Liability. If the Stockholders’ Agent is required by the terms of this Agreement or of the Escrow Agreement to determine the occurrence of any event or contingency, the Stockholders’ Agent shall, in making such determination, be liable to the Stockholders only for the Stockholders’ Agent’s proven gross negligence or willful misconduct as determined in light of all the circumstances, including the time and facilities available to the Stockholders’ Agent in the ordinary course of business consistent with past practice. In determining the occurrence of any such event or contingency, the Stockholders’ Agent may request from any of the Stockholders such reasonable additional evidence as the Stockholders’ Agent in his sole discretion may deem necessary to determine any fact relating to the occurrence

 

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of such event or contingency and may at any time inquire of and consult with others, including any of the Stockholders. The Stockholders’ Agent shall not be liable to any Stockholders for any damages resulting from the delay of the Stockholders’ Agent in acting hereunder pending receipt by and examination of evidence requested by the Stockholders’ Agent.

(h) Orders. The Stockholders’ Agent is authorized, in his sole discretion, to comply with final, nonappealable orders or decisions issued or process entered by any court of competent jurisdiction or arbitrator with respect to the Escrow Fund. If any portion of the Escrow Fund is disbursed to the Stockholders’ Agent and is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property or any part thereof, then the Stockholders’ Agent is authorized, in his sole discretion, but in good faith, to rely upon and comply with any such order, writ, judgment or decree of which the Stockholders’ Agent is advised by legal counsel selected by such Stockholders’ Agent is binding upon the Stockholders’ Agent without the need for appeal or other action. If the Stockholders’ Agent complies with any such order, writ, judgment or decree, the Stockholders’ Agent shall not be liable to any Stockholder by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.

(i) Removal of Stockholders’ Agent; Authority of Successor Stockholders’ Agent. Those Stockholders that in the aggregate hold at least a majority of the remaining portion of the Escrow Fund (determined using each Stockholder’s Sharing Percentage) shall have the right at any time during the term of the Escrow Agreement to remove the then-acting Stockholders’ Agent and to appoint a successor Stockholders’ Agent; provided, however, that neither such removal of the then acting Stockholders’ Agent nor such appointment of a successor Stockholders’ Agent shall be effective until the delivery to the Escrow Agent of executed counterparts of a writing signed by each such Stockholder with respect to such removal and appointment, together with an acknowledgment signed by the successor Stockholders’ Agent appointed in such writing that he or she accepts the responsibility of successor Stockholders’ Agent and agrees to perform and be bound by all of the provisions of this Agreement applicable to the Stockholders’ Agent. Each successor Stockholders’ Agent shall have all of the power, authority, rights and privileges conferred by this Agreement upon the original Stockholders’ Agent, and the term “Stockholders’ Agent” as used herein and in the Escrow Agreement, shall be deemed to include any interim or successor Stockholders’ Agent.

(j) Actions of Stockholders’ Agent. Any action taken by the Stockholders’ Agent pursuant to the authority granted in this Section 10.1 shall be effective and absolutely binding on each Stockholder notwithstanding any contrary action of, or direction from, any Stockholder.

(k) Reliance. Each of Parent, the Surviving Corporation, the Paying Agent, and their Affiliates shall not be obligated to inquire into the authority of the Stockholders’ Agent, and each of them shall be fully protected in dealing with the Stockholders’ Agent hereunder.

(1) Binding Appointment. The provisions of this Agreement, including this ARTICLE X, shall be binding upon each Stockholder and the executors, heirs, legal

 

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representatives and successors of each Stockholder, and any references in this Agreement to a Stockholder shall mean and include the successors to the Stockholders’ rights hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise.

ARTICLE XI

MISCELLANEOUS

11.1 Amendment. This Agreement may not be amended other than in an instrument in writing signed by all of the parties hereto, except as provided in Section 251(d) of the DGCL (in which event the Stockholders’ Agent may consent to any such amendment on behalf of the Stockholders).

11.2 Waiver. 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 only if set forth in an instrument in writing signed by the party or parties to be bound thereby.

11.3 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by nationally recognized overnight courier or by registered or certified mail (postage prepaid, return receipt requested) or by facsimile or email (if applicable) as follows:

(a) If to Parent, Merger Sub or the Surviving Corporation:

AOL LLC

22000 AOL Way

Dulles, Virginia 20166

Facsimile: (703) 466-9093

Attention: Deputy General Counsel

with copies to each of:

AOL LLC

22000 AOL Way

Dulles, Virginia 20166

Facsimile: (703) 265-4250

Attention: Executive Vice President and Chief Financial Officer

and

Arnold & Porter LLP

1600 Tysons Boulevard

Suite 900

McLean, Virginia 22102

 

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Facsimile: (703) 720-7399

Email: Paul_Freshour@aporter.com

Attention: Paul D. Freshour

(b) If to the Company prior to the Effective Time:

Patch Media Corporation

584 Broadway Suite 1206

New York, NY 10012

Email: jon@patch.com

Attention: Jon Brod

with a copy to:

Burns & Levinson LLP

125 Summer Street

Boston, MA

Facsimile: 617 345-3299

Email: sbrook@burnslev.com

Attention: Stephen D. Brook

(c) If to the Stockholders’ Agent:

Jon Brod

c/o Patch Media Corporation

584 Broadway Suite 1206 New York, NY 10012

Email: jon@patch.com

Attention: Jon Brod

with a copy to:

Burns & Levinson LLP

125 Summer Street

Boston, MA

Facsimile: 617 345-3299

Email: sbrook@burnslev.com

Attention: Stephen D. Brook

or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing in accordance with this Section 11.3. All such notices or communications shall be deemed to be received (i) in the case of personal delivery, nationally recognized overnight courier or registered or certified mail, on the date of such delivery and (ii) in the case of facsimile or email, upon confirmed receipt.

11.4 Company Disclosure Schedule. The Company Disclosure Schedule shall identify exceptions and other matters with respect to the representations, warranties, covenants and agreements of the Company herein and be arranged in certain specific sections and

 

61


subsections corresponding to the sections and subsections of this Agreement. The disclosure of any exception or other matter in any Section or subsection of ARTICLE III shall only be deemed to qualify any other Section or subsection of ARTICLE III to the extent that its relevance thereto is readily apparent; provided, however, that no exceptions or other matters in the Company Disclosure Schedule shall be deemed to qualify Section 3.10(a) (Absence of Certain Changes or Events).

11.5 Interpretation. When a reference is made in this Agreement to Sections, subsections or exhibits, such reference shall be to a Section, subsection, 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. Except as otherwise specifically provided herein, the word “material,” when used in reference to any party’s representations, warranties, covenants or agreements, shall mean material in relation to such party. 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. If a document or material has been “made available” to Parent, such phrase means that such document or material has been made available to Parent prior to the date hereof in the online data room maintained on behalf of the Company.

11.6 Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms and provisions of this Agreement shall 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 the parties. Upon such determination that any term or provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to amend or otherwise modify this Agreement so as to effect the original intent of the parties as closely as possible in an mutually acceptable manner such that that transactions contemplated hereby are fulfilled to the extent possible.

11.7 Entire Agreement. Except for the Confidentiality Agreement, this Agreement and the Transaction Documents (including all exhibits and schedules hereto and thereto) and other documents and instruments delivered in connection herewith constitute the entire agreement and supersede all prior representations, agreements, understandings and undertakings, whether written and oral, among the parties, or any of them, with respect to the subject matter hereof and thereof, and no party is relying on any other prior oral or written representations, agreements, understandings or undertakings with respect to the subject matter hereof and thereof.

11.8 Assignment. This Agreement and the rights and obligations hereunder may not be assigned without the prior written consent of each of the parties hereto; provided, however, that Parent and Merger Sub may assign this Agreement or all or any of their rights or obligations hereunder to one or more of their Affiliates without the consent of any other party. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

 

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11.9 No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto (except for the Indemnified Persons to the extent set forth in ARTICLE IX) any right, benefit or remedy under or by reason of this Agreement.

11.10 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, covenant or agreement herein, nor will any single or partial exercise of any such right preclude any 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 or exclusive of, any rights or remedies otherwise available to a party hereunder.

11.11 Governing Law. This Agreement shall be governed by, and construed in accordance with, the Law of the State of New York, except to the extent that the Laws of the State of Delaware mandatorily apply to the Merger.

11.12 Dispute Resolution. The parties hereto intend that all disputes between or among them arising out of this Agreement shall be settled amicably through good faith discussions upon the written request of any party. In the event that any such dispute cannot be resolved thereby within a period of sixty (60) days after such notice has been given, such dispute shall be finally settled by binding arbitration at the request of any party hereto. Each arbitration hereunder shall be conducted in New York, New York in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association, as such Rules may be in effect at the time of the referral of the dispute to arbitration, except to the extent that such rules are inconsistent with the provisions of this Agreement. However, in all events, these arbitration provisions shall govern over any conflicting rules which may now or hereafter be contained in the Rules. Each party hereto may demand arbitration by filing a written demand with any other party or parties hereto within one hundred eighty (180) days after the expiration of the first sixty (60) day period. Each party to such arbitration shall select one (1) arbitrator and the two (2) arbitrators selected by the parties to such arbitration shall jointly select a third arbitrator, which arbitrators shall conduct the arbitration of such dispute. Judgment upon an award rendered in an arbitration hereunder may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. The arbitrators shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding intended to resolve a dispute.

11.13 Counterparts. This Agreement may be executed in one or more counterparts, which when taken together shall constitute one and the same agreement.

(Remainder of this page intentionally left blank)

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

PARENT:
AOL LLC
By:   /s/ Nisha Kumar
  Name: NISHA KUMAR
  Title: EVP & CFO

 

MERGER SUB:
PUMPKIN MERGER CORPORATION
By:    
  Name:
  Title:

 

THE COMPANY:
PATCH MEDIA CORPORATION
By:    
  Name: Jon Brod
  Title: President and Chief Executive Officer

 

THE STOCKHOLDERS’ AGENT:
By:    
  Name: Jon Brod

[Signature Page to Merger Agreement]


IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

PARENT:
AOL LLC
By:    
  Name:
  Title:

 

MERGER SUB:
PUMPKIN MERGER CORPORATION
By:   /s/ Theodore R. Cahall, Jr.
  Name: Theodore R. Cahall, Jr.
  Title: President

 

THE COMPANY:
PATCH MEDIA CORPORATION
By:    
  Name: Jon Brod
  Title: President and Chief Executive Officer

 

THE STOCKHOLDERS’ AGENT:
By:    
  Name: Jon Brod

[Signature Page to Merger Agreement]


IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

PARENT:
AOL LLC
By:    
  Name:
  Title:

 

MERGER SUB:
PUMPKIN MERGER CORPORATION
By:    
  Name:
  Title:

 

THE COMPANY:
PATCH MEDIA CORPORATION
By:   /s/ Jon Brod
  Name: Jon Brod
  Title: President and Chief Executive Officer

 

THE STOCK HOLDERS’ AGENT:
By:   /s/ Jon Brod
  Name: Jon Brod

[Signature Page to Merger Agreement]


EXHIBIT A

FORM OF

CONSENT AGREEMENT

This CONSENT AGREEMENT, dated as of May                  , 2009 (this Agreement), is by and among AOL LLC, a Delaware limited liability company (Parent), Polar News Company, LLC (the Consenting Stockholder) and PATCH MEDIA CORPORATION, a Delaware corporation (the Company).

WHEREAS, concurrently with the execution of this Agreement, Parent, Pumpkin Merger Corporation (Merger Sub), Company and Jon Brod, in his capacity as Stockholders’ Agent (the Stockholders’ Agent) are entering into an Agreement and Plan of Merger (as such agreement may be amended from time to time and whether or not such agreement has been terminated, the Merger Agreement) pursuant to which, among other things, Merger Sub will merge with and into the Company (the Merger);

WHEREAS, the Consenting Stockholder owns beneficially and of record at least 89% (on a fully diluted basis) of the shares of Company Capital Stock (the Shares); and

WHEREAS, as a condition to the willingness of, and as an inducement to, Parent and Merger Sub to enter into the Merger Agreement, the Consenting Stockholder has agreed to enter into this Agreement pursuant to which, among other things, the Consenting Stockholder has agreed to execute and deliver, in accordance with the requirements of the DGCL, a written consent to, and to vote all Shares owned by it in favor of, the approval of this Agreement, the Merger and the other transactions contemplated hereby.

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 hereby agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

1.1 Capitalized Terms. Capitalized terms used in this Agreement and not defined herein have the meanings ascribed to them in the Merger Agreement.

ARTICLE II

CONSENT, VOTING MATTERS AND PROXY

2.1 Written Consent.

(a) Effective immediately following the execution and delivery of the Merger Agreement by the parties thereto and with respect to all Shares as to which the Consenting Stockholder has, directly or indirectly, the right to vote or direct the voting, the Consenting Stockholder, by its execution hereof and in accordance with the DGCL (including Section 228

 

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thereof), hereby consents to, approves of and adopts, the Merger Agreement, the Merger and the other transactions contemplated thereby.

(b) In furtherance of the foregoing, the Consenting Stockholder shall execute and deliver to the Company (with a copy thereof to Parent), immediately following the execution of this Agreement, an Action by Written Consent of the Consenting Stockholder in the form attached hereto as Exhibit A.

2.2 Agreement to Vote.

(a) From the date hereof until the earlier to occur of (x) the Effective Time and (y) the termination of the Merger Agreement in accordance with its terms (such earlier event, the Termination Event), the Consenting Stockholder shall, from time to time, at the request of Parent, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of all or any class of the Stockholders, however called, or in connection with any written consent of the Stockholders, (I) waive the invalidity or absence of notice of any such meeting, (II) appear at such meeting or otherwise cause the Consenting Stockholder’s Shares to be counted as present thereat for purposes of establishing a quorum and (III) if and to the extent the following matters are put to a vote of the Stockholders, vote or consent (or cause to be voted or consented), in person or by proxy as provided in Section 2.3 (and including by Section 2.1), all the Consenting Stockholder’s Shares as to which the Consenting Stockholder has, directly or indirectly, the right to vote or direct the voting:

(i) in favor of the adoption and approval of the Merger Agreement, the terms thereof, the Merger, the other transactions contemplated thereby and any actions required in furtherance thereof and hereof (including any amendment to the Merger Agreement approved by Parent, Merger Sub, the Company and the Stockholders’ Agent), and in favor of any adjournment of any meeting of the Stockholders for the purpose of soliciting additional votes in favor of any of the foregoing;

(ii) against any action or agreement that would be reasonably likely to impede, interfere with or discourage the transactions contemplated by the Merger Agreement or this Agreement or that would be reasonably likely to result in a material breach of any representation, warranty, covenant or agreement of the Company under the Merger Agreement; and

(iii) except as required under the Merger Agreement, against any of the following actions: (1) any extraordinary corporate transaction, including any merger, consolidation or other business combination involving the Company (other than the Merger); (2) a sale, lease or transfer of a material amount of assets of the Company or a reorganization, recapitalization, dissolution or liquidation of the Company; (3) the election of any director of the Company that is not approved in advance by Parent; (4) any change in the present capitalization of the Company; (5) any amendment of the Company Charter or the Company’s bylaws; (6) any other material change in the Company’s corporate structure or change in any manner of the voting rights of the Company Capital Stock; (7) the creation of

 

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any Subsidiaries or any of the foregoing actions referenced in items (1) through (6) in respect of such Subsidiary; or (8) any proposal, whether precatory or otherwise, in favor of any of the foregoing actions.

(b) From the date hereof until the occurrence of a Termination Event, the Consenting Stockholder shall not (i) enter into any Contract or understanding with any Person to vote or give voting instructions in a manner inconsistent with this Agreement (including this Section 2.2) or (ii) grant any proxy or power of attorney for another Person (other than Parent pursuant to Section 2.3) to (A) vote, (B) execute any consent with respect to, (C) deposit into a voting trust or (D) enter into any other Contract or understanding to vote, any shares of Company Capital Stock in any manner.

2.3 Irrevocable Proxy.

(a) From the date hereof until the occurrence of a Termination Event, the Consenting Stockholder hereby irrevocably grants to and appoints, and agrees from time to time to grant to and appoint, Parent, and any individual designated in writing by it, as the Consenting Stockholder’s proxy, agent and attoney-in-fact (with full power of substitution) for and in the name, place and stead of the Consenting Stockholder to (i) vote (or cause to be voted) the Shares as to which the Consenting Stockholder has, directly or indirectly, the right to vote or direct the voting or (ii) grant a consent or approval in respect of the Shares as to which the Consenting Stockholder has, directly or indirectly, the right to vote or direct the voting, in each case, on the matters covered by Section 2.2 and in a manner consistent with Section 2.2.

(b) The Consenting Stockholder understands and acknowledges that Parent and Merger Sub are entering into the Merger Agreement in reliance upon the Consenting Stockholder’s execution and delivery of this Agreement. The Consenting Stockholder hereby affirms that (i) the proxy set forth in this Section 2.3 is given in connection with the execution of this Agreement and that such proxy is given to secure the performance by the Consenting Stockholder of its obligations under this Agreement and (ii) the proxy set forth in this Section 2.3 is coupled with an interest and may not under any circumstances be revoked or terminated prior to the occurrence of a Termination Event. Such proxy is executed and intended to be irrevocable in accordance with the provisions of applicable Law. The Consenting Stockholder hereby ratifies and confirms any action that the holder of such proxy may lawfully do or cause to be done by virtue hereof. The Consenting Stockholder also agrees to take such further action or execute such other instruments as may be necessary to effectuate the intent of such proxy and hereby revokes any proxy previously granted by it with respect to its Shares that would be inconsistent with the proxy granted pursuant to this Section 2.3.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE CONSENTING STOCKHOLDER

The Consenting Stockholder hereby represents and warrants to Parent as follows:

3.1 Authority; Enforceability. To the extent applicable, the Consenting Stockholder is duly organized, validly existing and in good standing under the Law of its jurisdiction of organization. The Consenting Stockholder has all necessary power and authority

 

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to execute and deliver this Agreement and each instrument required to be executed and delivered by it and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery by the Consenting Stockholder of this Agreement and each instrument required to be executed and delivered by it, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby, to the extent applicable, have been duly and validly approved by all necessary corporate or similar action. Each of this Agreement and each instrument required to be executed and delivered by the Consenting Stockholder has been duly and validly executed and delivered by the Consenting Stockholder and, assuming the due authorization, execution and delivery thereof by Parent, constitutes a legal, valid and binding obligation of the Consenting Stockholder, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).

3.2 No Conflict. The execution and delivery by the Consenting Stockholder of this Agreement or any instrument required to be executed and delivered by it do not, and the performance of its obligations hereunder and the consummation of the transactions contemplated hereby shall not, (a) conflict with or violate the Consenting Stockholder’s organizational documents (if applicable), (b) conflict with or violate any Law or Order applicable to it or by which any of its properties, rights or assets is bound or affected, (c) result in any breach or violation of, or constitute a default (or an event that with or without notice or lapse of time or both would become a default) under, or impair its rights or alter the rights or obligations of any party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of its properties, rights or assets pursuant to, any bond, indenture, Contract, permit, franchise or other instrument or obligation to which it is a party or by which its properties, rights or assets is bound or affected or (d) require it to obtain any Approval of any Person or Governmental Authority, observe any waiting period imposed by, or make any filing with or notification to, any Person or Governmental Authority.

3.3 Absence of Litigation, Claims and Orders. To the knowledge of the Consenting Stockholder, there is no Claim pending or threatened on behalf of or against the Consenting Stockholder that questions or challenges (i) the validity of this Agreement or (ii) any action taken or to be taken by it pursuant to this Agreement or in connection with the transactions contemplated hereby.

3.4 Ownership of Shares. The Consenting Stockholder is the record and beneficial owner of the number of shares of Company Capital Stock set forth opposite its name on the signature pages hereto, which shares of Company Capital Stock are, as of the Closing, free and clear of all Liens. Such shares of Company Capital Stock constitute all of the Shares owned of record or beneficially by the Consenting Stockholder or with respect to which the Consenting Stockholder has the power to vote or direct the vote. The Consenting Stockholder has sole voting power and sole power to agree to all of the matters set forth in this Agreement with respect to the Shares, with no restrictions on the Consenting Stockholder’s voting power pertaining thereto.

 

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3.5 No Reliance. The Consenting Stockholder acknowledges that it has conducted such investigation, if any, with respect to the Merger, the adequacy of the Merger Consideration and the terms of this Agreement and the Merger Agreement as the Consenting Stockholder believes appropriate or desirable. The decision of the Consenting Stockholder to consent to the Merger and to enter into this Agreement has been made by the Consenting Stockholder independently of any other Company stockholder and independently of any information, materials, statements or opinions as to the terms and conditions of this Agreement or the Merger Agreement that may have been made or given by the Company, any other Company stockholder, Parent, Merger Sub or any representative or Affiliate of them. The Consenting Stockholder acknowledges that none of the Company, any other Company stockholder, Parent, Merger Sub or any representative or Affiliate of them shall have any liability to the Consenting Stockholder relating to or arising from any such information, materials, statements or opinions.

3.6 Acknowledgement of Parent Reliance. The Consenting Stockholder understands and agrees that Parent is entering into, and causing Merger Sub to enter into, the Merger Agreement in reliance upon the Consenting Stockholder’s execution and delivery of this Agreement.

ARTICLE IV

COVENANTS OF THE CONSENTING STOCKHOLDER

The Consenting Stockholder hereby covenants and agrees as follows:

4.1 Confidentiality.

(a) The Consenting Stockholder hereby agrees that it will hold, and will cause its Affiliates, directors, officers, employees, agents, representatives and advisors (including attorneys, accountants, consultants, bankers and financial advisors) to hold, in confidence all information regarding Parent, Merger Sub, the existence of this Agreement and the Merger Agreement and any of the terms and conditions hereof and thereof and the transactions contemplated hereby and thereby.

(b) The Consenting Stockholder hereby agrees that (i) it will hold, and will cause its Affiliates, directors, officers, employees, agents, representatives and advisors (including attorneys, accountants, consultants, bankers and financial advisors) to hold, in confidence all data and information in its possession relating to the businesses and operations of the Company that is non-public, confidential or proprietary in nature (the “Proprietary Information”) and (ii) except to the extent necessary to comply with applicable Law, will not disclose such Proprietary Information to any Person (other than to the Consenting Stockholder’s Affiliates, directors, officers, employees, agents, representatives and advisors (including attorneys, accountants, consultants, bankers and financial advisors), but in such event only on a need-to-know basis); provided, however, that this Section 4.1(b) shall be inoperative as to such portions of the Proprietary Information that become generally available to the public other than as a result of disclosure in violation of any confidentiality obligation.

 

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4.2 Public Announcements. The Consenting Stockholder shall consult with and obtain the written approval of Parent before issuing any press release or making any other public disclosure with respect to this Agreement, the Merger Agreement or the transactions contemplated hereby or thereby and shall not issue any such press release or make any such public disclosure prior to such consultation and approval (except as may be required by Law, in which event the Consenting Stockholder proposing to issue such press release or make such public disclosure shall use its best efforts to consult in good faith with Parent before issuing any such press release or making any such public disclosure).

4.3 Additional Shares. The Consenting Stockholder hereby agrees, until the occurrence of a Termination Event, to promptly notify Parent of the number of any shares of Company Capital Stock acquired by the Consenting Stockholder after the date hereof. The Consenting Stockholder shall obtain the right to vote, and shall vote in accordance with this Agreement, any Shares that the Consenting Stockholder acquires after the date hereof.

4.4 Further Assurances. From time to time until the occurrence of a Termination Event, at Parent’s request, the Consenting Stockholder shall execute and deliver such additional documents and instruments and take all such further action as may be reasonably necessary to consummate and make effective, in the most expeditious manner possible, the transactions contemplated by this Agreement and the Merger Agreement, including granting any waiver required under any Contract to which the Consenting Stockholder is a party which is inconsistent with any obligations of the Consenting Stockholder hereunder.

4.5 No Solicitation. The Consenting Stockholder acknowledges and agrees that it has read and understands Section 5.5 of the Merger Agreement and hereby agrees that from the date hereof until the occurrence of a Termination Event, it shall be bound by the provisions of Section 5.5 of the Merger Agreement to the same extent as if the Consenting Stockholder itself were bound by the Company’s obligations thereunder.

4.6 Acknowledgement Regarding Compensation. The Consenting Stockholder acknowledges and agrees that, to the extent applicable to such Stockholder, as of the date of this Agreement he, she or it is not owed any wages or compensation from the Company for work performed, whether salary, overtime, bonus or commission.

ARTICLE V

TRANSFER RESTRICTIONS

5.1 Restrictions on Transfer. Prior to the occurrence of a Termination Event, the Consenting Stockholder shall not, directly or indirectly, sell, transfer, hedge, pledge, encumber, assign or otherwise dispose of (including by gift, bequest, appointment or otherwise) (collectively, “Transfer”), or consent to or permit any Transfer of, the Consenting Stockholder’s Shares or any interest therein. If any ownership (whether legal or beneficial) of the Consenting Stockholder’s Shares shall pass to any Person (including the Consenting Stockholder’s administrators, successors or receivers), whether by operation of Law or otherwise, then such Shares shall continue to be subject to this Agreement and the obligations of the Consenting Stockholder hereunder.

 

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5.2 Stop Transfer; Legend. The Consenting Stockholder agrees that (a) it will not request that the Company register the Transfer (by book-entry or otherwise) of any certificate or uncertificated interest representing any of the Shares and (b) if requested by Parent, with respect to any Shares in certificated form, it will present to the Company the certificates representing such certificated Shares for inscription by the Company with the following legend: “THE SHARES OF CAPITAL STOCK OF PATCH MEDIA CORPORATION (THE “COMPANY”) REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONSENT AGREEMENT DATED AS OF MAY     , 2009 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED OTHER THAN IN ACCORDANCE THEREWITH. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.”

ARTICLE VI

WAIVERS AND RELEASE

6.1 No Dissenters’ Rights. The Consenting Stockholder hereby waives and agrees not to exercise any dissenters’ or appraisal rights pursuant to Section 262 of the DGCL or any other right to object to the Merger, the Merger Agreement or the transactions contemplated thereby.

6.2 Release. In consideration of Parent’s covenants and agreements contained herein and in the Merger Agreement, effective as of the Closing, the Consenting Stockholder hereby releases, waives and discharges the Company and its officers and directors (collectively, the “Released Persons”) from any and all actions, causes of action, suits, debts, dues, sums of money, accounts, bonds, bills, covenants, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, claims and demands whatsoever (including those sounding in contract or tort, loss of profits, interference with business contracts, interference with contractual relations, damage to business reputation, increased cost of doing business, interference with economic or business relationship or any prospect thereof, interference with expectancy of business advantage, in each case whether current or prospective), obligations, Contracts, covenants, fees, costs and Losses of any kind whatsoever (whether direct, indirect, consequential, incidental or otherwise, including legal fees incurred in connection herewith or in connection with any costs associated with appearing as a third party witness, with the enforcement of this Agreement and with the posting of any bond in connection with any appeal process), known or unknown, in its own right or derivatively, in law or equity (collectively, the “Claims”), but only with respect to (i) Claims against the Company, including Claims for breach by the Company’s Board of Directors or its individual directors and officers of their obligations, in connection with the negotiation and execution of the Merger Agreement and the consummation of the transactions contemplated thereby and (ii) Claims that in any way arise from or out of, are based upon, or relate to the Consenting Stockholder’s rights to indemnification and reimbursement of expenses, if any, pursuant to any agreement between the Consenting Stockholder and the Company (other than that certain Contribution and Assumption Agreement, dated as of November 6, 2008, to the extent applicable), the Company Charter or the Company’s bylaws, as the same may be modified, supplemented, amended or restated from time to time. This Section 6.2 is for the benefit of the Released Persons and shall be enforceable by any of them directly against the Consenting Stockholder. With respect to such Claims, the Consenting Stockholder hereby expressly waives any and all rights conferred upon it by any

 

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statute or rule of law which provides that a release does not extend to claims which the claimant does not know or suspect to exist in its favor at the time of executing the release, which if known by it must have materially affected its settlement with the released party, including, without limitation, the following provisions of California Civil Code Section 1542: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

ARTICLE VII

AGREEMENT TO BE BOUND BY CERTAIN PROVISIONS

OF THE MERGER AGREEMENT

7.1 Tax Withholding, Escrow and Indemnification. The Consenting Stockholder acknowledges, approves of and agrees to be bound by the escrow and indemnification provisions set forth in Section 2.13 and in Article IX of the Merger Agreement. This Section 7.1 is for the benefit of the Indemnified Persons and shall be enforceable by such Indemnified Persons directly against the Consenting Stockholder.

7.2 Stockholders’ Agent. The Consenting Stockholder acknowledges and accepts the appointment of the Stockholders’ Agent pursuant to the terms of the Merger Agreement and the other provisions relating thereto as set forth in Article X of the Merger Agreement. This Section 7.2 is for the benefit of the Stockholders’ Agent, the Company, the Surviving Corporation and Parent and shall be enforceable by any of them directly against the Consenting Stockholder.

ARTICLE VIII

MISCELLANEOUS

8.1 Termination. This Agreement shall terminate and be of no further force and effect upon the occurrence of a Termination Event; provided, however, that (i) Section 4.1 (a) and this ARTICLE VIII shall survive such termination and remain in full force and effect in accordance with their terms, and (ii) no such termination will relieve any party from liability for breach of this Agreement by such party that occurred prior to such termination.

8.2 Fees and Expenses. Subject to Section 8.3 of the Merger Agreement, all fees and expenses incurred in connection with this Agreement, the Merger Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated.

8.3 Amendment. This Agreement may not be amended other than in an instrument in writing signed by all of the parties hereto.

8.4 Waiver. 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

 

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extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby.

8.5 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 facsimile or email (if applicable) as follows:

(a) If to Parent, then as provided for in Section 11.3 of the Merger Agreement;

(b) If to the Consenting Stockholder then to the address set forth on the Consenting Stockholder’s signature page hereto;

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 with this Section 8.5. All such notices or communications shall be deemed to be received (i) in the case of personal delivery, nationally recognized overnight courier or registered or certified mail, on the date of such delivery and (ii) in the case of facsimile or email, upon confirmed receipt.

8.6 Interpretation. When a reference is made in this Agreement to Sections, subsections or exhibits, such reference shall be to a Section, subsection 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 headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

8.7 Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms and provisions of this Agreement shall 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 the parties. Upon such determination that any term or provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to amend or otherwise modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner such that the transactions contemplated hereby are fulfilled to the extent possible.

8.8 Entire Agreement. Except for the Merger Agreement, this Agreement (including all exhibits hereto) and other documents and instruments delivered in connection herewith constitute the entire agreement and supersede all prior representations, agreements, understandings and undertakings, whether written and oral, among the parties, or any of them, with respect to the subject matter hereof, and no party is relying on any other prior oral or written representations, agreements, understandings or undertakings with respect to the subject matter hereof.

 

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8.9 Assignment. Except as set forth in Section 2.3(a) (with respect to Parent’s right to designate a proxy, agent and attorney-in-fact), this Agreement and the rights and obligations hereunder may not be assigned without the prior written consent of each of the parties hereto; provided, however, that Parent may assign this Agreement or all or any of its rights or obligations hereunder to one or more of its Affiliates without the consent of any other party. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

8.10 No Third Party Beneficiaries. Except as provided in Section 6.2 and ARTICLE VII, nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any right, benefit or remedy under or by reason of this Agreement.

8.11 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, covenant or agreement herein, nor will any single or partial exercise of any such right preclude any 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 or exclusive of, any rights or remedies otherwise available to a party hereunder.

8.12 Governing Law. This Agreement shall be governed by, and construed in accordance with, the Law of the State of New York, except to the extent that the Laws of the State of Delaware mandatorily apply to the Merger.

8.13 Jurisdiction; Waiver of Jury Trial.

(a) Each of the parties hereto (i) consents to submit itself to the exclusive personal jurisdiction of the Federal District Court for the Southern District of New York (or in the absence of jurisdiction thereof, the courts of the State of New York located in the Borough of Manhattan) in the event any dispute arises out of this Agreement or any Related Agreement or any transaction contemplated hereby or thereby, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that it will not bring any action relating to this Agreement or any Related Agreement or any transaction contemplated hereby or thereby in any court other than the such courts and (iv) waives (and shall not make) any claim that jurisdiction in such court is not convenient to such party.

(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION RELATED TO OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

8.14 Specific Performance. The Consenting Stockholder agrees 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 or were otherwise breached, and as such Parent shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by

 

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the Consenting Stockholder and to enforce specifically the terms and provisions of this Agreement, in addition to any other remedy to which Parent is entitled at law or in equity.

8.15    Counterparts. This Agreement may be executed in one or more counterparts, which when taken together shall constitute one and the same agreement.

[Remainder of Page Intentionally Left Blank.]

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.

 

PARENT:
AOL LLC
By:    
  Name:
  Title:

ACKNOWLEDGED AND AGREED:

 

THE COMPANY:
PATCH MEDIA CORPORATION
By:    
  Name:
  Title:

[Signature Page to Consent Agreement for the Consenting Stockholder]


THE CONSENTING STOCKHOLDER:

 

SHARES HELD   

ADDRESS AND

COUNTRY OF

RESIDENCY FOR TAX

PURPOSES

  NAME AND SIGNATURE
[                ] shares of Company
Capital Stock
   [                ]  
   Country of Residency
for Tax Purposes:
[                ]
  By:                                              
    

Name:

    

Title:

[Signature Page to Consent Agreement for the Consenting Stockholder]


EXHIBIT A

FORM OF ACTION BY WRITTEN CONSENT

OF THE STOCKHOLDERS OF PATCH MEDIA CORPORATION

The undersigned, being holders of at least a majority of all of the issued and outstanding capital stock of Patch Media Corporation (the “Corporation”), voting together as a single class pursuant to Section 228(a) of the Delaware General Corporation Law, do hereby take the following actions by written consent and without a meeting:

Agreement and Plan of Merger

 

RESOLVED:

   That the certain Agreement and Plan of Merger (the “Merger Agreement”) by and among the Corporation, AOL LLC, Pumpkin Merger Corporation and Jon Brod, as the Stockholders’ Agent, in the form approved by the Board of Directors of the Corporation and attached hereto as Exhibit A (the “Merger Agreement”), which provides for, among other things, a merger (the “Merger”) of Pumpkin Merger Corporation with and into the Corporation, with the Corporation continuing as the surviving corporation and as a subsidiary of AOL LLC be, and it hereby is, approved and adopted.

RESOLVED:

   That upon consummation of the merger and pursuant to Section 2.4 of the Merger Agreement, the existing Certificate of Incorporation and Bylaws of the Corporation, in each case as may be amended, restated and in effect, will be replaced by the Certificate of Incorporation and Bylaws of Pumpkin Merger Corporation.

Adoption of Certificate of Incorporation and Bylaws

 

RESOLVED:

   That in connection with the Merger and pursuant to the terms and conditions of the Merger Agreement, the Certificate of Incorporation and Bylaws of Pumpkin Merger Corporation, in the forms attached hereto as Exhibits B and C, respectively, be, and they hereby are, adopted, ratified and approved as the Certificate of Incorporation and Bylaws of the Corporation, effective upon the filing by the appropriate officers of the Corporation of a Certificate of Merger with the Secretary of State of Delaware.

RESOLVED:

   That the Officers of the Corporation be, and hereby are, authorized, in the name and on behalf of the Corporation, to take all such action and to


  prepare, execute and deliver any documents they may deem necessary or desirable to effectuate the foregoing resolutions, the taking of any such action or the execution and delivery of any such document by such Officers to be conclusive evidence that they deemed such action or document to be necessary or desirable.


EXHIBIT B

FORM OF CERTIFICATE OF INCORPORATION

of

PATCH MEDIA CORPORATION

Patch Media Corporation, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware, hereby certifies that:

FIRST.    The name of the corporation is Patch Media Corporation (the “Corporation”).

SECOND.    The address of the Corporation’s registered office in the State of Delaware is c/o Corporation Service Company, 2711 Centerville Road, Suite 400, in the City of Wilmington, in the County of New Castle, in the State of Delaware 19808. The name of the Corporation’s registered agent at such address is Corporation Service Company.

THIRD.    The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

FOURTH.    1. Common Stock. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 1,000 shares of Common Stock, par value $0.001 per share (the “Common Stock”). All shares of Common Stock will be identical and will entitle the holders thereof to the same rights and privileges.

2. Voting Rights. The holders of Common Stock will be entitled to one vote per share on all matters to be voted on by the Corporation’s stockholders, except as otherwise required by law. There shall be no cumulative voting.

3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefore as and when determined by the Board of Directors, subject to any provision of this Certificate of Incorporation, as it may be amended from time to time.

4. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled to share, ratably according to the number of shares of Common Stock held by them, in the remaining assets of the Corporation available for distribution to its stockholders.

FIFTH.    To the fullest extent permitted by the DGCL as the same now exists or may hereafter be amended, a director of the Corporation shall not be liable to the


Corporation or its stockholders for monetary damages for breach of fiduciary duties as a director. Any repeal or modification of this Article Fifth shall not adversely affect any right or protection of a director existing at the time of such repeal or modification.

SIXTH.    The Board of Directors, acting by majority vote, is expressly authorized to adopt, amend or repeal the bylaws of the Corporation.

SEVENTH.    The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are subject to this reservation.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Incorporation to be executed by                     , its                      on this          day of June, 2009.

 

  

Name:

Title:

 

2


EXHIBIT C

FORM OF BY-LAWS

of

PATCH MEDIA CORPORATION

(hereinafter, the “Corporation”)

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the Corporation in the State of Delaware, as set forth in the Certificate of Incorporation, shall be established and maintained at Corporation Service Company, 2711 Centerville Road, Wilmington, County of New Castle, Delaware 19808. The name of the registered agent of the Corporation at such address shall be Corporation Service Company.

Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.

ARTICLE II

MEETING OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2. Annual Meetings. The Annual Meeting of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect a Board of Directors by a plurality vote, and transact such other business as may properly be brought before the meeting.

Section 3. Special Meetings. Special Meetings of Stockholders, for any purpose or purposes, may be called by the President, Secretary or Treasurer, and shall be called by any such officer at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting.


Section 4. Notice of Meetings. Written notice of an Annual Meeting or Special Meeting stating the place, date, and hour of the meeting and in the case of a Special Meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

Section 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.

Section 6. Voting. Any questions brought before any meeting of stockholders shall be decided by a majority vote of the number of shares entitled to vote, present in person or represented by proxy. Such votes may be cast in person or by proxy, but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period.

Section 7. Action by Consent. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III

DIRECTORS

Section 1. Number and Election of Directors. The number of directors that shall constitute the Board of Directors shall be not less than one nor more than fifteen. The initial directors shall be determined by resolution of the sole incorporator of the Corporation or the Board of Directors, as the case may be. Thereafter, within the limits specified above, the number of directors shall be determined by the Board of Directors or by the stockholders. Except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal.

Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the stockholders, a

 

2


majority vote of all directors, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal.

Section 3. Committees. The Board of Directors may designate one or more committees, which committees shall, to the extent provided in the resolution of the Board of Directors establishing such a committee, have all authority and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation to the extent lawful under the General Corporation Law of the State of Delaware.

Section 4. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

Section 5. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the president or any one director with one day’s notice to each director, either personally or by mail, telephone or facsimile transmission.

Section 6. Quorum; Board Action. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business, and the act of a majority of the entire Board of Directors shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 7. Actions of Board. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

Section 8. Compensation. The Corporation shall reimburse the reasonable expenses incurred by members of the Board of Directors in connection with attendance at meetings of the Board of Directors and of any committee on which such member serves; provided, that the foregoing shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefore.

Section 9. Removal. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors.

 

3


ARTICLE IV

OFFICERS

The officers of the Corporation shall consist of a President, a Secretary, a Treasurer and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. Such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause.

ARTICLE V

NOTICES

Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telephone, electronic mail or facsimile transmission.

Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE VI

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or

 

4


for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

Section 3. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VII

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 1. 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, by reason of the fact that 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 prior to such amendment), against all expense, liability and loss (including attorneys’ 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 Section 3 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.

Section 2. Right to Advancement of Expenses. The right to indemnification conferred in section 1 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

 

5


under this Section 2 or otherwise. Such undertaking shall be an unlimited, unsecured general obligation of the Indemnitee, and shall be accepted without reference to such Indemnitee’s ability to make repayment. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 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.

Section 3. Right of Indemnitees to Bring Suit. If a claim under Section 1 or 2 of this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any-such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall also be entitled to be paid the expenses of prosecuting or defending such suit. In (i) 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 (ii) 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. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that an Indemnitee acted in such a manner as to make him or her ineligible for indemnification.

Section 4. 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. However, no person shall be entitled to

 

6


indemnification by the Corporation by virtue of the fact that such person is actually indemnified by another entity, including an insurer.

Section 5. 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.

Section 6. 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 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.

ARTICLE VIII

AMENDMENTS

These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the majority vote of the entire Board of Directors.

Entire Board of Directors. As used in this Article VIII and in these Bylaws generally, the term “entire Board of Directors” means the total number of the directors which the Corporation would have if there were no vacancies.

Adopted by the Board of Directors:                                               2009

 

7


EXHIBIT D

FORM OF FIRPTA CERTIFICATE

Notice to Internal Revenue Service

Pursuant to U.S. Treasury Regulations §1.897-2(h)

June     , 2009

Internal Revenue Service Center

P.O. Box 409101

Ogden, UT 84409

Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that withholding is not required if the transferee acquires property that is not a United States real property interest or acquires an interest in a domestic corporation that is not a United States real property interest. To inform AOL LLC, a Delaware limited liability company (“Parent”), that withholding of tax is not required upon the acquisition on the date hereof of interests in Patch Media Corporation, a Delaware corporation (the “Company”), pursuant to the Agreement and Plan of Merger Agreement, dated as of May 30, 2009, by and among Parent, the Company, and certain other parties thereto, the Company hereby certifies the following:

1. This certificate is provided pursuant to Treasury Regulations Sections 1.1445-2(c)(3)and 1.897-2(h).

2. The Company’s address and taxpayer identification number is:

Patch Media Corporation

584 Broadway, Suite 1206

New York NY 10012

3. TIN: [                    ]

4. The Company is not nor has it been a U.S. real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c) of the Code.

(Remainder of Page Intentionally Left Blank)


Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare I have the authority to sign this document on behalf of the Company.

 

PATCH MEDIA CORPORATION
By:    
 

Name:

Title:

 

 

[FIRPTA Certificate]


EXHIBIT E

FORM OF

WAIVER OF CERTAIN LIQUIDATION RIGHTS

                         , 2009

In connection with the Agreement and Plan of Merger (the “Merger Agreement”) dated as of May 30, 2009, by and among AOL LLC, a Delaware limited liability company (“Parent”), Pumpkin Merger Corporation, a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), Patch Media Corporation, a Delaware corporation (the “Company”), and Jon Brod, in his capacity as the Stockholders’ Agent, Polar News Company, LLC, a Delaware limited liability company (“Polar News”) and the holder of all of the issued and outstanding shares of Series A-1 Preferred Stock (“Series A-l Preferred Stock”), par value $0.001 per share, of the Company, hereby (capitalized terms not otherwise defined herein shall have the meanings ascribe to them in the Company’s Amended and Restated Certificate of Incorporation, filed with the State of Delaware on January 9, 2009 (the “Certificate of Incorporation”)):

(i) waives and releases all rights, claims and demands of whatever nature it may have, under Article Fourth Section C.2.(a) of the Company’s Certificate of Incorporation, to receive, in the event of the merger (“Merger”) of Merger Sub with and into the Company in accordance with the terms of the Merger Agreement, an amount equal to the greater of (i) the Series A-l Original Issue Price per share of Series A-l Preferred stock, plus any Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had each such share been converted into Common Stock immediately prior to the Merger, with respect to each and every share of the Company’s Series A-l Preferred Stock; and

(ii) consents to the receipt of the consideration set forth in the Merger Agreement as full payment for its 64,000,000 shares of Series A-l Preferred Stock.

(The remainder of this page is intentionally left blank.)


IN WITNESS WHEREOF, the undersigned has executed this Waiver of Certain Liquidation Rights, as of the date first above written.

SERIES A-l PREFERRED STOCKHOLDER

 

POLAR NEWS COMPANY, LLC
   
By: Jon Brod, Manager


EXECUTION COPY

Patch Media Corporation

Disclosure Schedules to Agreement and Plan of Merger

Introduction

Unless otherwise defined in these disclosure schedules (each a Schedule and, collectively, the “Schedules”), all capitalized terms herein shall have the meanings ascribed to them in the Agreement and Plan of Merger, dated as of May 30, 2009, by and among the parties identified therein (the “Agreement”).

The disclosure of any exception or other matter in any Section or subsection of ARTICLE III of the Agreement shall only be deemed to qualify any other Section or subsection of ARTICLE III of the Agreement to the extent that its relevance thereto is readily apparent; provided, however, that no exceptions or other matters in the Schedules shall be deemed to qualify Section 3.10(a) (Absence of Certain Changes or Events).

Matters reflected in these Schedules are not necessarily limited to matters required by the Agreement to be reflected in the Schedules. Such additional matters are set forth for informational purposes and do not necessarily include other matters of a similar nature. In no event shall the inclusion of any such additional matters in these Schedules be deemed or interpreted to broaden or otherwise amplify the representations, warranties, covenants or agreements of the Company contained in the Agreement or to be an admission that any such matter is material except as set forth in the Agreement. The attachments hereto form an integral part of these Schedules and are incorporated by reference for all purposes as if set forth fully herein.


Schedule 2.12(f)

Withholding of Tax

[To be provided by the Company no later than three (3) Business Days prior to the Effective Time]


Schedule 3.1(b)

Subsidiaries

None.


Schedule 3.3(a)

Capitalization

Please see attached.


Schedule 3.3(a) — Capitalization

 

Stockholders

   Options to
Purchase Shares of
Common Stock
   Restricted
Shares of
Common Stock
   Shares of Series
A-1 Preferred
Stock
  Vesting Schedule(3)
Date First 25% Vested
  

Address

   Certificate
Number

Polar News

Company, LLC

(“PNC”)(1)

         64,000,000   N/A    584 Broadway, Suite 1206, New York, NY 10012    A-1-1

Employees

                

Jon Brod(1)

         (Included in PNC
above)
     27 W. 72nd St., Apt 1610, New York, NY 10023   

Mat Brown

      286,433      4/1/2009    963 Columbus Ave., Apt 1A, New York, NY 10025    1

Brett Camper

      358,041      5/1/2009    358A 14th St., Brooklyn, NY 11215    2

Alexandru Catighera

      143,216      5/1/2009    316 Parkview Dr., Phoenixville, PA 19460    3

Sam Cole

      143,216      8/18/2009    24 MacDougal St, Apt 2, Brooklyn, NY 11233    4

Brian Famham

      608,670      2/18/2009    10 Waterside Plaza, Apt 34B, New York, NY 10010    6

Meghan Hoctor

      17,902      11/1/2009    824 Valley Rd., Upper Montclair, NJ 07043    19

Aubrey Holland

      250,629      9/1/2009    217 Union St., Apt 2, Brooklyn, NY 11231    7

Adam Hooper

      143,216      9/15/2009    78 W. 82nd St, Apt 3A, New York, NY 10024    18

Cedric Howe

      322,237      4/1/2009    130 Dean St., Apt 2, Brooklyn, NY 11201    8

Maksim Kalashnikov

      716,082      2/1/2009    524 E. 5th St., Apt 3, New York, NY 10009    10

Kalle Ledvin

      17,902      12/8/2009    2178 68th St., Apt 2R, Brooklyn, NY 11204    22

Andrew Margie

      644,474      3/3/2009    195 Berkeley St., Apt.1, Brooklyn, NY 11217    11

Randy Meech

      716,082      2/1/2009    130 Dean St., Apt 4, Brooklyn, NY 11201    12

William Nance

      358,041      4/28/2009    526 E. 20th St., Apt IE, New York, NY, 10009    13

Kelsey Rahn

      71,608      9/15/2009    320 E. 23rd St., Apt 21, New York, NY 10010    14

Trip Tate

      71,608      7/8/2009    651 E. 14th St., Apt 10H, New York, NY 10009    16

Warren Webstar

      859,298      1/9/2009    160 E. 85th St, Apt 4R, New York, NY 10028    17

Adam Bulger

      28,643      10/27/2009    16 Dale Ave., Wyckoff, NJ 07481    21

Jen Connic

      28,643      10/6/2009    14 Prescott Ave., Garfield, NJ 07026    20

Cotton Delo

      71,608      8/9/2009    210 Fifth St., garden apartment, Jersey City, NJ 07302    5

Steve Johnson

      322,237      2/11/2009    200 Browertown Rd., West Paterson, NJ 07424    9

Rebecca Hughes(4)

   28,643         3/24/2010    277 Bay Ave., Glen Ridge, NJ 07028   

Total

   28,643    6,179,786    64,000,000        

Total Shares(1)

         70,208,429        

 

(1) PNC includes both Tim Armstrong’s and Jon Brod’s ownership interest in the Company.
(2) Total Shares does not include the only warrant the Company has issued to a consultant, Jay Ackerman, which is exercisable into $10,000 worth of Common Stock upon a Change of Control.
(3) All Restricted Shares of Common Stock vest 25% on the date Indicated and then 1/36th of the remainder on a monthly basis thereafter.
(4) Rebecca Hughes’ Options to purchase shares of Common Stock vest 25% on 3/24/2010 and 1/36th of the remainder on a monthly basis monthly thereafter until 4th anniversary.

Privileged and Confidential


Schedule 3.3(b)

Stock Options

 

  1.

Rebecca Hughes, an employee of the Company, was granted 28,643 Incentive Stock Options (“ISOs”) with an exercise price of $0.21 per share on 3/24/2009 which expire 10 years from grant. The aforementioned ISOs vest 25% on 3/24/2010 and then 1/36th of the remainder on a monthly basis until the 4th anniversary of grant.

Warrants

 

  1. Jay Ackerman, a former Consultant of the Company, holds a Warrant to purchase $10,000 worth of shares of Common Stock for an exercise price of $1.00 first exercisable upon the earlier of a Qualified Financing (as defined therein) or 8/9/2009.


Schedule 33(c)

Other Securities

The Company’s offer letter to John Celock dated April 28, 2009, stated that he would receive a grant of 28,643 ISOs subject to the approval of the Company’s Board of Directors at its next regularly scheduled meeting. The Company’s offer letter to Lindsay Wilkes-Edrington dated May 1, 2009, stated that she would receive a grant of 28,643 ISOs subject to the approval of the Company’s Board of Directors at its next regularly scheduled meeting. The Company does not anticipate that the Board of Directors shall meet before the Effective Time of the Merger and therefore the aforementioned ISOs shall not be granted before that time.


Schedule 3.6

No Conflict; Required Filings and Consents

(a) In connection with Closing, Polar News Company, LLC intends to waive certain liquidation rights set forth in the Company’s Amended and Restated Certificate of Incorporation, filed with the State of Delaware on January 9, 2009, pursuant to the Waiver of Certain Liquidation Rights, the form of which is attached as Exhibit E to the Agreement.

 

(d) Contracts Requiring Consent

 

  1. Lease by and between Polar Capital Group, LLC and Olmstead Properties Inc., dated 6/6/2008.
  2. Broadspeed Dynamic IP GR Order Form by and between Polar Capital Group, LLC and Broadview Networks.
  3. Lease Agreement by and between Polar Capital Group, LLC and De Lage Landen Financial Services, Inc., dated 7/29/2008.
  4. Spectrum Policy issued to Polar News Company, LLC by The Hartford for the period beginning 2/27/2009.


Schedule 3.7(a)

Material Contracts

 

Party

  

Other Party

  

Date

  

Document Title

Company

   Ambrose Employer Group, LLC    12/21/2007 (assigned to Company 11/6/2008)    Client Service Agreement

Company

   WNS North America, Inc.    10/8/08 (Extended 2/18/09)    Letter of Engagement and Extension Thereof

Company

   Maponics, LLC    6/5/2008 (assigned to Company on 11/17/2008)    Data License Agreement

Polar Capital Group, LLC

   Olmstead Properties, Inc.    6/6/2008    Lease

Polar News Company, LLC

   The Hartford    2/20/2009    Spectrum Policy

Company

   Speakeasy Broadband Services, LLC    10/31/2008    Speakeasy Business Ethernet -Service Order Form

Polar News Company, LLC

   The Nielsen Company (US), Inc.    6/26/2008    Master License Agreement

Polar Capital Group, LLC

   Broadview Networks       Broadspeed Dynamic IP GR Order Form

Polar Capital Group, LLC

   Point Consultants       Polar Capital Group Support and Polar Capital Group Projects

Company

   Omniture, Inc.    10/29/2008    Omniture Service Order (SO# 39430)

Company

   Salesforce.com, Inc.    4/30/2009    Order Form


Schedule 3.8

Compliance

Please see Schedule 3.6.


Schedule 3.9

Financial Statements

Please see attached financial statements.


Schedule 3.9

Financials

Patch Media Corporation

Balance Sheet

December 31, 2008

 

ASSETS

    

Current Assets

    

Citz PNC acct # 1308160167

   $ 27,453.71     

Prepaid Expenses

     5,157.55     

Prepaid Insurance Exp

     164.97     

Prepaid Salary

     7,198.56     

Prepaid software

     9,303.77     
          

Total Current Assets

       49,278.56

Property and Equipment

    

Furniture and Office Equipment

     26,310.14     

Servers and Hardware

     32,168.73     

Computers

     67,756.16     

Peripherals

     299.00     

Software

     6,818.78     

Leasehold Improvements

     19,081.94     

Patch Domain Name

     55,287.72     

Accum. Depr — Furn and Equip

     (2,547.90  

Accum Depr — Server/Hardware

     (2,640.13  

Accum Depr — Computers

     (6,857.06  

Accum Depr — Peripherals

     (44.82  

Accu Depr — Software

     (698.61  

Accum. Depreciation — Leasehol

     (4,046.50  

Accum Depr Patch Domain Name

     (1,228.60  
          

Total Property and Equipment

       189,658.85

Other Assets

    

Deposits

     131,418.98     
          

Total Other Assets

       131,418.98
        

Total Assets

     $ 370,356.39
        

LIABILITIES AND CAPITAL

    

Current Liabilities

    

Accounts Payable

   $ 33,242.41     

Accounts Payable

     25,054.27     

Accounts Payable PCG Salary

     68,363.47     
          

Total Current Liabilities

       126,660.15

Long-Term Liabilities

    
          

Total Long-Term Liabilities

       0.00
        

Total Liabilities

       126,660.15

Capital

    

Owners Capital

     2,481,003.82     

Net Income

     (2,237,307.58  
          

Total Capital

       243,696.24
        

Total Liabilities & Capital

     $ 370,356.39
        


Patch Media Corporation

Balance Sheet

March 31, 2009

 

ASSETS

    

Current Assets

    

Citz PNC acct # 1308160167

   $ (31,254.55  

Accounts Receivable

     2,000.00     

Prepaid Expenses

     713.02     

Prepaid Salary

     5,165.95     

Prepaid software

     4,000.04     
          

Total Current Assets

       (19,375.54

Property and Equipment

    

Furniture and Office Equipment

     26,310.14     

Servers and Hardware

     33,633.72     

Computers

     71,223.54     

Peripherals

     1,642.83     

Software

     6,818.78     

Leasehold Improvements

     19,081.94     

Patch Domain Name

     55,287.72     

Accum. Depr — Furn and Equip

     (3,863.40  

Accum. Depr — Server/Hardware

     (4,306.76  

Accum. Depr — Computers

     (10,380.07  

Accum. Depr — Peripherals

     (126.96  

Accu Depr — Software

     (1,039.56  

Accum. Depreciation — Leasehol

     (6,431.77  

Accum Depr Patch Domain Name

     (2,150.05  
          

Total Property and Equipment

       185,700.10   

Other Assets Deposits

     131,418.98     
          

Total Other Assets

       131.418.98   
          

Total Assets

     $ 297,743.54   
          

LIABILITIES AND CAPITAL

    

Current Liabilities

    

Accounts Payable

   $ 43,242.41     

Accounts Payable

     7,729.23     

Accounts Payable PCG Salary

     181,751.73     
          

Total Current Liabilities

       232,723.37   

Long-Term Liabilities

    
          

Total Long-Term Liabilities

       0.00   
          

Total Liabilities

       232,723.37   

Capital

    

Owners Capital

     3,492,582.10     

Beginning Equity

     (2,237,307.58  

Net Income

     (1,190,254.35  
          

Total Capital

       65,020.17   
          

Total Liabilities & Capital

     $ 297,743.54   
          

Unaudited — For Management Purposes Only


Patch Media Corporation

Income Statement

For the Three Months Ending March 31, 2009

 

          1st Qtr     Year to Date  

Revenues

       

40000

   Commissions Earned    $ 199.34      $ 199.34   
                   
   Total Revenues      199.34        199.34   
                   

Cost of Sales

       
                   
   Total Cost of Sales      0.00        0.00   
                   
   Gross Profit      199.34        199.34   
                   

Expenses

       

60100

   Advertising Expense      300.52        300.52   

62000

   Bank Charges      178.65        178.65   

62100

   Credit Card Fees      68.18        68.18   

64100

   Furniture/Office Equip Depr.      1,315.50        1,315.50   

64110

   Servers and Hardware Depr.      1,666.63        1,666.63   

64120

   Computer Depr.      3,523.01        3,523.01   

64130

   Peripherals Depr      82.14        82.14   

64140

   Software Depr.      340.95        340.95   

64400

   Leasehold Improve Depr      2,385.27        2,385.27   

64801

   Other Depr PAtch      921.45        921.45   

66000

   Gifts Expense      277.28        277.28   

67001

   Insurance Expense      1,210.49        1,210.49   

68000

   Laundry and Cleaning Exp      4,339.93        4,339.93   

68520

   Promotion and Design Exp      18,510.00        18,510.00   

68530

   Strategic Planning Expense      4,561.24        4,561.24   

68532

   Corley Hanson Coaching      9,450.00        9,450.00   

68540

   General Consulting      63,258.41        63,258.41   

68543

   Ambrose      10,774.00        10,774.00   

68550

   Legal Expense      5,968.85        5,968.85   

68551

   Burns & Levinson      42,851.42        42,851.42   

68560

   Tax and Accounting Expense      17,429.41        17,429.41   

68580

   Employee Recruiter      7,503.62        7,503.62   

68585

   Employee Recruiting Job Post      4,220.18        4,220.18   

68590

   IT Consulting Expense      427.90        427.90   

68591

   IT Consulting Point Consult      4,200.00        4,200.00   

68750

   Contractor Expense (1099)      16,512.86        16,512.86   

68751

   Street Team Expense (1099)      29,217.56        29,217.56   

68752

   Street Team Outsourced      6,986.76        6,986.76   

69050

   Registration Expense      3.99        3.99   

70000

   Maintenance Expense      90.95        90.95   

71000

   Office Expense      1,919.19        1,919.19   

71035

   Office Expense Comp Hardware      71.48        71.48   

71040

   Web Hosting      14,103.84        14,103.84   

71045

   Web Analytics Expense      (2,000.00     (2,000.00

71110

   Office Expense Serv & hardware      148.40        148.40   

71120

   Office Expense Computers      29.86        29.86   

71130

   Office Expense Peripherals      118.80        118.80   

71140

   Office Expense Software      5,782.73        5,782.73   

73500

   Postage Expense      746.57        746.57   

74000

   Rent or Lease Expense      70,180.60        70,180.60   

74300

   Dues and Subscriptions Exp      186.31        186.31   

74500

   Repairs Expense      951.79        951.79   

75500

   Supplies Expense      2,764.98        2,764.98   

76000

   Telephone Expense      7,966.85        7,966.85   

76500

   Gas or Milage      46.00        46.00   

76504

   Parking      39.55        39.55   

76505

   Car Rental      1,284.00        1,284.00   

76506

   Cab      432.90        432.90   

76510

   Train Travel Expense      227.00        227.00   

76520

   Air Travel Expense      1,041.16        1,041.16   

76530

   Hotel and Lodging      1,127.16        1,127.16   

76540

   Meals and Entertainment Exp      5,339.63        5,339.63   

77000

   Salaries Expense      538,000.89        538,000.89   

77070

   Bonuses      169,718.00        169,718.00   

77110

   Social Security/FICA      44,585.87        44,585.87   

77120

   Medicare      7,816.35        7,816.35   

77130

   PUTA      1,296.31        1,296.31   

77140

   SUTA      9,316.09        9,316.09   

77150

   Workers Comp      2,314.25        2,314.25   

77160

   Vacation Expense      2,423.07        2,423.07   

77250

   Employer Provide HealthDentVis      34,102.05        34,102.05   

77252

   Employer Provided Dental      2,769.36        2,769.36   

77260

   Employer Provided Life      3,421.00        3,421.00   

78000

   Utilities Expense      3,104.50        3,104.50   
                   
   Total Expenses      1,190,453.69        1,190,453.69   
                   
   Net Income    $ (1,190,254.35   $ (1,190,254.35
                   

For Management Purposes Only

Page: 1


Patch Media Corporation

Income Statement

For the Twelve Months Ending December 31, 2008

 

          Current Month         Year to Date     

Revenues

              
   Total Revenues      0.00    0.00      0.00    0.00
                      

Cost of Sales

              
                      
   Total Cost of Sales      0.00    0.00      0.00    0.00
                      
   Gross Profit      0.00    0.00      0.00    0.00
                      

Expenses

              

62000

   Bank Charges    $ 419.03    0.00    $ 419.03    0.00

62100

   Credit Card Fees      255.95    0.00      255.95    0.00

64100

   Furniture/Office Equip Depr      2,547.90    0.00      2,547.90    0.00

64110

   Servers and Hardware Depr.      2,640.13    0.00      2,640.13    0.00

64120

   Computer Depr.      6,857.06    0.00      6,857.06    0.00

64130

   Peripherals Depr.      44.82    0.00      44.82    0.00

64140

   Software Depr.      698.61    0.00      698.61    0.00

64400

   Leasehold Improve Depr      4,046.50    0.00      4,046.50    0.00

64801

   Other Depr PAtch      1,228.60    0.00      1,228.60    0.00

66000

   Gifts Expense      758.98    0.00      758.98    0.00

67001

   Insurance Expense      1,413.36    0.00      1,413.36    0.00

68000

   Laundry and Cleaning Exp      8,534.55    0.00      8,534.55    0.00

68520

   Promotion and Design Exp      6,088.86    0.00      6,088.86    0.00

68530

   Strategic Planning Expense      11,555.43    0.00      11,555.43    0.00

68532

   Corley Hanson Coaching      3,000.00    0.00      3,000.00    0.00

68540

   General Consulting      13,095.04    0.00      13,095.04    0.00

68543

   Ambrose      29,161.00    0.00      29,161.00    0.00

68550

   Legal Expense      8,433.50    0.00      8,433.50    0.00

68551

   Burns & Levinson      73,698.28    0.00      73,698.28    0.00

68560

   Tax and Accounting Expense      6,000.00    0.00      6,000.00    0.00

68580

   Employee Recruitor      109,906.83    0.00      109,906.83    0.00

68585

   Employee Recruiting Job Post      25,497.09    0.00      25,497.09    0.00

68590

   IT Consulting Expense      7,989.88    0.00      7,989.88    0.00

68591

   IT Consulting Point Consult      11,500.00    0.00      11,500.00    0.00

68750

   Contractor Expense (1099)      21,680.29    0.00      21,680.29    0.00

68751

   Street Team Expense (1099)      43,770.41    0.00      43,770.41    0.00

68752

   Street Team Outsourced      21,721.88    0.00      21,721.88    0.00

69050

   Registration Expense      3,452.55    0.00      3,452.55    0.00

70000

   Maintenance Expense      292.61    0.00      292.61    0.00

71000

   Office Expense      4,604.86    0.00      4,604.86    0.00

71040

   Web Hosting      22,180.15    0.00      22,180.15    0.00

71100

   Office Expense Furniture      221.70    0.00      221.70    0.00

71110

   Office Expense Serv & hardware      383.11    0.00      383.11    0.00

71120

   Office Expense Computers      1,332.17    0.00      1,332.17    0.00

71140

   Office Expense Software      17,443.47    0.00      17,443.47    0.00

71150

   Office Expense IT      195.03    0.00      195.03    0.00

73500

   Postage Expense      695.64    0.00      695.64    0.00

74000

   Rent or Lease Expense      212,585.77    0.00      212,585.77    0.00

74400

   Education Material      2,383.21    0.00      2,383.21    0.00

74500

   Repairs Expense      568.96    0.00      568.96    0.00

75500

   Supplies Expense      4,791.82    0.00      4,791.82    0.00

76000

   Telephone Expense      9,462.37    0.00      9,462.37    0.00

76500

   Gas or Milage      238.56    0.00      238.56    0.00

76504

   Parking      190.88    0.00      190.88    0.00

76505

   Car Rental      2,412.96    0.00      2,412.96    0.00

76506

   Cab      1,414.20    0.00      1,414.20    0.00

76510

   Train Travel Expense      726.00    0.00      726.00    0.00

76520

   Air Travel Expense      6,638.93    0.00      6,638.93    0.00

76530

   Hotel and Lodging      7,344.02    0.00      7,344.02    0.00

76540

   Meals and Entertainment Exp      10,027.34    0.00      10,027.34    0.00

77000

   Salaries Expense      1,313,881.11    0.00      1,313,881.11    0.00

77010

   Salaries Other      500.00    0.00      500.00    0.00


77070

   Bonuses      2,500.00      0.00      2,500.00      0.00

77071

   Bonus NR      80.00      0.00      80.00      0.00

77110

   Social Security/FICA      88,080.55      0.00      88,080.55      0.00

77120

   Medicare      888.69      0.00      888.69      0.00

77130

   FUTA      1,225.67      0.00      1,225.67      0.00

77140

   SUTA      9,120.03      0.00      9,120.03      0.00

77150

   Workers Comp      5,497.21      0.00      5,497.21      0.00

77250

   Employer Provide HealthDentVis      70,506.94      0.00      70,506.94      0.00

77252

   Employer Provided Dental      4,154.04      0.00      4,154.04      0.00

77260

   Employer Provided Life      8,037.30      0.00      8,037.30      0.00

78000

   Utilities Expense      705.75      0.00      705.75      0.00
                        
   Total Expenses      2,237,307.58      0.00      2,237,307.58      0.00
                        
   Net Income    $ (2,237,307.58   0.00    $ (2,237,307.58   0.00
                        


Patch Media Corporation

General Ledger

SEE ATTACHED


Schedule 3.10(c)(i)

Absence of Certain Changes or Events

Revenue recognition policy

 

   

From the Balance Sheet Date, we have begun generating two primary types of revenue, both through the sale of ads on our sites: 1) Self-service ads (Do-it-Yourself ads) and 2) Fixed Placement ads (sold by ad sales reps)

   

Self-service ads:

   

Self-service ads are initiated by customers on their own

   

Prior to placing an ad, customers use their credit card to fund a stored balance at the Company. Customers’ stored balances then decline as impressions of their ad are served.

   

Company books the initial stored balance as deferred revenue, then recognizes revenue over time as impressions are served

   

Fixed placement ads:

   

Fixed placement ads are sold by Company ad sales representatives

   

Fixed placement ads are time-based — e.g. ads are sold for 1 week, for 1 month, or longer

   

The Company initially books a sale as deferred revenue, then recognizes revenue in regular intervals as time elapses


Schedule 3.11

Undisclosed Liabilities

The Contract between the Company and WNS North America, Inc. contains a provision whereby the Company must pay WNS North America $50,000 on March 1, 2010, if the Company does not contract with 100 employees via WNS North America at that time. The Company may or may not reach the aforementioned milestone.


Schedule 3.13(a)(i)

Employee Plans

 

Insurance:

  

1.      MetLife Travel Assistance Program held in the name of Ambrose Employer Group, LLC

  

2.      MetLife Term Group Life and AD & D held in the name of Ambrose Employer Group, LLC

  

3.      MetLife Short Term Disability held in the name of Ambrose Employer Group, LLC

  

4.      MetLife Long Term Disability held in the name of Ambrose Employer Group, LLC

  

5.      Supplemental Life Insurance held in the name of Ambrose Employer Group, LLC, policy number 5451763-01

  

6.      Spectera Vision Benefits held in the name of Ambrose Employer Group, LLC, group name “Ambrose”

  

7.      United Healthcare Medical Coverage held in the name of Ambrose Employer Group, LLC, group plan number 184584

  

8.      MetLife Dental Coverage held in the name of Ambrose Employer Group, LLC, group plan number 101125

Other:

  

1.      Flexible Spending Plan (Health Care Flexible Spending Account and Dependent Care Flexible Spending Account) held in the name of Ambrose Employer Group, LLC, FSA plan number 184514

  

2.      Wageworks Commuter Benefits

  

3.      The Ambrose Multiple Employer Retirement Savings Plan

  

4.      Oral Agreement to occasionally cover dinners for exceptional work. We also reimburse dinner (up to $15) after 7:30pm and cabs home after 9:00pm

  

5.      The Company 2008 Stock Option and Equity Incentive Plan

  

6.      The Company maintains a vacation policy in accordance with the Company’s Employment Manual.


Schedule 3.13(a)(ii)

Restrictions on Amendments to Employee Plans

None.


Schedule 3.13(c)

Mutliemployer Plan

None.


Schedule 3.13(d)

Employee Plans that Survive Employment

None.


Schedule 3.13(f)(i)

Severance

None.


Schedule 3.13(f)(ii)

Acceleration of Benefits Upon Execution of Merger Agreement

Andrew Margie, Vice-President of Directory and Development of the Company, has a provision in his Restricted Stock Agreement providing for full vesting acceleration of all of his shares of Restricted Common Stock upon change of control of the Company.


Schedule 3.13(h)

Employer Security of Employer Real Property

None.


Schedule 3.14(a)(1)(i)

Directors and Officers

2008:

Jon Brod — President, Secretary, Treasurer, Chief Executive Officer and Chairman of the Board.

2009:

Jon Brod — President, Secretary, Treasurer, Chief Executive Officer and Chairman of the Board.


Schedule 3.14 (a)(1)(ii)

Employees and Consultants (including updates)

Please see attached. See also Schedule 3.14(a)(l)(iii) for the list of employees.


Schedule 3.14(a)

Consultants/Contractors

[see attached]


Schedule 3.14(a)(1)(iii)

W-2’s, Compensation for 2008 and 2009, Annual Base Salary, Bonus Opportunity, Job

Title, Date of Hire

Please see attached.


Schedule 3.14 (a)(1)

Employees

[see attached]


Schedule 3.14(a)(2)

Accrued Vacation Amount

 

Employee

   2009
Accrued
Vacation
Days
   2009
Eligible
Vacation
Days
   2009
Available
Vacation
Days
   Accrued
Value

Adam Bulger

   1    10    9    $ 1,110

Adam Hooper

   0    10    10    $ 1,918

Alexandra Catighera

   6    10    4    $ 658

Andrew Margie

   1    10    9    $ 3,082

Aubrey Holland

   0    10    10    $ 3,014

Brett Camper

   1    10    9    $ 2,959

Brian Farnham

   0    10    10    $ 3,699

Cedric Howe*

   4    15    11    $ 3,014

Cotton Delo

   1    10    9    $ 1,036

Jen Connic

   0    10    10    $ 1,178

Jon Brod

   1    10    9    $ 6,164

Katie Ledvin

   4    10    6    $ 1,068

Kelsey Rahn

   5    10    5    $ 822

Maksim Kalashnikov

   6    10    4    $ 1,644

Mat Brown

   6    10    4    $ 822

Meghan Hoctor

   4    10    6    $ 575

Randy Meech

   5    10    5    $ 1,644

Rebecca Hughes

   0    10    10    $ 1,096

Sam Cole

   0    10    10    $ 1,370


Steve Johnson

   0    10    10    $ 3,151

Trip Tate

   1    10    9    $ 1,159

Warren Webster

   2    10    8    $ 3,507

William Nance

   1    10    9    $ 2,466

John Celock

   0    8    8    $ 921

Lindsay Wilkes-Edrington

   0    8    8    $ 877

 

*Cedric Howe, who has family overseas, sepcifically negotiated 15 days vacation as part of his deal


Schedule 3.14(b)

Affiliated Contracts

Please see Schedule 3.14(a)(1)(ii).


Schedule 3.14(f)

Departing Employees

Adam Hooper, one of the Company’s engineers, has given notice to the Company that he will be returning to Canada to attend Carleton Journalism School and his last day at the Company is expected to be sometime in September 2009.


Schedule 3.16(b)

Real Property

Lease by and between Polar Capital Group, LLC and Olmstead Properties, Inc. dated 6/6/2008.


Schedule 3.17

Taxes

The Company has not filed any federal, state or local tax returns for any periods.


Schedule 3.18(a)

Intellectual Property

US Trademarks

1. PATCH (word mark), US Serial Number 77/576,011
   Application Filing Date: September 22, 2008
   Goods and Services:

International Class 035: Advertising services, namely, providing space in an online newspaper and dissemination of advertisements and classified advertising for others online and on wireless and mobile devices

International Class 038: Providing streaming video and audio material on the internet and on wireless and mobile devices

International Class 041: Providing online newspapers featuring news, Information and listings on a variety of topics of general and local interest including news, politics, policy, sports, business, technology, entertainment, science, arts, leisure, travel, weddings, births, obituaries, editorial commentary and classified advertising; Providing news, information and listings on a variety of topics of general and local interest including news, politics, policy, sports, business, technology, entertainment, science, arts, leisure, travel, weddings, births, obituaries, editorial commentary and classified advertising on wireless and mobile devices

Owner: Patch Media Corporation (584 Broadway New York, NY)

 

2. PATCH (design mark), US Serial Number 77/668,130
   Application Filing Date: February 11, 2009
   Goods and Services: (same as above)
   Owner: Patch Media Corporation (584 Broadway, New York, NY)

LOGO

List of Company Domain Names

Please see attached.

Material Unregistered Intellectual Property

 

1. One-click local ads: system and method for user to create local business ad in one click from pre-gathered data
2. Custom fields: system & method for administrators to create categories and custom fields per content object type


Schedule 3.18(a)

Intellectual Property

Domain Names

 

Notes: Patch domain names are administered under 2 separate Network Solutions accounts: 31437190 and 31466555
     31466555 domain names are held in the name of Patch Media Corp
     31437190 domain names (highlighted) are held in the name of Polar Capital Group and must be transferred directly to AOL’s domain registrar
     There are two domain names in the name of Polar Capital Group (www.patch.com.es and www.patch.com.mx)

 

Count   Domain Name   Account No.   Points To   Private   Folder   Auto
Renew
  Expiration
Date
  WHOIS
Administrative
Contact
 

WHOIS

Technical

Contact

  Account Holder

1

  acmetesting.net   Patch Media Corporation (31466555)   ADNS Services   Off   Misc   Off   4/6/2010   Cedric Howe   Cedric Howe   Patch Media Corp

2

  bayonnebaysider.com   Patch Media Corporation (31466555)   ADNS Services   Off   Misc   Off   4/4/2010   Cedric Howe   Cedric Howe   Patch Media Corp

3

  bedfordpatch.com   Patch Media Corporation (31466555)     Yes   Patch   On   4/22/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

4

  berkeleyheightspatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   1/8/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

5

  cranfordpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   1/8/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

6

  darienpatch.com   Patch Media Corporation (31466555)   ADNS Services   No   Patch   On   4/12/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

7

  elfcast.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Misc   Off   8/6/2018   Patch Media Corp   Patch Media Corp   Patch Media Corp

8

  fairfieldpatch.com   Patch Media Corporation (31466555)     Yes   Patch   On   4/13/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

9

  fairlawnpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   2/24/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

10

  fanwoodpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   2/24/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

11

  gienrockpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   2/24/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

12

  greenwichpatch.com   Patch Media Corporation (31466555)     Yes   Patch   On   4/13/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

13

  handenhub.com   Patch Media Corporation (31466555)   ADNS Services   Off   Misc   Off   4/4/2010   Cedric Howe   Cedric Howe   Patch Media Corp

14

  harrisonpatch.com   Patch Media Corporation (31466555)     Yes   Patch   On   4/22/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

15

  ihatepatch.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/23/2009   Cedric Howe   Cedric Howe   Patch Media Corp

16

  livingstonpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   1/8/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

17

  localpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/23/2009   Cedric Howe   Cedric Howe   Patch Media Corp

18

  maplewoodpatch.com   Patch Media Corporation (31466555)   ADNS Services   No   Patch   On   12/11/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

19

  millburnpatch.com   Patch Media Corporation (31466555)   ADNS Services   No   Patch   On   12/22/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

20

  montclairpatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   1/8/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

21

  newcansanpatch.com   Patch Media Corporation (31466555)   ADNS Services   No   Patch   On   4/12/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

22

  newprovidencepatch.com   Patch Media Corporation (31466555)   Under Construction Page   Yes   Patch   On   1/8/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

23

  oysterelf.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Misc   Off   6/27/2011   Cedric Howe   Cedric Howe   Patch Media Corp

24

  paatch.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/22/2009   Cedric Howe   Cedric Howe   Patch Media Corp

25

  patcch.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/22/2009   Cedric Howe   Cedric Howe   Patch Media Corp

26

  patch-ads.com   Patch Media Corporation (31466555)   ADNS Services   No   Default   On   5/18/2011   Patch Media Corp   Patch Media Corp   Patch Media Corp

27

  patch-broken.com   Patch Media Corporation (31466555)   ADNS Services   Off   Default   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

28

  patch-company.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/22/2009   Cedric Howe   Cedric Howe   Patch Media Corp

29

  patch-inc.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Patch   On   9/22/2009   Cedric Howe   Cedric Howe   Patch Media Corp

30

  patch-qa.com   Patch Media Corporation (31466555)   ADNS Services   Off   Default   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

31

  patch-staging.com   Patch Media Corporation (31466555)   ADNS Services   Off   Default   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

32

  patch.cn.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Foreign   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

33

  patch.com   Patch Media Corporation (31466555)   ADNS Services   Off   Default   On   3/2/2012   Patch Media Corp   Patch Media Corp   Patch Media Corp

34

  patch.com.es   Patch Media Corporation (31437190)   Under Construction Page   Off   Foreign   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

35

  patch.com.mx   Patch Media Corporation (31437190)   Under Construction Page   Off   Foreign   On   9/24/2010   Cedric Howe   Cedric Howe   Patch Media Corp

36

  patch.jpn.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Foreign   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

37

  patch.ru.com   Patch Media Corporation (31466555)   Under Construction Page   Off   Foreign   On   9/24/2009   Cedric Howe   Cedric Howe   Patch Media Corp

38

  patch.tw   Patch Media Corporation (31466555)   Under Construction Page   No   Foreign   On   9/24/2009   Patch Media Corp   Patch Media Corp   Patch Media Corp

39

  patchmaplewood.com   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   12/22/2009   Patch Media Corp   Patch Media Corp   Patch Media Corp

40

  patchmedia.net   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

41

  patchmedia.org   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

42

  patchmediacorp.com   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

43

  patchmediacorp.net   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

44

  patchmediacorp.org   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

45

  patchmediacorporation.com   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

46

  patchmediacorporation.net   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

47

  patchmediacorporation.org   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

48

  patchmediainc.com   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

49

  patchmediainc.net   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp

50

  patchmediainc.org   Patch Media Corporation (31466555)   Under Construction Page   No   Patch   On   1/23/2010   Patch Media Corp   Patch Media Corp   Patch Media Corp


Schedule 3.18(a)

Intellectual Property

Domain Names

 

51

   patchmillburn.com    Patch Media Corporation (31466555)    Under Construction Page      No    Patch    On    12/22/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

52

   patchsouthorange.com    Patch Media Corporation (31466555)    Under Construction Page      No    Patch    On    12/22/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

53

   patchstreet.com    Patch Media Corporation (31466555)    ADNS Services      Off    Default    On    9/29/2009    Cedric Howe    Cedric Howe    Patch Media Corp

54

   patchsux.com    Patch Media Corporation (31466555)    Under Construction Page      Off    Patch    On    9/23/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

55

   pattch.com    Patch Media Corporation (31466555)    Under Construction Page      Off    Patch    On    9/22/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

56

   poundridgepatch.com    Patch Media Corporation (31466555)         Yes    Patch    On    4/22/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

57

   ridgewoodpatch.com    Patch Media Corporation (31466555)    ADNS Services      Off    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

58

   ryepatch.com    Patch Media Corporation (31466555)         Yes    Patch    On    4/22/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

59

   scarsdalepatch.com    Patch Media Corporation (31466555)         Yes    Patch    On    4/22/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

60

   scotchplainspatch.com    Patch Media Corporation (31466555)    ADNS Services      Off    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

61

   shorthillspatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

62

   southorangepatch.com    Patch Media Corporation (31466555)    ADNS Services      No    Patch    On    12/22/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

63

   springfieldpatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

64

   summitpatch.com    Patch Media Corporation (31466555)    ADNS Services      Off    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

65

   townpatch.com    Patch Media Corporation (31466555)    Under Construction Page      Off    Patch    On    9/23/2009    Patch Media Corp    Patch Media Corp    Patch Media Corp

66

   troycrist.com    Patch Media Corporation (31466555)    ADNS Services      Off    Misc    Off    4/4/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

67

   veronapatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

68

   waynepatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

69

   westfieldpatch.com    Patch Media Corporation (31466555)    ADNS Services      Off    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

70

   westorangepatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp

71

   wyckoffpatch.com    Patch Media Corporation (31466555)    Under Construction Page      Yes    Patch    On    1/8/2010    Patch Media Corp    Patch Media Corp    Patch Media Corp


Schedule 3.18(b)

Intellectual Property Actions Required

1. The Company received two Office Actions from the US Patent and Trademark Office (PTO) regarding PATCH (word), Serial No. 77/576,011 and PATCH (design), Serial No. 77/668,130 (collectively, the “PATCH Marks”). Responses to these Office Actions are due June 20, 2009 and November 7, 2009, respectively. The PTO has asked us to respond to a potential “likelihood of confusion” between each of the PATCH Marks and the mark “THE PATCH,” U.S. Registration No. 2,856,575. The owner of THE PATCH is The Orange Bowl Committee, Inc. of Florida. THE PATCH registration cites goods and services of “printed material, namely newsletters on the game of football” in Class 016 and “entertainment services; namely, organizing and conducting parties and special events” in Class 041.

The Office Action also cites to three other pending applications. Pending Application Serial Nos. 77/136,248 (PATCH and design) and 77/136,240 (THE PATCH) are both owned by Torquay Enterprises Limited of New Zealand. The third pending application the PTO cites is to Application Serial No. 77/370,975 (PATCHES and design) owned by William C. Culbertson of Rhode Island. If any of these applications mature into registration, the PTO has stated that any of these marks may also be cited as a source of potential “likelihood of confusion” with the PATCH Marks.

The Office Action also requests the identification of goods and services listed in the original applications for each of the PATCH Marks be refined.

2. Polar Capital Group is in the process of updating the domain name registrations for patch.com.es and patch.com.mx to reflect the Company’s ownership.


Schedule 3.18(d)

Confidentiality Agreements

None.


Schedule 3.18(g)

Intellectual Property Licensed to a 3rd party

Please see attached.


Schedule 3.18(h)

IP owned or used by Patch which interacts with software code that is subject to an “open source” or “copyleft” or similar type of license

The entire ecosystem in which the Company develops and serves its platform is open-source. This list enumerates open-source software packages with which the Company’s platform code directly interacts, and major standalone software components with which we interact directly or indirectly. A full dependency tree could be generated from the information below.

 

Name

  

License

  

Copyright

  

Description

AASM

   MIT    Scott Barron    Library for implementing state machines in Ruby objects.

ActionMailer

   MIT    David Henemeier Hansson    Framework for building and sending templated emails in Rails.

ActionPack

   MIT    David Henemeier Hansson    Model 2 web framework.

ActiveMerchant

   MIT    Tobias Luetke    Ruby payment abstraction library.

ActiveRecord

   MIT    David Henemeier Hansson    Ruby object-relational mapper.

ActiveResource

   MIT    David Henemeier Hansson    Mapper from web services to Ruby objects.

ActiveResource XML Stripper

   MIT    Giles Bowkett    Strip extension off of ActiveResource URLs.

ActiveSupport

   MIT    David Henemeier Hansson    Extensions to Ruby core library providing extra functionality.

ActsAsAudited

   Unknown    Unknown    Save all changes to an ActiveRecord model in an audits table.

ActsAsList

   MIT    David Henemeier Hansson    Add list semantics to ActiveRecord models.

ActsAsParanold

   MIT    Rick Olson    Enable soft-deleting of ActiveRecord models.

ActsAsSoir

   MIT    Erik Hatcher, Thiago Jackiw    Extend ActiveRecord models to allow indexing and search with Soir.

ActsAsTaggableOnSteroids

   MIT    Jonathan Viney    Integrate tagging functionality into ActiveRecord models.

ActsAsTree

   MIT    David Henemeier Hansson    Add tree semantics to ActiveRecord models.

Apache Commons

   Apache    Apache Software Foundation    General-purpose Java toolkit.

array.indexOf.js

   MIT    Mozilla Foundation    Defines Array-indexOf() method in Javascript.

Builder

   MIT    Jim Weirich    Library for building XML markup in pure-Ruby.

Character Encodings

   Unknown    Nikolai Weibull    Add character encoding support to Ruby.

Datajs

   MIT    Coolle Inc.    Javascript data library.

Diff::LCS

   GNU GPL v2+, Perl Artistic, Ruby    Austin Ziegler    Ruby port of Algorithm::Diff.

Escape

   GNU GPL    Kevin Olbrich    Escape text for SQL, shell commands, etc.

Exception Notification

   MIT    Jamis Buck    Automatically email specified recipients if a production application throws an uncaught exception.

GeoKit

   MIT    Andre Lewis, Bill Eisenhauer    Ruby library for working with geographical data.

GeoRuby

   MIT    Guilhem Vellut    Ruby data types for post GIS/MySQL Spatial Adapter data.

Git

   GNU GPL v2    Linus Torvalds    Distributed version control management system.

Grit

   MIT    Tom Preston-Werner    Ruby object-oriented interface to Git version control system.

HAML

   MIT    Hampton Catlin, Nathan Weizenbaum, Chris Eppstein    Intuitive and concise Ruby templating language: stylesheet abstraction.

Highline

   GNU GPL v2, Ruby    James Edward Gray II, Greg Brown    Command-line IO interface for Ruby.

Hpricot

   MIT    Why the lucky stiff    HTML parser.

HTMLEntities

   MIT    Paul Battley    Encode and decode HTML entities in UTF-8.

HTTPClient

   Ruby    Hiroshi Nakamura    High-level HTTP interface in Ruby.

Icalendar

   Ruby    Unknown    Library for building and parsing Icalendar-format data in Ruby.

Jeditable

   MIT    Mika Tuupola, Dylan Verheul    In-place editing.

JQuery

   MIT,GNU GPL    John Resig    Javascript toolkit.

JQuery Color Animations

   MIT,GNU GPL    John Resig    Animate color changes in Javascript.

JQuery Drop Shadow

   Public Domain    N/A    Add soft drop-shadows behind page elements.

JQuery Templates

   MIT,GNU GPL    Stan Lemon    Templating functionality in jQuery.

JQuery UI

   MIT,GNU GPL    http://jqueryui.com/about    Animations, interface components, and special effects in Javascript.

Jquery.ScrollTo

   MIT,GNU GPL    Ariel Flesler    Easy element scrolling using jQuery.

Jquery.serialScroll

   MIT,GNU GPL    Ariel Flesler    Animated scrolling of series.


Schedule 3.18(g)

 

Name

  

License

  

Developer

  

Description

  

Copyright Owner

Cache Advance

   MIT    Aubrey Holland    Rails plugin providing declarative view caching functionality.    The Company

Field Restrictions

   MIT    Aubrey Holland    Rails plugin enabling restriction of access to models at the attribute level.    The Company

HTML Namespacing

   Public Domain    N/A    Ruby on Rails plugin that adds DOM classes to root elements of HTML templates, allowing template-targeted stylesheets.   

HTML Render

   Public Domain    N/A    Ruby library that translates strings of HTML into rendered PNG images across a variety of browsers and platforms.   

HTML to PNG Server

   Public Domain    N/A    Java server that presents an HTTP API for the translation of HTML into rendered PNG images across a variety of browsers and platforms.   

Machine

   MIT    Aubrey Holland    Library for generating test models using a predefined set of overridable defaults.    The Company

NOAA

   MIT    Mat Brown    Library exposing a Ruby API for retrieval of weather conditions and forecasts from the National Weather Service.    The Company

Record Filter

   MIT    Aubrey Holland, Mat Brown    Extension to ActiveRecord ORM which allows the construction of complex queries using pure Ruby.    The Company

Styley

   MIT    Aubrey Holland    Application for styling maps mapnik.    The Company

Sunspot

   MIT    Mat Brown    Library exposing a pure-Ruby API for indexed and searching objects using the Solar search server.    The Company

Sunspot::Rails

   MIT    Mat Brown    Library for integration of Sunspot library into Rails web framework.    The Company

Rglob

   Public Domain    N/A    Glob-syntax pattern patching library.    The Company


Name

  

License

  

Copyright

  

Description

Rails

   Unknown    Unknown    Replace Rails Prototype javascript helpers with Query equivalents

JSON

   Ruby    Florien Frank    Library for building and parsing JSON-format date in Ruby.

LIbXML-Ruby

   MIT    Wai-Sun Chia, Sean Chittenden    Ruby bindings to LibXML XML parser.

Linecache

   GNU GPL v2    Rocky Bernstein    Read and cache lines of a file.

Lucane

   Apache    Apache Software Foundation    Java fulltext search library.

Memcache Client

   Modified MIT    Bob Cottrell, Eric Hodel, Mike Perham    Ruby client for Memcache protocol.

Mime: Types

   GNU GPL v2, Ruby, Perl Artistic    Austin Ziegler    Guess file’s MIME type from file extension.

Mocha

   MIT    Revieworld Ltd.    Library for creating test stubs and mocks.

MySQL Ruby Bindings

   Ruby    Tomita Masahiro    Native MySQL bindings for Ruby.

MySQL Community Edition

   GNU GPL v2    Sun Microsystems    Relational database server.

OpenX

   GNU GPL v2+    http://www.openx.org/en/about/history    Open-source PHP ad server

Override Task

   Unknown    Engene Botchakov    Allow overriding of previously defined tasks in Rake.

Paperclip

   MIT    Jon Yurek, Thoughtbot Inc.    Integrate file attachments into ActiveRecord models.

PermalinkFu

   MIT    Rick Olson    Automatically generate permalinks for ActiveRecord models.

Rails

   MIT    David Henemeier Hansson    All-in-one web application framework.

Rake

   MIT    Jim Welrich    Ruby automated build program

Really Simple History

   MIT    Brian Dillard, Brad Neuberg    Cross-browser back-button, browser history, and permalinking functionality for dynamic client-side interaction.

Ruby

   Ruby    Yukihiro Matsumolo    Dynamic programming language.

Sanitize

   MIT    Ryan Grove    Whitelist-based HTML sanitizer

Shoulda

   MIT    Tammer Saleh, Thoughbot Inc.    Expressive syntax for Test:: Unit

SMS-Fu

   MIT    Brendan G. Lim    Add SMS functionality to Rails

Solr

   Apache    Apache Software Foundation    Standalone fulltext search server with HTTP XML interface.

Spatial Adapter

   MIT    Guilhem Vellut    Low-level adapter for MySQL spatial and PostGIS columns.

SSL Requirement

   MIT    David Henamsier Hansson    Declaratively require that certain actions only be allowed via SSL.

Starting

   MIT    Blaine Cook, Twitter Inc.    Lightweight server for distributed message passing.

StripAttributes

   MIT    Ryan McGeary    Automatically remove leading and trailing whitespace from ActiveRecord attributes; set blank attributes to NULL.

SWF Object

   MIT    Geoff Steams, Michael Williams, Bobby van der Sluls    Javascript API for embedding SWF animations.

SWF Upload

   MIT    Lars Huring, Olov Nlizen, Mammon Media, Jake Robers    In-place file upload using Flash.

TinyMCE

   GNU GPL v2.1    Unknown    Rich text editor.

Tomcat

   Apache    Apache Software Foundation    Java Serviet container with references implementation of Java Serviet API.

UUIDTools

   MIT    Bob Aman    Library for generating and working with UUIDs in Ruby.

Viking

   MIT    James Herdman    Ruby spam filter abstraction library.

WillPaginate

   MIT    PJ Hyatt, Mislav Marohnic    API for paginating query results in ActiveRecord and exposing pagination to the user interface.

Working

   MIT    playtype GmbH    Build and transparently invoke asynchronous processing workers.

In addition, see response to 3.18(g) above.


Schedule 3.18(k)

Intellectual Property Protection Procedures

As specified in the Company’s terms of service (http://www.patch.com/terms), it is compliant under the Digital Millennium Copyright Act and any foreign equivalents and it operates its business to obtain, maintain, and maximize all applicable protections under the safe harbors of 47 USC section 230 and 17 USC section 512.


Schedule 3.19(b)

Privacy and Security

The Company collects and uses personally identifiable information of users in accordance with its privacy policy which can be found at: http://www.patch.com/privacy and in accordance with its terms of service which can be found at: http://www.patch.com/terms.


Schedule 3.20

Insurance

The Hartford small business spectrum policy number 16 SBA VQ3932 SB to Polar News Company, LLC.


Schedule 3.24

Interested Party Transactions

Contribution and Assumption Agreement by and between the Company and Polar News Company, LLC, dated 11/6/2008.

None of the Company’s employees have paid the Company the par value of $0.001 per share for their Restricted Stock awards listed in Schedule 3.3(a). The Company intends to net such payments out of each Stockholder’s Merger Consideration.

Meghan Hoctor, an employee of the Company, is the cousin of Timothy Armstrong, an Affiliate of the Company. Also, Ms. Hoctor’s sister and cousin of Mr. Armstrong, Margaret Hoctor, has been recently hired by the Company as a consultant.

Greenwich Investment Resources, LLC is the family office of Timothy Armstrong, an Affiliate of the Company, which provides accounts payable, accounts receivable and general accounting services for the Company.


Schedule 5.1

Conduct of Business Pending the Merger

(c)(i) At or just prior to Closing, pursuant to Section 7.2(m) of the Merger Agreement, the Company shall have entered into an agreement with Jay Ackerman pursuant to which he will exercise his Warrant and receive $10,000 in common stock or, alternatively, the Company will pay him $10,000 to cancel the Warrant.


Schedule 7.2(d)

Approvals

 

1. Lease by and between Polar Capital Group, LLC and Olmstead Properties Inc., dated 6/6/2008.
2. Broadspeed Dynamic IP GR Order Form by and between Polar Capital Group, LLC and Broadview Networks.


Schedule 7.2(n)

Termination of Contracts

The Ambrose Multiple Employer Retirement Savings Plan as it relates to the Company and the Company employees shall have been terminated immediately prior to the Closing Date.

EX-10.69 13 dex1069.htm EXHIBIT 10.69 EXHIBIT 10.69

Exhibit 10.69

June 10, 2009

Polar Capital Group, LLC

584 Broadway Suite 1206

New York, NY 10012

Attn: Jon Brod, Manager

Polar News Company, LLC

584 Broadway Suite 1206

New York, NY 10012

Attn: Jon Brod, Manager

Re: AOL LLC / Patch Media Corporation Merger Consideration Payable to Polar News Company, LLC

Ladies and Gentlemen:

Reference is hereby made to that certain Agreement and Plan of Merger, dated as of May 30, 2009, by and among AOL LLC, a Delaware limited liability company (“Parent”), Pumpkin Merger Corporation, a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), Patch Media Corporation, a Delaware corporation (the “Company”), and Jon Brod, in his capacity as the Stockholders’ Agent (as the same may be amended, supplemented, modified and/or restated from time to time, the “Merger Agreement”). Capitalized terms used and not otherwise defined herein shall have the meaning ascribed to such terms in the Merger Agreement.

This letter is being delivered to document our mutual understanding with respect to the treatment of the Series A-1 Merger Consideration that Polar News Company, LLC (“Polar News”) will receive in connection with the Merger. Pursuant to the terms of the Merger Agreement, following the Closing, Polar News is entitled to receive $5,307,171.82 (the “Polar News Merger Consideration”), $530,902.31 of which will be placed in the Escrow Fund and be governed by the terms of the Merger Agreement and the Escrow Agreement. As a result of Polar Capital Group, LLC’s (“Polar Capital”) economic interest in Polar News, Polar Capital is entitled to receive $4,567,171.82 (the “Polar Capital Merger Consideration”) of the Polar News Merger Consideration, less $456,902.31 (which represents Polar Capital’s pro rata share of the amount to be placed in the Escrow Fund on behalf of Polar News). As a result of Jon Brod’s economic interest in Polar News, Jon Brod is entitled to receive $740,000 (the “Jon Brod Merger Consideration”) of the Polar News Merger Consideration, less $74,000 (which represents Jon Brod’s pro rata share of the amount to be placed in the Escrow Fund on behalf of Polar News).

Immediately following the Closing, Polar News shall submit a letter of transmittal to the Paying Agent directing the Paying Agent to distribute the Polar News Merger Consideration, net of $530,902.31, as follows: (1) payment to Polar News of $666,000, which represents the Jon Brod Merger Consideration net of the escrow withholding (which such amount Polar News shall distribute to Jon Brod promptly following receipt from the Paying Agent); and (2) payment to Parent of $4,110,269.51, which represents the Polar Capital Merger Consideration net of the escrow withholding (which such amount Polar Capital agrees shall be retained by Parent in lieu of distribution to Polar Capital).

Upon expiration of the Claim Period, Parent and Jon Brod shall instruct the Escrow Agent to distribute Polar News’ portion of the Escrow Fund as follows: (1) payment to Polar News of the


remaining amount of the escrow withholding portion of the Jon Brod Merger Consideration (which such amount Polar News shall distribute to Jon Brod promptly following receipt from the Escrow Agent); and (2) payment to Parent of the remaining amount of the escrow withholding portion of the Polar Capital Merger Consideration (which such amount Polar Capital agrees shall be retained by Parent in lieu of distribution to Polar Capital).

As soon as practicable following the commencement of public trading of a class of equity securities of Parent, its holding company or successor entity to all or substantially all of the assets and business of Parent (“AOL Securities”) or receipt by Parent of the escrow withholding portion of the Polar Capital Merger Consideration, as applicable, when Parent, its holding company or successor entity to all or substantially all of the assets and business of Parent is first legally and contractually permitted to do so, Parent agrees to cause to be issued shares of AOL Securities to Polar Capital in an amount equal to the Polar Capital Merger Consideration received by Parent from the Paying Agent or Escrow Agent at a price per share equal to the average of the high and low price of AOL Securities as reported by the primary national securities exchange on which such AOL Securities are listed for trading on the day on which shares of AOL Securities are issued to Polar Capital.

Each of Polar News, Jon Brod and Polar Capital shall take all actions necessary to amend all agreements to which they are a party or subject, to allow for compliance with the terms and conditions of this letter agreement.

(Remainder of this page intentionally left blank)


Please indicate receipt of this letter agreement and acceptance of its terms and conditions by signing in the space provided below and returning to Parent an original signed copy of this letter.

 

AOL LLC
By:   /S/    IRA PARKER
Name:   Ira Parker
Title:   EVP, Coporate & Business Development & General Counsel

Acknowledged and Agreed:

 

  The Polar Capital Group, LLC
  By:    
  Name:   Jon Brod
  Title:   Manager
  Polar News Company, LLC
  By:    
  Name:   Jon Brod
  Title:   Manager


Please indicate receipt of this letter agreement and acceptance of its terms and conditions by signing in the space provided below and returning to Parent an original signed copy of this letter.

 

AOL LLC

 

By:    
Name:  
Title:  

Acknowledged and Agreed:

 

  The Polar Capital Group, LLC
  By:   /S/    JON BROD
  Name:   Jon Brod
  Title:   Manager
  Polar News Company, LLC
  By:   /S/    JON BROD
  Name:   Jon Brod
  Title:   Manager and Member
EX-10.70 14 dex1070.htm EXHIBIT 10.70 EXHIBIT 10.70

Exhibit 10.70

August 11, 2009

Polar Capital Group, LLC

584 Broadway Suite 1206

New York, NY 10012

Attn: Jon Brod, Manager

Polar News Company, LLC

584 Broadway Suite 1206

New York, NY 10012

Attn: Jon Brod, Manager

Re: Accrual of Interest on AOL LLC / Patch Media Corporation Merger Consideration Payable to Polar News Company, LLC

Ladies and Gentlemen:

Reference is hereby made to that certain Agreement and Plan of Merger, dated as of May 30, 2009, by and among AOL LLC, a Delaware limited liability company (“Parent”), Pumpkin Merger Corporation, a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), Patch Media Corporation, a Delaware corporation (the “Company”), and Jon Brod, in his capacity as the Stockholders’ Agent (as the same may be amended, supplemented, modified and/or restated from time to time, the “Merger Agreement”). Capitalized terms used and not otherwise defined herein shall have the meaning ascribed to such terms in the Merger Agreement.

Pursuant to the terms of the Merger Agreement, following the Closing, Polar News Company, LLC (Polar News”) was entitled to receive $5,307,171.82 (the “Polar News Merger Consideration”), $530,902.31 of which was to be placed in the Escrow Fund and governed by the terms of the Merger Agreement and the Escrow Agreement. As a result of its economic interest in Polar News, Polar Capital Group, LLC (“Polar Capital”) was entitled to receive $4,567,171.82 (the “Polar Capital Merger Consideration”) of the Polar News Merger Consideration, less $456,902.31 (which represents Polar Capital’s pro rata share of the amount to be placed in the Escrow Fund on behalf of Polar News).

Reference is hereby made to that certain side letter agreement, dated as of June 10, 2009, by and among Parent, Polar Capital and Polar News (the “Side Letter”). Pursuant to the Side Letter, a portion of the Polar Capital Merger Consideration, equal to $4,110,269.51, was retained by Parent in lieu of distribution to Polar Capital (such amount, the “Retained Amount”). The Retained Amount represents the Polar Capital Merger Consideration net of the escrow withholding.

This letter is being delivered to document our mutual understanding with respect to the accrual of interest on the Retained Amount. From and after payment of the Retained Amount to Parent by the Paying Agent, the Retained Amount shall accrue interest in the same manner and at the same rate that the Escrow Amount shall accrue interest pursuant to the terms of the Merger Agreement and the Escrow Agreement. The terms of the Side Letter shall continue to apply to the Retained Amount and shall also apply to any interest accrued thereon.

(Remainder of this page intentionally left blank)


Please indicate receipt of this letter agreement and acceptance of its terms and conditions by signing in the space provided below and returning to Parent an original signed copy of this letter.

 

AOL LLC
By:   /S/    IRA PARKER
Name:   Ira Parker
Title:   EVP & General Counsel

Acknowledged and Agreed:

 

  The Polar Capital Group, LLC
  By:    
  Name:   Jon Brod
  Title:   Manager
  Polar News Company, LLC
  By:    
  Name:   Jon Brod
  Title:   Manager


Please indicate receipt of this letter agreement and acceptance of its terms and conditions by signing in the space provided below and returning to Parent an original signed copy of this letter.

 

AOL LLC
By:    
Name:  
Title:  

Acknowledged and Agreed:

 

  The Polar Capital Group, LLC
  By:   /S/    JON BROD
  Name:   Jon Brod
  Title:   Manager
  Polar News Company, LLC
  By:   /S/    JON BROD
  Name:   Jon Brod
  Title:   Manager
EX-10.71 15 dex1071.htm EXHIBIT 10.71 EXHIBIT 10.71

Exhibit 10.71

ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”), dated as of             , 2009 (the “Asset Distribution Date”), by and among TIME WARNER INC., a Delaware corporation (“TWX”), AOL INC., a Delaware corporation (“AOL”) and AOL LLC, a Delaware limited liability company (“AOL LLC”).

RECITALS

WHEREAS, TWX and AOL are parties to a Separation and Distribution Agreement dated as of             , 2009 (the “Separation and Distribution Agreement”);

WHEREAS, pursuant to the Separation and Distribution Agreement, TWX and AOL agreed to cause the Internal Transactions, including the Asset Distribution, to be completed;

WHEREAS, in order to complete the Asset Distribution, the parties desire to enter into this Agreement; and

WHEREAS, terms used but not defined herein have the meanings assigned thereto in the Separation and Distribution Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by this Agreement, the parties agree as follows:

1. Assignment. Subject to the terms of the Separation and Distribution Agreement, effective as of the Asset Distribution Date, AOL LLC hereby transfers, assigns, conveys and delivers to AOL, and AOL hereby accepts from AOL LLC, all of AOL LLC’s right, title and interest in the AOL Assets.

2. Assumption. Subject to the terms of the Separation and Distribution Agreement, effective as of the Asset Distribution Date, AOL hereby assumes and agrees faithfully to pay, perform, discharge and fulfill when due, all of the AOL LLC Liabilities.

3. Release. Except as provided in the Separation and Distribution Agreement or any Ancillary Agreement, effective as of the Distribution, AOL does hereby, for itself and each other member of the AOL Group, remise, release and forever discharge TWX, AOL LLC and the other members of the TWX Group, from any and all AOL LLC Liabilities.

4. Further Assurances. Each party hereto agrees to take such further actions as may be reasonably necessary to effect the transactions contemplated by this Agreement, including any actions after the Asset Distribution Date required in accordance with the terms of the Separation and Distribution Agreement.

5. Separation and Distribution Agreement and Ancillary Agreements. The parties agree that, in the event of a conflict between the terms of this Agreement and


the Separation and Distribution Agreement or any Ancillary Agreement, the terms of the Separation and Distribution Agreement or the relevant Ancillary Agreement, as applicable, shall govern.

6. Employee Matters Assignment and Assumption Agreement. The parties agree that the Employee Matters Assignment and Assumption Agreement shall exclusively govern the assignment and assumption of all AOL LLC employment-related assets and liabilities.

7. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any of the transactions contemplated hereby.

8. Binding Effect. This Agreement shall be binding upon each of the parties and their respective successors and assigns.

9. Counterparts. This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

10. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, 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 any such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the parties.

11. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

12. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party hereto, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each party. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or


condition, or a waiver of any other term or condition of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any such rights.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

TIME WARNER INC.,

by

 
   
 

Name:

Title:

 

AOL INC.,

by

 
   
 

Name:

Title:

 

AOL LLC,

by

 
   
 

Name:

Title:

EX-10.72 16 dex1072.htm EXHIBIT 10.72 EXHIBIT 10.72

Exhibit 10.72

EMPLOYEE MATTERS ASSIGNMENT AND

ASSUMPTION AGREEMENT (“Agreement”), dated as of                 , 2009 (the “Asset Distribution Date”), by and among TIME WARNER INC., a Delaware corporation (“TWX”), AOL INC., a Delaware corporation (“AOL”), and AOL LLC, a Delaware limited liability company (“AOL LLC”).

RECITALS

WHEREAS, TWX and AOL are parties to a Separation and Distribution Agreement, dated as of                 , 2009 (the “Separation and Distribution Agreement”), and TWX, AOL and AOL LLC are parties to an Employee Matters Agreement, dated as of                 , 2009 (the “Employee Matters Agreement”);

WHEREAS, pursuant to the Separation and Distribution Agreement, TWX and AOL agreed to cause the Internal Transactions, including the Asset Distribution, to be completed;

WHEREAS, pursuant to the Employee Matters Agreement, TWX, AOL and AOL LLC agreed to allocate certain Assets and Liabilities relating to employee and employee-benefits matters;

WHEREAS, in order to complete the Asset Distribution, the parties desire to enter into this Agreement; and

WHEREAS, terms used but not defined herein have the meanings assigned thereto in the Employee Matters Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by this Agreement, the parties agree as follows:

1. Assignment. Subject to the terms of the Employee Matters Agreement, effective as of the AOL Employee Transfer Time, AOL LLC hereby transfers, assigns, conveys and delivers to AOL, and AOL hereby accepts from AOL LLC, all of AOL LLC’s right, title and interest in the AOL Assets relating to employee or employee-benefits matters.

2. Assumption. Subject to the terms of the Employee Matters Agreement, effective as of the AOL Employee Transfer Time, AOL hereby assumes and agrees faithfully to pay, perform, discharge and fulfill when due, all of the AOL LLC Employee Liabilities, other than those Liabilities retained by TWX or AOL LLC pursuant to the Employee Matters Agreement.

3. Release. Except as provided in the Employee Matters Agreement, effective as of the Distribution, AOL does hereby, for itself and each other member of the AOL Group, remise, release and forever discharge TWX, AOL LLC and the other members of the TWX Group, from any and all AOL LLC Employee Liabilities other than


those Liabilities retained by TWX or AOL LLC pursuant to the Employee Matters Agreement.

4. Further Assurances. Each party hereto agrees to take such further actions as may be reasonably necessary to effect the transactions contemplated by this Agreement, including any actions after the AOL Employee Transfer Time required in accordance with the terms of the Employee Matters Agreement.

5. Other Agreements. The parties agree that, in the event of a conflict between the terms of this Agreement and the Separation and Distribution Agreement, the Employee Matters Agreement or any other Anciliary Agreement, the terms of the Separation and Distribution Agreement, Employee Matters Agreement or other Anciliary Agreement, as applicable, shall govern.

6. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any of the transactions contemplated hereby.

7. Binding Effect. This Agreement shall be binding upon each of the parties and their respective successors and assigns.

8. Counterparts. This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

9. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, 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 any such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the parties.

10. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.


11. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party hereto, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each party. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any such rights.


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

TIME WARNER INC.,

by  

 

  Name:
  Title:

 

AOL INC.,

by  

 

  Name:
  Title:

 

AOL LLC,

by  

 

  Name:
  Title:
EX-10.73 17 dex1073.htm EXHIBIT 10.73 EXHIBIT 10.73

Exhibit 10.73

EXECUTION COPY

CONFIDENTIAL

MASTER SERVICES AGREEMENT

THIS MASTER SERVICES AGREEMENT (the “Agreement”) is made and entered into on ____________, 2009 and effective as of December 1, 2009 (the “Effective Date”), between AOL Inc., a Delaware corporation with offices at 770 Broadway, New York, New York 10003 (together with its Subsidiaries hereinafter referred to as “AOL”), and Time Warner Inc., a Delaware corporation with offices at One Time Warner Center, New York, NY 10019 (“Time Warner”).

WHEREAS, AOL and Time Warner are parties to that certain Separation and Distribution Agreement, dated _____, 2009, whereby they have agreed that Time Warner shall distribute its entire interest in AOL as a stock dividend to the Time Warner common stockholders with the result that AOL and Time Warner will no longer be affiliated companies (the “Separation”).

WHEREAS, prior to the Separation AOL’s predecessor, AOL LLC and its Affiliates, have been providing certain Internet services to Time Warner and Time Warner’s Affiliates (other than AOL) (each of Time Warner and Time Warner’s Affiliates other than AOL, a “TW Company,” and together, the “TW Companies”) pursuant to a Master Services Agreement between AOL LLC and Turner Broadcasting System, Inc., dated November 1, 2006 and a Managed Hosting Agreement between AOL LLC and Time, Inc., dated October 22, 2008 (“Previous Agreements”) and certain other service orders and arrangements.

WHEREAS Time Warner has requested and AOL has agreed to terminate the Previous Agreements and continue to provide such services to the TW Companies (including, for the avoidance of doubt, AOL LLC) pursuant to this Agreement. AOL and each participating TW Company may be referred to herein as a “Party” and collectively the “Parties”).

NOW, THEREFORE, in consideration of the mutual promises set forth herein, AOL and Time Warner hereby agree as follows:

1. Definitions. Capitalized terms used but not defined in the body of this Agreement shall have the respective meanings given to such terms in Exhibit A attached hereto.

2. Provision of Services.

 

  2.1 Previous Agreements. As of the date of this Agreement, the Parties shall terminate the Previous Agreements; provided, however that notwithstanding the termination of the Previous Agreements, the Service Orders issued thereunder, and attached as Exhibits E and F, shall remain in effect and shall be governed by this Agreement. Time Warner represents and warrants that it has the authority to terminate the Previous Agreements and enter into this Agreement on behalf of itself and the TW Companies.

 

  2.2 Service Orders. The type and scope of the Services to be provided to each TW Company under the terms of this Agreement, including any of the additional Services described in the attached Exhibits, shall be specified in an applicable Service Order. The fees for the Services will be set forth in the Service Order. Notwithstanding anything in this Agreement to the contrary, neither party has any obligation to execute any Service Order, and no Service Order shall be effective (i.e. become a Service Order) unless executed by both Parties; provided, however, that AOL and TW Company shall negotiate all Service Orders in good faith to reach agreement.

 

  2.3

Additional Service Orders. If a TW Company and AOL execute multiple Service Orders, unless otherwise stated in any additional Service Orders, each additional Service Order will supplement rather than replace any prior Service Orders. This will only apply when the Service Orders are for the same Service. For example, if a TW Company has licensed five Licensed Spaces at a particular Collocation Facility and AOL


 

agrees to license four more Licensed Spaces to such TW Company at that Collocation Facility, the second Service Order will specify an order for four Licensed Spaces, and the invoice to TW Company as to that Collocation Facility will reflect that Customer now has licensed nine Licensed Spaces at that Collocation Facility (under two separate Service Orders). It would not apply, if a Service Order was currently in place for Licensed Spaces and a new Service Order was executed for the delivery of a completely different Service. In that case there would be no supplement between the two.

 

  2.4 Use of Services by Affiliates Parties. AOL acknowledges that certain TW Companies are, as of the Effective Date, making the Services available to (i) other Affiliates of Time Warner and (ii) certain joint operations in which such TW Company or its subsidiary is a participant. Such TW Companies may continue to make such Services available to such parties during the term in accordance with this Agreement.

3. AOL Responsibilities. AOL will provide the Services in a manner and with the same level and degree of care from and after the Separation as it has been providing to the TW Companies prior to the Separation.

 

  3.1 Services. AOL shall provide Services to each TW Company as detailed in one or more Exhibits and Service Orders attached to this Agreement setting forth the nature, scope and price of such Services, subject to the terms and conditions contained herein, including all payment obligations. The parties acknowledge and agree that the Exhibits and Service Orders attached hereto shall describe the nature, scope and price of the Services as they have been provided to each TW Company immediately prior to the Separation it being the intention of the Parties that AOL continue to provide such Services from and after the Separation pursuant to the terms hereof. AOL reserves the right not to provide Services to any Customer Site or Customer Domain that AOL determines, in its reasonable discretion, to misappropriate or infringe upon the intellectual property or other rights of AOL or any Third Parties, if a TW Company fails to cure such misappropriation or infringement within five (5) business days of AOL’s written notice of such misappropriation or infringement. For avoidance of doubt, in the event of a ruling by a court or agency of competent jurisdiction that a Customer Site or Customer Domain misappropriates or infringes upon the intellectual property rights of AOL or any Third Parties, AOL shall have the right to immediately discontinue Services without further liability to AOL or without further contractual liability by AOL to the affected TW Company under this Agreement, except for amounts payable by the affected TW Company and accrued upon the date of discontinuance of Services.

 

  3.2 Equipment. Each Service Order will set forth the servers, software infrastructure, switches, and associated hardware being provided by AOL to provide the Services. Equipment owned, licensed or leased by AOL and provided to Customer shall hereinafter be referred to as “Equipment”. Equipment owned, licensed or leased by a TW Company, including routers on the Customer Site, and provided to AOL shall hereinafter be referred to as “Customer Equipment”. As between AOL and the relevant TW Company, AOL shall retain all title, rights and interest in and to the Equipment. AOL shall maintain the Equipment in accordance with its routine maintenance schedule. AOL shall use its Commercially Reasonable Efforts to provide upgrades and patches to maintain the Equipment as necessary for the Equipment to perform its obligations under this Agreement. AOL reserves the right to maintain and/or substitute any Equipment for the Services, as AOL in its sole discretion, deems necessary or reasonable in light of future product releases, industry changes or other events, so long as the Services continue to function materially in accordance with the performance metrics set forth herein; provided that such Equipment is certified by any Third Party whose software is being used on the Host, if necessary.

 

  3.3 Technical Support. AOL shall provide 7x24 technical support for the Services via a network operating center (“NOC”) or similar entity. In addition, AOL shall provide technical support, as set forth in the Exhibits, SLAs and the applicable Service Orders attached hereto.

 

  3.4 SLA. The service level agreements (“SLAs”) applicable for the Services are attached hereto as Exhibit B.

 

  3.5 Documentation. AOL shall provide Documentation as AOL, in its sole discretion, deems necessary relating to access and use of the Services. Any TW Company may reasonably request information regarding the access to and use of the Services, that may or may not be contained in Documentation, and AOL shall make commercially reasonable efforts to provide such information.

 

2


  3.6 Reports. As identified in the Exhibits and Service Orders, AOL shall provide to each applicable TW Company reports identifying AOL’s service level compliance to such TW Company, any applicable credits due such TW Company in accordance with the SLA, and such TW Company’s utilization and billing detail.

 

  3.7 Additional Deliverables. In connection with or in addition to the Deliverables, a TW Company may request Additional Deliverables from AOL. If AOL agrees to provide such Additional Deliverable, the Parties shall mutually agree upon and execute an additional Service Order. Such Service Order shall be executed by both Parties and attached as an Exhibit to this Agreement and shall be deemed to be incorporated herein by this reference.

 

  3.8 Designated Contact. AOL shall provide a designated contact person for each TW Company ordering Services hereunder in the same manner and with the same level of access during the Term as it provided prior to the Separation.

4. Intentionally Omitted.

5. Fees and Payments.

 

  5.1 Payments. Each TW Company will be billed in arrears for monthly and non-monthly Fees and any applicable Taxes for the Services provisioned during the previous calendar month. AOL shall provide itemized billing and separately itemized charges for taxable and non-taxable property and Services. Pursuant to Section 5.4, TW Companies may provide allocation data to be used to determine the tax situs of the Services. The applicable TW Company will pay all amounts owed under the Agreement (including, without limitation, any amounts owed under a Service Order) within forty-five (45) days of the date of each AOL invoice. All payments will be made in U.S. dollars and by wire transfer at the account information specified by AOL. Notwithstanding the foregoing to the contrary, AOL shall maintain the same billing practices from and after the Separation with respect to each TW Company as it maintained prior to the Separation.

 

  5.2 Late Payments. In addition to all due and outstanding amounts, AOL reserves the right to charge and collect a Service fee of one percent (1.0%) over the U.S. prime rate per month, or the highest lawful rate, whichever is less (the “Late Fee”), for all such amounts, whether or not disputed, not paid on or before any due dates set forth in this Agreement. The Late Fee will be computed pro rata for each day any payment is late. In the event that AOL incurs expenses in collecting delinquent amounts from Customer, including reasonable attorneys’ fees and court costs, AOL will provide Customer notice and a description of such expenses incurred by AOL and Customer will reimburse AOL for all such documented expenses within thirty (30) days after receiving such notice.

 

  5.3 Disputed Payments. If a TW Company legitimately disputes any invoice amount, such TW Company shall: (i) pay AOL any undisputed portion of the invoice; (ii) provide AOL with a detailed written description of the disputed amount and the basis for such TW Company’s dispute concerning such amount; and (iii) cooperate with AOL in promptly resolving any disputed amounts pursuant to Section 12.7.

 

  5.4 Taxes. All Fees required by this Agreement and under the Services Schedules are exclusive of all federal, state, municipal, local or other governmental excise, sales, and use taxes imposed on the sale of the Services provided, now in force or enacted in the future (“Taxes”). Taxes do not include any taxes that are preempted by any Federal law now in force or enacted in the future, including, but not limited to, the Internet Tax Freedom Act currently set forth in the notes to 47 U.S.C. § 151. TW Companies will have sole discretion with respect to the allocation of Services among taxing jurisdictions for purposes of determining tax situs. TW Companies will not be responsible for any taxes or fees not contained within the definition of Taxes, including gross receipts or similar taxes, such as, but not limited to, the Ohio Commercial Activity Tax and the Virginia Business Professional Occupational and License Taxes. TW Companies will tender all such tax payments and reimbursements hereunder to AOL in accordance with Section 5.1 unless otherwise provided by law, such as in the case of an applicable direct pay permit. In addition, if applicable, Customer Equipment, whether or not physically affixed to the Licensed Spaces, will not be construed to be fixtures, and each TW Company is responsible for preparing and filing any necessary ad valorem property tax return for, and paying, any and all taxes separately levied or assessed against the Customer Equipment.

 

3


  5.5 Changes to Rates, Fees and Charges. AOL has the right to modify any of its rates, fees and charges at any time. Any such modification during the Term of this Agreement will not be effective as to any Service Orders executed by the Parties prior to the modification but will be effective as to any Service Orders (including amendments to Service Orders) executed on or after the date of the modification, unless otherwise stated in a Service Order. Any modification shall take place no later than ten (10) business days after written notice of any such modification.

 

  5.6 Fraudulent Use of Services. Each TW Company is responsible for all charges attributable to such TW Company and incurred respecting Services provided to such TW Company, even if incurred as the result of fraudulent or unauthorized use of Service; except that no TW Company shall be responsible for fraudulent or unauthorized use by AOL or its employees.

 

  5.7 Records Maintenance. AOL shall maintain information, records, and documentation relating to the Services and AOL’s performance thereof, including any such records, information, and documentation: (a) required to be maintained under applicable laws and regulations; or (b) necessary to verify AOL’s compliance with the SLAs; or (c) necessary and sufficient to document the Services and Fees paid or payable by any TW Company under this Agreement, in the same manner after the Separation as it has been maintaining prior to the Separation. AOL shall cooperate with the TW Companies to provide records as may be reasonably requested by them.

6. Proprietary Rights.

 

  6.1 Customer Data. Each TW Company shall own any and all data collected from use of the Services the Customer Sites, the content and Customer Domains (collectively, the “Customer Data”). Each TW Company hereby grants AOL and its Affiliates, as applicable, a non-exclusive, limited, revocable, worldwide, royalty-free license to copy, transmit, modify and use the Customer Data solely as necessary to perform its obligations under this Agreement or, with prior written notice by the applicable WT Company, where practicable, as necessary to comply with applicable laws, regulations, and government orders or requests. Such Customer Data shall not be used by AOL for any marketing or commercial purpose whatsoever and AOL shall not use Customer Data to contact any user of any TW Company products or services without the prior written consent of the applicable TW Company.

 

  6.2 AOL Intellectual Property. Each TW Company acknowledges that all rights to patents, copyrights, trademarks, trade secrets, AOL’s name and trademarks, and all intellectual property or proprietary and Confidential Information of any kind or character inherent in or appurtenant to the Services under this Agreement (the “AOL Works”) are the sole and exclusive property of AOL. Each TW Company agrees and acknowledges that it is not purchasing title to the AOL Works and that none of the AOL Works or Deliverables shall be considered “works made for hire” within the meaning of the United States Copyright Act. All rights, title and interest in the AOL Works and Services, and derivative works thereof, shall be deemed to vest and remain vested in AOL, including, but not limited to, patents, copyrights, trademarks, trade secrets and other intellectual property rights. All rights, title, and interest in and to the AOL Works not expressly granted herein are reserved to AOL. Notwithstanding the foregoing or any other provision of this Agreement, nothing contained herein shall be construed as granting AOL any right, title or interest in or to any of the TW Companies’ intellectual property rights or Confidential Information. Further, the Parties mutually acknowledge that, in providing Services pursuant to this Agreement, AOL and its personnel and agents may become acquainted with certain general ideas, concepts, know-how, methods, techniques, processes, tools, or skills pertaining to the Services and retained in the unaided memory of such personnel and agents (the “Residual Knowledge”). Each TW Company acknowledges and agrees that, excluding such TW Company’s intellectual property rights and Confidential Information, AOL may use such Residual Knowledge for any purpose.

7. Insurance.

 

  7.1

Time Warner Required Insurance and Certificates of Insurance. At the TW Companies’ expense, during the Term of this Agreement, and with respect to any claims-made policies, for a period of three years thereafter, the TW Companies will maintain in full force and effect with regard to the activities at, or relating to, each of the Collocation or Transit Facilities, (1) Commercial General Liability Insurance in an amount not less than Two Million U.S. Dollars ($2,000,000) per occurrence for bodily injury and property

 

4


 

damage, products and completed operations and advertising liability, which policy will include a contractual liability coverage insuring the activities of the TW Companies contemplated by this Agreement; (2) Worker’s Compensation and employer’s liability insurance in an amount not less than that prescribed by statutory limits; (3) Commercial Automobile Liability Insurance (including owned, non-owned, leased and hired vehicles), which insurance will apply to bodily injury and property damage in a combined single limit of no less than One Million U.S. Dollars ($1,000,000) per accident, if applicable; and (4) Errors and Omissions Liability Insurance covering liability for loss or damage due to an act, error, omission or negligence with a minimum limit per event of Five Million U.S. Dollars ($5,000,000). The TW Companies will ensure that all of the foregoing insurance covers all periods in which this Agreement is in effect, regardless of whether the claims are made during the Term or after this Agreement expires or is earlier terminated. The TW Companies will furnish AOL with certificates of insurance evidencing the minimum levels of insurance set forth herein and shall name AOL as an additional insured on all such policies. Such certificates of insurance will provide that each additional insured must be given at least thirty (30) days prior written notice of any termination, non-renewal, or modification of insurance coverage. All policies shall be primary and non-contributory to any insurance coverage maintained by AOL. Policies shall be written with a licensed insurance company with a Best’s Rating of no less than A-VIII. The TW Companies shall, or shall cause their insurance company(ies) to, provide the additional insured thirty (30) days prior written notice of cancellation and/or any material change in any such policy. In the event AOL is providing Services to a Divested Entity in accordance with Section 11.3, such Divested Entity shall obtain or maintain insurance coverage in order to comply with this Section 7.

 

  7.2 AOL Required Insurance and Certificates of Insurance. During the term of this Agreement, and with respect to any claims-made policies, for a period of three years thereafter, AOL shall maintain in full force and effect the following insurance coverage: (i) Commercial General Liability insurance with limits of no less than $2 million per occurrence and $2 million as an annual aggregate, including but not limited to products and completed operations and advertising liability; (ii) Workers’ Compensation insurance in compliance with all statutory requirements; (iii) Errors and Omissions liability insurance covering the types of products and services (including all technology products) as well as cyber-liability provided by AOL under this Agreement with limits of no less than $5 million per claim and $5 million as an annual aggregate; and (iv) Business Auto liability insurance with no less than $2 million combined single limit. Time Warner and its Affiliates, successors and assigns existing now or hereafter shall be named as additional insured on all such policies with the exception of workers compensation insurance, as applicable. All policies shall be primary and non-contributory to any insurance coverage maintained by Time Warner. Policies shall be written with a licensed insurance company with a Best’s Rating of no less than A-VIII. AOL shall provide a certificate of insurance evidencing all such coverage and a renewal certificate fifteen (15) days prior to the renewal of any such policy. Supplier shall, or shall cause its insurance company(ies) to, provide the additional insured thirty (30) days prior written notice of cancellation and/or any material change in any such policy.

 

  7.3 Customer Waiver and Waiver of Subrogation. Notwithstanding anything in this Agreement to the contrary, Time Warner and each TW Company waives and releases any and all claims and rights of recovery against the AOL Parties for liability or damages if such liability or damage is covered by such insurance policies then in force or the insurance policies required pursuant to this Agreement (whether or not the insurance required pursuant to this Agreement is then in force and effect), whichever is broader. The forgoing waiver shall not be limited by the amount of insurance then carried by the TW Companies and any deductible shall be deemed to be included in the insurance coverage. The TW Companies will cause and ensure that each insurance policy covering the Customer Equipment, Customer Domain, Customer Site and occurrences thereon, and all other areas of property, or occurrences thereon, will provide that the underwriters waive all claims and rights of recovery by subrogation against the AOL Parties in connection with any liability or damage covered by such insurance policies.

 

  7.4

AOL Waiver and Waiver of Subrogation. Notwithstanding anything in this Agreement to the contrary, AOL waives and releases any and all claims and rights of recovery against the TW Company Parties for liability or damages if such liability or damage is covered by AOL’s insurance policies then in force or the insurance policies AOL is required to obtain pursuant to this Agreement (whether or not the insurance AOL is required to obtain is then in force and effect), whichever is broader. AOL’s waiver shall not be limited

 

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by the amount of insurance then carried by AOL and any deductible shall be deemed to be included in the insurance coverage. AOL will cause and ensure that each insurance policy of AOL covering the AOL Data Centers, AOL Stadium, AOL Works, Collocation Facility, Equipment, Inter-rack-Cabling, Licensed Spaces, Transit Facilities and occurrences thereon, and all other areas of property, or occurrences thereon, will provide that the underwriters waive all claims and rights of recovery by subrogation against the TW Company Parties in connection with any liability or damage covered by AOL’s insurance policies.

8. Confidentiality; Data Security.

 

  8.1 Confidential Information. Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. During the Term and for a period of three (3) years following expiration or termination of this Agreement, each Party shall use at least the same degree of care as it employs to avoid unauthorized disclosure of its own information, but in no event less than a commercially reasonable degree of care and in the same manner and with the same degree of care from and after the Separation as prior to the Separation, to prevent the duplication or disclosure of Confidential Information of the other Party, other than by or to (i) its employees and Permitted Agents who need to know such Confidential Information for the purpose of performing the receiving Party’s obligations or exercising its rights under this Agreement and then only to the extent needed to do so, provided that each such employee or Permitted Agent shall agree to comply with confidentiality requirements no less restrictive than those contained in this paragraph and is informed by the receiving Party of the confidential nature of such Confidential Information; and (ii) independent third party auditors that agree in writing to comply with confidentiality requirements no less restrictive than those contained herein. If a disclosure would be deemed a breach of this Agreement if committed by the receiving Party itself, then the receiving Party shall be liable to the other Party for any such disclosure made by its employees or Permitted Agents to whom it has disclosed the other Party’s Confidential Information. If a receiving Party is legally compelled to disclose any of the disclosing Party’s Confidential Information, then, prior to such disclosure, the receiving Party will (i) assert the confidential nature of the Confidential Information and (ii) cooperate fully with the disclosing Party in protecting against any such disclosure and/or obtaining a protective order narrowing the scope of such disclosure and/or use of the Confidential Information. In the event such protection is not obtained, the receiving Party shall disclose the Confidential Information only to the extent necessary to comply with the applicable legal requirements.

 

  8.2 Reimbursement for Disclosures. The applicable TW Company shall reimburse AOL for any costs incurred by AOL related to disclosures of Confidential Information of such TW Company made by AOL pursuant to a court order, subpoena, or government order, including but not limited to the clean up and repair of any impacted servers and the replacement cost of any affected machines or Equipment. AOL shall reimburse the applicable TW Company for any costs incurred by such TW Company related to disclosures of Confidential Information of AOL made by such TW Company pursuant to a court order, subpoena, or government order, including but not limited to the clean up and repair of any impacted servers and the replacement cost of any affected machines or Customer Equipment.

 

  8.3 Data Security. In order to protect the Confidential Information, AOL shall maintain appropriate standard security measures with respect to the Confidential Information including without limitation, technical, physical and organizational controls, and shall maintain the confidentiality, integrity and availability thereto, in the same manner and with the same level and degree of care from and after the Separation as it has been providing with respect to the Services prior to the Separation. In the event that AOL’s systems or property are compromised such that any Confidential Information owned by any TW Company or any employee or customer of a TW Company may have been acquired or is reasonably believed to have been, or is reasonably believed to be at risk of becoming, acquired by unauthorized parties (an “Information Breach”), AOL will, within forty-eight (48) hours of the time it becomes aware of such Information Breach, report any Information Breach to each affected TW Company at the contact information set forth in Schedule 8.3 attached hereto. In the event of an Information Breach, AOL shall cooperate with the applicable TW Company to meet any obligations of such TW Company to notify individuals whose personal information has been compromised as a result of an Information Breach; provided that in no event shall AOL serve any notice or otherwise publicize an Information Breach without the prior written consent of such TW Company.

 

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9. Representations and Warranties.

Each Party represents and warrants to the other Party that: (a) such Party has the full corporate right, power and authority to enter into the Agreement, to grant the rights and licenses granted hereunder and to perform the acts required of it hereunder; (b) such Party shall comply with the provisions of all applicable federal, state, country and local laws, ordinances, regulations and codes; (c) the execution of the Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound; (d) when executed and delivered by such Party, the Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; and (e) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in the Agreement.

10. Indemnity and Limitation of Liability.

 

  10.1  Mutual Indemnification. Each of AOL on the one hand and each TW Company on the other hand (the “Indemnifying Party”) shall defend, indemnify, save and hold harmless the other and such other’s Affiliates and each of its and their officers, directors, agents, affiliates, distributors, franchisees and employees (the “Indemnified Parties”), from any and all Third-Party claims, demands, liabilities, costs or expenses, including reasonable attorneys’ fees (“Losses”), resulting from any Third Party claim, suit, action, or proceeding (each, an “Action”) brought against one or more of the Indemnified Parties arising out of or resulting from (i) the Indemnifying Party’s material breach of any obligation, representation, or warranty of this Agreement; (ii) any injury (including death) to any natural person or damages to tangible property or facilities thereof to the extent arising out of or resulting from the negligence or misconduct of the Indemnifying Party, its officers, employees, servants, affiliates, agents, contractors, licensees, invitees and vendors in connection with the performance by the Indemnifying Party of this Agreement; (iii) any violation by an Indemnifying Party of any regulation, rule, statute or court order of any governmental authority in connection with the performance by the Indemnifying Party of this Agreement.

 

  10.2  Intellectual Property Indemnification. AOL shall defend, indemnify, save and hold harmless the TW Companies and each of their respective the officers, directors, agents, Affiliates, distributors, franchisees and Employees from and against any and all Losses arising out of or relating to any claim that the Services infringe a patent, trademark, trade name, trade secret, copyright or any other intellectual property right (an “Intellectual Property Infringement”) of any Third Party. In addition to any indemnification payable pursuant to this Agreement, in the event any Third Party claims an Intellectual Property Infringement and without prejudice to any rights of any TW Company, AOL may at its own expense and option either: (i) procure the right for the Services to continue to be used in the manner provided in the Agreement; (ii) make such alterations, modifications or adjustments to the Services so that they become non-infringing without incurring a material diminution in performance or function; or (iii) replace the Services with non-infringing substitutes provided that such substitutes do not produce a material diminution in performance or function, or (iv) if AOL determines that the forgoing is not commercially practicable, then AOL may terminate the Services without further liability.

Each TW Company shall defend, indemnify, save and hold harmless AOL and its officers, directors, agents, Affiliates, distributors, franchisees and employees from and against any and all Losses arising out of or relating to (a) such TW Company’s Customer Site or any Customer Domain (including, any claim by a customer or end-user of the Customer Site); (b) claims related to any authorizations, rights or licenses necessary to provide the Customer Site; (c) claims that the Customer Site, any Updates, the Customer Domain, the registration of the same, and the manner in which a TW Company uses or permits others to use such Customer Site or Customer Domain directly or indirectly, misappropriate or infringe any copyright, trade secret, or trademark or any Patent or other legal rights of any Third Party and (d) claims for reimbursement for any costs arising from or related to the subpoena of any Customer Data, or Customer connection, including but not limited to costs associated with the clean-up of any impacted servers and the replacement cost of any affected machines or Equipment.

 

  10.3 

General Provisions. If any Action arises as to which a right of indemnification provided in this Section 10 applies, the Indemnified Party shall promptly notify the Indemnifying Party thereof (provided that any failure to provide timely notice shall not relieve a Party of its obligations under this Section 10 except to the extent actually prejudiced), and allow the Indemnifying Party the opportunity to assume direction and control of the defense against such Action, at the Indemnifying Party’s sole expense, including, the settlement thereof at the sole option of the

 

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Indemnifying Party to the extent that Indemnified Party’s liability is not thereby invoked. The Indemnified Party shall cooperate with the indemnifying Party in the disposition of any such matter (at the Indemnifying Party’s expense). The Indemnified Party shall have the right and option to participate in the defense of any Action as to which this Section 10 applies with separate counsel at the Indemnified Party’s election and cost. If the Indemnifying Party fails or declines to assume the defense of any such Action within ten (10) days after notice thereof, the Indemnified Party may assume the defense thereof for the account and at the risk of the Indemnifying Party. The Indemnifying Party shall pay promptly to the Indemnified Party any Losses to which the indemnity under this Section 10 relates, as they are incurred.

 

  10.4  Limitation of Indemnity. A Party’s indemnity obligations shall be mitigated to the extent of the negligence, recklessness or intentional misconduct of the other Party or the other Party’s Affiliates, directors, officers, employees, consultants or agent. The TW Companies agree and acknowledge that AOL shall be in no way responsible for, and each TW Company shall indemnify and hold AOL harmless for, any claims arising from the actions, policies or conduct of the users of the Customer Site of such TW Company. No TW Company shall be obligated under the indemnity provisions in Sections 10.1 or 10.2 for any Losses solely caused by or resulting from the acts or omissions of any other TW Company and AOL shall look only to the applicable TW Company for enforcement of such TW Company’s indemnity obligations hereunder.

 

  10.5  SERVICE LEVELS. UNDER NO CIRCUMSTANCES WILL A TW COMPANY RECEIVE A CREDIT FOR ANY NON-RECURRING CHARGES EVEN WHERE SUCH TW COMPANY IS ENTITLED TO A CREDIT FOR RECURRING CHARGES. NOTWITHSTANDING THE FOREGOING, ANY CLAIM BY A TW COMPANY FOR CREDITS WILL BE DEEMED CONCLUSIVELY WAIVED UNLESS, WITHIN THIRTY (30) DAYS AFTER THE DATE OF THE OCCURRENCE OF THE EVENT GIVING RISE TO THE CREDIT, THE APPLICABLE TW COMPANY NOTIFIES AOL THAT SUCH TW COMPANY IS SEEKING A CREDIT AND SPECIFYING THE BASIS FOR THE CLAIM. IN ADDITION, WITHOUT LIMITING THE FOREGOING, ALL OTHER CLAIMS BY A TW COMPANY OF WHATEVER NATURE AGAINST AOL WILL BE DEEMED CONCLUSIVELY TO HAVE BEEN WAIVED UNLESS SUCH TW COMPANY NOTIFIES AOL (SPECIFYING THE NATURE OF THE CLAIM) WITHIN SIX (6) MONTHS AFTER THE DATE OF THE OCCURRENCE GIVIG RISE TO THE CLAIM.

 

  10.6  No Other Warranty. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE DELIVERABLES ARE PROVIDED ON AN “AS IS” BASIS, THE TW COMPANIES’ USE OF THE DELIVERABLES IS AT ITS OWN RISK. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO PARTY MAKES, AND EACH HEREBY DISCLAIMS, ANY AND ALL EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE. AOL DOES NOT WARRANT THAT THE DELIVERABLES SHALL BE UNINTERRUPTED, ERROR-FREE OR COMPLETELY SECURE.

 

  10.7  Disclaimer of Actions Caused by and/or Under the Control of Third Parties. AOL DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM AOL’S DATA CENTERS AND THE INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH A TW COMPANY’S CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED. ALTHOUGH AOL SHALL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, AOL CANNOT GUARANTEE THAT THEY WILL NOT OCCUR. ACCORDINGLY, AOL DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS. AOL DISCLAIMS ANY AND ALL LIABILITY FOR ANY DAMAGES ARISING FROM OR RELATED TO ANY THIRD PARTY SOFTWARE USED BY AOL OR A TW COMPANY, WHETHER PROVIDED BY AOL OR A TW COMPANY, EXCEPT FOR AND LIMITED TO THE SERVICE LEVELS AND CREDITS SET FORTH IN EXHIBIT B.

 

  10.8 

Exclusions. EXCEPT AS EXPRESSLY PROVIDED HEREIN, AOL SHALL NOT BE LIABLE TO ANY TW COMPANY, ITS EMPLOYEES, ITS AUTHORIZED REPRESENTATIVES, OR ANY THIRD PARTY FOR

 

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ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT, CUSTOMER SITE, CUSTOMER DATA, OR OTHERWISE. EXCEPT FOR (I) ACTS OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, (II) BREACHES OF CONFIDENTIALITY OBLIGATIONS AND (II) EACH PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY FOR ANY LOST REVENUE, LOST PROFIT, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR OF ANY EQUIPMENT OR BUSINESS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.

 

  10.9  Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCEPT FOR (I) ACTS OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, (II) BREACHES OF CONFIDENTIALITY OBLIGATIONS AND (II) EACH PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER, AS BETWEEN AOL AND EACH TW COMPANY, EACH PARTY’S MAXIMUM AGGREGATE LIABILITY FOR ALL MATTERS RELATED TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AGREEMENT SHALL NOT EXCEED THE TOTAL AMOUNT PAID BY EACH TW COMPANY TO AOL HEREUNDER FOR THE PRIOR TWELVE (12) MONTH PERIOD.

 

  10.10  Basis of the Bargain; Failure of Essential Purpose. Each TW Company acknowledges that AOL has established its Fees and entered into this Agreement in reliance upon the limitations of liability and the disclaimers of warranties and damages as set forth herein, and that the same form an essential basis of the bargain between the Parties. The Parties agree that the limitations and exclusions of liability and disclaimers specified in this Agreement shall survive and apply even if found to have failed of their essential purpose.

11. Term and Termination.

 

  11.1 Term. The Agreement shall be in effect through the two year anniversary of the Effective Date (the “Term”; and the date of expiration, the “Expiration Date”) unless terminated earlier in accordance with this Agreement. The Agreement cannot be renewed by any Party and all Services will cease on the Expiration Date. Each Service Order shall include a term for each Service (the “Service Term”). For the avoidance of doubt, and notwithstanding Section 12.9, in the event that the Service Term or Term of any Service Order conflicts with this Section 11.1, this Section 11.1 shall prevail (i.e., no Service Order shall extend beyond the Term of the Agreement for any reason).

 

  11.2 Termination or Expiration.

 

  11.2.1  For Cause. Either Party shall have the right to terminate this Agreement by giving notice of termination to the other Party, if: (i) the other breaches any material term or condition of this Agreement and fails to cure such breach within thirty (30) days after receipt of notice of the same (other than breaches addressed by Section 11.2.3 or Section 5.1 of Exhibit C); (ii) the other becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors; or (iii) the other Party becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing.

 

  11.2.2  Additional Grounds for Termination by AOL. AOL may terminate this Agreement or any Service Order as to any TW Company and discontinue Service without liability immediately (i) in the event of a ruling by a court or agency of competent jurisdiction that such TW Company violated any law, rule, regulation or policy of any government authority related to the Service; (ii) if such TW Company fails to cure its fraudulent use of the Services after fifteen (15) days’ notice from AOL, provided that if such TW Company, in AOL’s sole reasonable determination, has taken material steps to cure its fraudulent use of the Services, AOL may not terminate this Agreement or the applicable Service Order as to such TW Company pursuant to this provision of the Agreement; or (iii) if a court or other government authority prohibits AOL from furnishing the Services.

 

  11.2.3 

For Non-Payment by a TW Company. Notwithstanding Section 11.2.1, AOL shall have the right to terminate this Agreement (and thereby cease providing all Deliverables under this Agreement) as to a defaulting TW Company only by giving fifteen (15) days notice of non-payment to such defaulting TW

 

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Company if any of AOL’s undisputed invoices to such TW Company remain unpaid for more than sixty (60) days after the due date indicated on such invoice. No TW Company shall be liable for the fees or charges incurred or payable by any other TW Company and AOL shall look only to the applicable TW Company for payment of such TW Company’s invoices.

 

  11.2.4  For Failure to Meet Service Levels. For the purposes of this Section 11.2.4, failure to meet any of the Service Levels in the SLA shall not be deemed a breach of this Agreement by AOL, unless otherwise defined as such in the SLA; provided, however, that if there is any dispute between the applicable Parties as to whether or not such a material breach as described above has in fact occurred, such dispute shall be referred to dispute resolution procedures in accordance with Section 12.7 and this Agreement shall remain in effect until such dispute is resolved in accordance therewith.

 

  11.2.5  Effect of Expiration or Termination. Upon the effective date of expiration or termination of this Agreement or any one or more of the Services: (i) AOL shall cease providing the terminated Services (which may be some or all of the Services); (ii) the applicable TW Companies shall pay AOL (a) any Fees due for Services that have been rendered up to the effective termination/expiration date (provided, that in the event certain Services are terminated prior to others and the Fees for such Services are bundled with Fees for continuing Services, then the Fees shall be reduced pro rata to account for the reduction in Services) and (b) any Out-Of-Pocket Expenses incurred by AOL while providing the Services; and (iii) each Party shall return or destroy all Confidential Information of the other Party in its possession at the time of expiration or termination within forty-five (45) days after such expiration or termination, and shall not make or retain any copies of such Confidential Information except as required to comply with any applicable legal or accounting record-keeping requirement. Upon termination, AOL shall delete Customer Data from its production systems and shall make best efforts to delete or return Customer Data from all other systems and back-ups.

 

  11.2.6  For Convenience. Subject to Section 11.2.5 above, prior to the Expiration Date, any TW Company may terminate this Agreement as to itself and/or any of its Service Orders for any one or more of the Services for any reason. The terminating TW Company shall provide AOL with sixty (60) days notice and shall provide AOL with a project plan for migration of the Services to another provider.

 

  11.3  Divestiture. If Time Warner sells or divests an entity or assets (each, a “Divested Entity”), Time Warner shall inform AOL promptly upon the closing of the divestiture transaction. AOL shall make the Services available to any Divested Entity on the same terms and conditions as stated herein until the end of the Term.

 

  11.4  Transition. Each TW Company shall be responsible for migrating off of all Services and obtaining services from another services provider prior to the expiration of the Term. During the Term, AOL shall cooperate with the TW Companies in the migration of all Services to another provider and shall provide that information and assistance in the transition process as the TW Companies may reasonably request.

12. Miscellaneous.

 

  12.1  Marketing. Neither AOL on the one hand nor any TW Company on the other hand shall use the other Party’s name(s), trademark(s), trade name(s) or logo(s), whether or not registered, in publicity releases, marketing materials, or other publicly-available documents (including publicly-available web pages) without securing the prior written approval of the other.

 

  12.2  Assignment. Neither Party shall assign the Agreement or any right, interest or benefit under the Agreement without the prior written consent of the other, such consent not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, either Party may assign or transfer its rights under this Agreement without the other’s consent to: (a) any Subsidiary of such Party; or (b) another business entity in connection with a transaction pursuant to which the business entity acquires all or substantially all of the property or assets of AOL to which this Agreement relates. Subject to the foregoing, this Agreement shall bind and inure to the benefit of each Party’s successors and permitted assigns.

 

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  12.3  Subcontractors. In providing any of the Deliverables under this Agreement, AOL may, in its sole discretion, subcontract for or otherwise use services provided by Third Parties or any AOL Affiliate, provided that AOL shall remain jointly and severally liable for the performance of such Third Party subcontractor and for all obligations under this Agreement.

 

  12.4  Injunctive Relief. It is understood and agreed that, notwithstanding any other provisions of this Agreement, any breach or threatened breach of the provisions of this Agreement by either AOL on the one hand or any TW Company on the other hand may cause the other irreparable damage for which recovery of money damages would be inadequate and that each Party therefore may seek and obtain timely injunctive relief to protect its rights under this Agreement in addition to any and all other remedies available at law or in equity.

 

  12.5  Force Majeure. No Party will have any liability for any failure or delay in its performance arising from, or relating to, the failure of power, equipment, systems, connections or services not under the control of such party, or the unavailability, inadequate, untimely or poor performance or non-performance of any facilities outside the control of such Party. Without limiting the foregoing, neither Party will be liable for any failure or delay in its performance under this Agreement due to any cause beyond its reasonable control, including, without limitation, national emergencies; acts of war or other civil commotion; acts of God; earthquakes; fires; flood; adverse weather conditions; explosions; other catastrophes; embargo; insurrections; riots; acts of terrorism, sabotage; strikes; lockouts; work stoppages or other labor difficulties; any law, order, regulation or other action of any governing authority or agency thereof; or failure of the Internet (each a “Force Majeure Event”) provided that such Party has taken Commercially Reasonable Efforts to resolve or mitigate the effects of such Force Majeure Event. During any period in which Services to any one or more TW Company are reduced, suspended or terminated by AOL pursuant to this Section 12.5, the affected TW Company(ies) shall not be obligated to make payment of Fees with respect to the unfulfilled, suspended or terminated portion of Services until Services are fully resumed. In the event any Force Majeure event shall occur for more than fifteen (15) consecutive business days, the unaffected party shall have the right to terminate the affected Services, upon ten (10) business days written notice to the other party, provided that if an affected TW Company terminates this Agreement, such TW Company shall reimburse AOL for all of AOL’s reasonable Out-Of-Pocket Expenses incurred through the date of termination.

 

  12.6  Survival. The provisions of Sections 5, 6, 8, 10, 11.2.5, 12.4, 12.6, and 12.8 of this Agreement shall survive any expiration or termination of this Agreement. In addition, all provisions of this Agreement that can only be given proper effect if they survive the termination of this Agreement will survive the termination of this Agreement. This Agreement will be valid as to any obligation incurred prior to termination of this Agreement. Without limiting the foregoing, the TW Companies will pay all amounts owed to AOL under this Agreement, including, without limitation, any amounts that may become due after the expiration or earlier termination of this Agreement.

 

  12.7  Dispute Resolution. All disputes arising under or relating to this Agreement, except for disputes relating to issues of proprietary rights, including but not limited to intellectual property and confidentiality, shall be governed by this Section 12.7. Any dispute subject to this Section 12.7 will be negotiated between the applicable Parties (at appropriate levels of senior management) commencing upon written notice from one Party to the other for a period of thirty (30) days. Settlement discussions and materials will be confidential and inadmissible in any subsequent proceeding without written consent from all applicable Parties. If the dispute is not resolved by negotiation within thirty (30) days following such notice, the affected Parties may seek remedies in equity or law.

 

  12.8  Legal Construction. Subject to Section 12.7, this Agreement is made under and shall be governed by and construed in accordance with the laws of the State of New York (except that body of law controlling conflicts of law) and specifically excluding from application to this Agreement that law known as the United Nations Convention on the International Sale of Goods. Each Party irrevocably consents to the exclusive jurisdiction of the federal courts located in the Southern District of New York and the local courts located in Manhattan, New York, New York, USA. in connection with any action violating this Agreement. In the event of any conflict between these terms and conditions and those of any Service Order, the Service Order shall prevail.

 

  12.9 

Entire Agreement; Counterparts. This Agreement, including all Exhibits and Service Orders, but only as to the Parties to that Service Order, and documents incorporated herein by reference, constitutes the complete and exclusive agreement between the Parties with respect to the subject matter hereof, and supersedes and replaces any

 

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and all prior or contemporaneous discussions, negotiations, understandings and agreements, written and oral, regarding such subject matter. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In the event of any conflict between the terms of this Agreement, and the terms of any Exhibit or Service Order, the documents shall control in the following order: (1) Service Order; (2) Exhibit; and (3) Agreement.

 

  12.10  Notice. Any notice, approval, request, authorization, direction or other communication under this Agreement will be given in writing and will be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered by confirmed facsimile to a then-valid facsimile number assigned exclusively to the intended recipient; (ii) on the delivery date if delivered personally to the Party to whom the same is directed; (iii) one business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available. In the case of AOL, such notice will be provided to the Deputy General Counsel (fax no. 703-265-2208), each at the address of AOL set forth in the first paragraph of this Agreement. In the case of Time Warner except as otherwise specified herein, the notice address shall be the address for Time Warner set forth in the first paragraph of this Agreement attention to the Vice President, Information Technology, with a copy to the General Counsel (fax no. 212-484-7167). If to any other TW Company, to the address set forth in the Service Order for such TW Company.

 

  12.11  Relationship of Parties. This Agreement shall not constitute, create, or in any way be interpreted as a joint venture, partnership, subsidiary, or formal business organization of any kind. Neither AOL nor the TW Companies have the power to bind the other or incur obligations on the other’s behalf without the other’s prior written consent, except as otherwise expressly provided herein.

 

  12.12  Amendment and Waiver. The provisions, terms, and covenants of this Agreement may not be amended nor modified and the observance of any provision of this Agreement may not be waived (either generally or in any particular instance and either retroactively or prospectively) without a writing signed by all Parties to which the amendment or modification is intended to apply. The failure of either Party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights.

 

  12.13  Severability. In the event that any of the provisions of this Agreement are held unenforceable by a court or other tribunal of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect.

 

  12.14  Non-Exclusivity. Nothing herein shall limit either Party’s ability to enter into any agreements with any Third Party for the provision of services similar to those provided and purchased hereunder.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

12


IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this Agreement.

 

AOL Inc.     Time Warner Inc.
By:         By:    
Name:       Name:  
Title:       Title:  

 

13


EXHIBIT A – DEFINITIONS

Action” has the meaning set forth in Section 10.1 of the Agreement.

Additional Deliverables” means any products, services, or documents beyond the Deliverables expressly to be provided by AOL pursuant to this Agreement or any Service Order hereunder.

Affiliate” means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such other Person. A Person shall be deemed to “control” another Person if it owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities, capital stock, or other comparable equity or ownership interest of such Person.

Agreement” has the meaning set forth in the preamble.

AOL” has the meaning set forth in the preamble.

AOL Data Centers” means AOL owned or controlled facilities used to Host the Customer Site.

AOL Employee” means, for the purposes of this Agreement only, any employee of contractor of AOL.

AOL Stadium” (Trademark) is an infrastructure of routers, switches, servers and software required to operate the delivery of static Internet content and accompanying management services.

AOL Works” has the meaning set forth in Section 6.2 of the Agreement.

Backup Service Level” has the meaning set forth in Exhibit B – 2.

Business Day” means Monday, Tuesday, Wednesday, Thursday, or Friday, excluding holidays observed in the United States of America.

Collocation Facility” means the building where Licensed Space is located as defined in a Service Order.

Collocation Network Service” has the meaning set forth in Exhibit B – 1.

Collocation Service Order” means a request to collocate submitted by Customer in the form of Exhibit C-2.

Commercially Reasonable Efforts” means that degree of skill, effort, expertise, and resources that a business entity’s employees with ordinary skill, ability, and experience, under circumstances similar to those addressed herein, would reasonably use and otherwise apply with respect to fulfilling the obligations assumed hereunder.

Confidential Information” means information relating to or disclosed in the course of the Agreement, which is or should be reasonably understood to be confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, Customer Data, information about technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, pricing, product and business plans, projections, and marketing data. Confidential Information shall not include information (a) already lawfully known to or independently developed by the receiving Party, (b) disclosed in published materials, (c) generally known to the public, or (d) lawfully obtained by the receiving Party from any Third Party which lawfully was entitled to have and share the information. Notwithstanding anything herein to the contrary, personally identifiable information about a natural person shall be deemed to be Confidential Information for all purposes.

Connection Notice” means written notice from AOL that the Transit Service ordered by a TW Company has been installed by AOL pursuant to the applicable Transit Service Order.

Content” means the digital audio, video, data, text, animation, graphics, photographs, artwork, links, software, applications, other multimedia materials, and combinations of any or all of the foregoing presented in the Customer Site.

Customer Data” has the meaning set forth in Section 6.1 of the Agreement.

Customer Domain” means the domain names to be Hosted by AOL on behalf of a TW Company.

Customer Equipment” has the meaning set forth in Section 3.2 of the Agreement.

Customer Notification” means a communication from AOL to a TW Company informing such TW Company of AOL’s acceptance of the Transit Service Order.

 

A-1


Customer Premises” means the location or locations occupied by the TW Companies or its end users to which Transit Services are to be delivered.

Customer Site” means all of the architecture and Content for each of the participating TW Company’s website(s) to be located at the Customer Domains.

Deliverable” means any part of the Services or Technical Support, Documentation, Equipment or any other products or services delivered or made available by AOL to any TW Company under this Agreement.

“Divested Entity” has the meaning set forth in Section 11.3 of the Agreement.

Documentation” means specifications, descriptions and written instructions, including on-line instructions.

Dollar” and the sign “$” mean the lawful money of the United States.

ENMP” has the meaning set forth in section 3.2 of Exhibit B.

Effective Date” has the meaning set forth in the preamble.

Employee” means, for the purposes of this Agreement only, any employee or contractor of a TW Company.

Equipment” has the meaning set forth in Section 3.2 of the Agreement.

Expiration Date” has the meaning set forth in Section 11.1.

Fees” means any fee, pricing, or payment of any type under the Agreement, excluding Taxes.

Force Majeure Event” has the meaning set forth in Section 12.5.

Host” means to provide the software and hardware infrastructure for and the maintenance, operation and administration of certain TW Companies’ server software applications.

Implement” means to acquire and install any applicable Equipment and other implementation services agreed upon by the applicable Parties. “Implementation” shall be construed accordingly.

Include,” “includes”, and “including”, whether or not capitalized, mean “include but are not limited to”, “includes but is not limited to”, and “including but not limited to”, respectively.

Indemnified Party” has the meaning set forth in Section 10.1 of the Agreement.

Indemnifying Party” has the meaning set forth in Section 10.1 of the Agreement.

Information Breach” has the meaning set forth in Section 8.3 of the Agreement.

Intellectual Property Infringement” has the meaning set forth in Section 10.2 of the Agreement.

Inter-rack Cabling” means cabling that connects Customer Equipment (i) to electric power sources designated by AOL; (ii) to AOL’s routers and distribution network to the extent necessary as determined by AOL; and (iii) upon a TW Company’s request, to other Customer Equipment located in separate Licensed Spaces in the same room.

Late Fee” has the meaning set forth in Section 5.2 of the Agreement.

Launch” means the date on which Implementation has been completed and the Customer Site is launched via the Services.

Licensed Spaces” means the areas licensed by a TW Company under this Agreement as to the amount of spaces. AOL will determine the rooms and the location in the rooms where the Licensed Space(s) will be located, and AOL will notify the applicable TW Company of the locations.

Local Loop” means the connection between Customer Premises and the AOL intercity backbone network.

Losses” has the meaning set forth in Section 10.1 of the Agreement.

NOC” means network operating center.

“Out-of-Pocket Expenses” means reasonable, verifiable and actual expenses incurred and paid by AOL to a Third Party, but excluding AOL’s overhead costs (or allocations thereof), administrative expenses or other mark-ups

 

A-2


and excluding expenses which could reasonably have been avoided or which could reasonably be recouped by AOL.

Party” has the meaning set forth in the recitals.

Permitted Agents” shall mean attorneys, accountants, auditors, lenders and contractors.

Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organization, government or other department or agency thereof or any other entity.

PNMP” has the meaning set forth in Section 3.1 of Exhibit B.

Residual Knowledge” has the meaning set forth in Section 6.2 of the Agreement.

Service Level” has the meaning set forth in Exhibit B.

Service Order” means the service orders executed by the Parties pursuant to the terms of this Agreement.

Services” means the services, functions and responsibilities of AOL as described in the Agreement (including the Exhibits and Service Orders) as such services, functions and responsibilities may evolve during the Term and may be supplemented and enhanced in accordance with the Agreement.

Service Outage” has the meaning set forth in Section [this is Mentioned but not defined in Section 3.2 of Exhibit B]

“Service Term” means the term for each Service included on each Service Order.

SLA” has the meaning set forth in Exhibit B of the Agreement.

Subsidiary” means an entity in which a Party holds over fifty percent (50%) of the equity or voting interest.

Systems Service Level” has the meaning set forth in Exhibit B – 3.

Taxes” has the meaning set forth in Section 5.4 of the Agreement.

Technical Specifications” means the technical specifications communicated by AOL to a TW Company as supported by the Services.

Technical Support” has the meaning set forth in Section 3.3 of the Agreement.

Term” has the meaning set forth in Section 11.1 of the Agreement.

Third Party” means a Person other than an Employee, AOL Employee, AOL or any TW Company.

Third Party Software” means software owned by Third Party vendors.

Transit Facility” or “Transit Facilities” means property owned or leased by AOL and used to deliver the Transit Service, including without limitation terminal and other equipment, wires, lines, ports, routers, switches, channel service units, data service units, cabinets, racks, private rooms and the like.

Transit Service” means Internet protocol (IP) transit service offered by AOL pursuant to a Transit Service Order. As part of this IP Transit Service, AOL will advertise all the Internet routes/prefixes which collectively form the Internet Routing Table.

Transit Service Order” means a request for Transit Service submitted by Customer in the form of Exhibit D-1.

Transit Service Term” means the term for Transit Service included on the Transit Service Order.

TW Company” has the meaning set forth in the preamble to this Agreement.

Unauthorized Code” shall mean (i) any virus, Trojan horse, worm, or other software routines designed to permit unauthorized access, or to disable, erase, modify, deactivate or otherwise harm software, hardware, or data or (ii) any back door, time bomb, drop dead device, protect codes, data destruct keys, or other software routines designed to disable a computer program automatically with the passage of time.

Update” has the meaning set forth in Exhibit C to this Agreement.

Web Hosting Service Level Identifier” has the meaning set forth in Exhibit B – 8.

 

A-3


EXHIBIT B – MASTER SERVICE LEVEL AGREEMENT

 

1. Definitions.

Unless otherwise defined herein, all capitalized terms shall have the meaning set forth in the Agreement or the specific service level exhibits attached hereto. Unless otherwise noted, all Section references set forth in this Exhibit are to Sections in this Exhibit.

 

2. Service Level.

AOL will endeavor to meet the Service Levels and failure to do so shall be remedied in accordance with the terms of this SLA. A “Service Level” is each of the Collocation Network Service Level (as set forth in Exhibit B-1), Backup Service Level (as set forth in Exhibit B-2) and Systems Service Level (as set forth in Exhibit B-3).

 

3. Exclusions.

The events identified in Sections 3.1, 3.2 and 3.3 below shall be excluded from any calculation of Service Levels.

 

  3.1. Planned Network Maintenance Period (“PNMP”). AOL shall make commercially reasonable efforts to perform planned network maintenance that will have a disruptive impact on the continuity or performance level of Service to the TW Companies between 2am and 6am (inclusive) local time, Monday through Friday. Notwithstanding the foregoing, if the network maintenance will be performed on services that only affect Service to the TW Companies and not Third Parties on AOL’s network, then AOL shall make commercially reasonable efforts to perform such network maintenance between 2am to 6am (inclusive) local time, Tuesday through Friday. AOL shall provide the TW Companies notification via electronic mail or telephone to the TW Company contacts set forth in Schedule II to Attachment A of this Agreement for all non-emergency, planned network maintenance not less than five (5) business days prior to performing maintenance that, in AOL’s reasonable opinion, has a substantial likelihood of affecting Services to the TW Companies. Any TW Company may request, no fewer than two (2) days prior to the PNMP, that AOL reschedule the PNMP. AOL shall use Commercially Reasonable Efforts to accommodate such TW Company’s request to reschedule the PNMP. In no event, other than as defined in herein, shall interruption for a PNMP conducted in accordance with terms herein constitute a failure of performance by AOL. AOL shall use Commercially Reasonable Efforts to notify the TW Companies prior to emergency maintenance, as described below, which may directly or indirectly affect Services to the TW Companies. If AOL’s planned activity is canceled or delayed, AOL shall promptly notify the TW Companies and shall comply with the provisions of this Section to reschedule any delayed activity.

 

  3.2. Emergency Network Maintenance Period (“ENMP”). It may be necessary for AOL to issue notification of an ENMP. ENMPs allow AOL to schedule mandated maintenance with a shorter notification interval than PNMPs. ENMPs are issued when maintenance is required immediately, e.g., to prevent further or repeated interruptions on AOL’s network. AOL will use commercially reasonable efforts to give each TW Company as much notice as possible prior to any emergency maintenance by emailing and calling the TW Companies at the contacts set forth in Schedule II to Attachment A of this Agreement. In the event AOL fails to give the TW Companies at least 24 hours advance notice of any needed emergency maintenance, the affected TW Companies will be entitled to a Service Outage credit for the duration of any resulting outage.

 

  3.3. Events outside AOL’s Direct Control. Any unavailability or failure to meet an identified Service Level due to causes outside of AOL’s reasonable control and that AOL is unable to overcome through the use of its own Commercially Reasonable Efforts to provide alternate sources, work-around plans, or other means shall not be considered in the calculation of Service Levels. Such causes include, but are not limited to (a) Force Majeure; (b) denial of service attacks, infection by viruses, defects in Third Party software, or (c) failure of networks or equipment outside of AOL’s reasonable control.

 

  3.4.

Events within Client’s Control. Any unavailability or failure to meet an identified Service Level (a) caused by the actions or omissions of a TW Company, its Employees or agents, (b) caused by the failure of Customer Equipment or equipment outsourced by a TW Company, or (c) as a result

 

B-1


 

of maintenance performed at the request of a TW Company shall not be considered in the calculation of Service Levels.

 

4. Remedies.

 

  4.1. Dispute Resolution. If AOL fails to attain a guaranteed Service Level in any given calendar month following Implementation, a representative of each Party shall meet during the following calendar month (or as soon as reasonable in light of the extent of the failure) to discuss steps required for AOL to attain the Service Level. The representatives of each of the Parties shall meet as often as the Parties reasonably deem necessary to discuss the issue and negotiate in good faith in an effort to resolve the issue.

 

5. Specific Service Level Identified Attachments.

The service level attachments checked below are attached to and incorporated in this SLA by reference:

______     Exhibit B-1 Collocation Network Service Level Identifier

______     Exhibit B-2 Backup Service Level Identifier

______     Exhibit B-3 Systems Management Service Level Identifier

 

B-2


EXHIBIT B-1 – COLLOCATION NETWORK SERVICE LEVEL AGREEMENT

 

1. Definitions.

“AOL Network” means the network that consists of the AOL Partner Network and the ATDN, as more fully described in the initial Service Order.

“Excess Latency” means that one or more of the TW Companies each experiences transmission latency in excess of 120 milliseconds between any two points on the AOL U.S. Network.

“Excess Packet Loss” means that one or more of the TW Companies each experiences sustained packet loss in excess of one percent (1%) between any two points on the AOL Network for thirty (30) minutes or more.

“Network Downtime” means any interruption in the connection between Equipment and the Internet, attributable to the AOL Network. For the purposes of this SLA, the demarcation point between the AOL Network and the Internet is the point at which AOL transmits content to a Third Party carrier at an AOL border router port; for the avoidance of doubt, the maintenance of the connection between an AOL border router and a Third Party carrier is the responsibility of such carrier and, as a result, is not in AOL’s direct control.

“Network Uptime” for each calendar month, (a) the difference between Total Time and Network Downtime divided by (b) Total Time, expressed as a percentage.

“Total Time” means, for each calendar month, the product of the number of minutes in a day, multiplied by the number of days in such calendar month.

“Transmission Problem” means Excess Packet Loss and Excess Latency.

 

2. Network Service Level.

 

  2.1. Network Uptime. AOL shall endeavor to provide a Network Uptime of 100% and address Transmission Problems as set forth below (collectively the “Network Service Level”).

 

  2.2. Discovery; Notification; Resolution. If AOL discovers that one or more of the TW Companies is each experiencing a Transmission Problem, AOL will make all Commercially Reasonable Efforts to determine the source of the problem and resolve the issue in the following manner:

 

  2.2.1. Discovery of the Problem. Within two (2) hours after discovering the existence of a Transmission Problem, AOL will determine the source of the problem.

 

  2.2.2. Notification of Client. Upon determining the source of the Transmission Problem, AOL will make Commercially Reasonable Efforts to notify the applicable TW Company immediately of such source, but in any event AOL shall notify the applicable TW Company of the source of the Transmission Problem within one (1) hour after determining such source. AOL will continue to communicate with the applicable TW Company hourly thereafter.

 

  2.2.3. Resolution of Problem within AOL Network. If the source of the Transmission Problem is within the AOL Network, AOL will remedy the problem within two (2) hours after determining its source.

 

  2.2.4. Resolution of Problem outside AOL Network. If the source of the Transmission Problem is outside the AOL Network, AOL will use Commercially Reasonable Efforts to notify the Parties responsible for the source and cooperate with them to resolve the problem as soon as possible.

 

B1-1


EXHIBIT B-2 – BACKUP SERVICE LEVEL AGREEMENT

 

1. Definitions.

“Backup Network” means a unique dedicated network separate from the AOL Production Network that is used exclusively to perform backups of Customer Data.

“Backup Service” is the offline storage and data restoration service for the TW Companies located in AOL Data Centers.

 

2. Backup Service Levels.

AOL shall address the Backup Service as follows (the “Backup Service Level”):

 

  2.1. Backup and Restore Requests. A TW Company shall make all requests (each, whether a Special Backup Request or Restore Request, as defined below, are hereinafter referred to as a “Request”) associated with the Backup Service by sending an email to their AOL account manager or as otherwise identified by AOL to such TW Company.

 

  2.2. Backup Request. AOL shall backup Customer Data in accordance with the terms of the Service Order for the Backup Service. In the event that a TW Company requests a backup outside of the periods set forth in the Service Order for the Backup Service (a “Special Backup Request”), each request will be handled in the manner set forth below (the “Backup Guarantee”).

 

  2.2.1. Special Backup Requests. All Special Backup Requests shall indicate a time, between 6:00 p.m. and 6:00 a.m. (EST/EDT), that a TW Company would prefer the backup to occur. All backups pursuant to Special Backup Requests will be initiated between 6:00 p.m. and 6:00 a.m. (EST/EDT). AOL does not guarantee the precise time that such a backup will be completed, but does guarantee that it will begin within six (6) hours of the time indicated in such TW Company’s Special Backup Request.

 

  2.3. Restore Requests. All restore requests (each, a “Restore Request”) will be given the highest level of priority and will be handled in the manner set forth below (the “Restore Guarantee”).

 

  2.3.1. Restore Requests during Normal Business Hours. For Restore Requests received between 9:00 a.m. and 5:00 p.m. (EST/EDT), Monday through Friday, excluding holidays (“Normal Business Hours”), AOL will respond to a TW Company’s Request and begin data restoration (a) within two (2) hours of AOL’s receipt of the Request, if the tapes required for the data restoration are stored on-site and (b) within four (4) hours of AOL’s receipt of the Request, if the tapes required for the data restoration are stored off-site.

 

  2.3.2. Restore Requests outside Normal Business Hours. For Restore Requests received outside Normal Business Hours, AOL will respond to a TW Company’s request and begin data restoration (a) within three (3) hours of AOL’s receipt of the Request, if the tapes required for the data restoration are stored on-site and (b) within five (5) hours of AOL’s receipt of the Request, if the tapes required for the data restoration are stored off-site.

 

B2-1


EXHIBIT B-3 – SYSTEMS MANAGEMENT SERVICE LEVEL AGREEMENT

 

1. Definitions

“ICMP” (Internet Control Message Protocol) means a message control and error-reporting protocol between a host server and a gateway to the Internet. ICMP uses Internet Protocol (IP) datagrams, where the messages are processed by the IP software and are not directly apparent to the application user.

“Systems Downtime” shall be deemed to have commenced when any of the monitored TW Company URL’s and/or physical hosts do not respond to three (3) consecutive ICMP pings done at five (5) minute intervals by AOL’s monitoring software and such non-responsive URL has caused material degradation of the associated Customer Site performance ending the minute that AOL has determined that the Customer Site is functioning without material degradation.

“Systems Uptime” means, for each calendar month, (a) the difference between Total Time and Systems Downtime divided by (b) Total Time, expressed as a percentage.

“Total Time” means, for each calendar month, the product of the number of minutes in a day, multiplied by the number of days in such calendar month.

 

2. Systems Uptime.

 

  2.1. Systems Uptime. AOL shall endeavor to provide Systems Uptime of 100% (the “Systems Service Level”).

 

3. Systems Credit Calculation.

 

  3.1. Credits. For the purposes of this SLA, a “Systems Credit” equals the pro-rata Systems Monthly Recurring Charge (identified in each Service Order) for one day of service. For example, in January, a Systems Credit equals 1/31 of the Systems Monthly Recurring Charge for the month; in April, however, a Systems Credit equals 1/30 of the Systems Monthly Recurring Charge for the month.

 

  3.2. Systems Downtime. In the event that a TW Company experiences Systems Downtime and AOL fails to resolve the problem within fifteen (15) minutes, such TW Company shall be entitled to one (1) Systems Credit for each such Systems Downtime event. If the same problem occurs within twenty-four (24) hours after the problem is initially detected, it will be considered part of the same Systems Downtime event and will not be eligible for additional Credits.

 

  3.3. Maximum Number of Credits. Notwithstanding anything to the contrary set forth herein, the aggregate maximum number of Systems Credits that AOL will issue to any one TW Company, for any and all Systems Downtime during any calendar month, is ten (10) Systems Credits.

 

B3-1


EXHIBIT C – COLLOCATION SERVICE SCHEDULE

 

1. Definitions.

Unless otherwise defined herein, all capitalized terms shall have the meaning set forth in the Agreement or the specific exhibits attached hereto. Unless otherwise noted, all Section references set forth in this Exhibit are to Sections in this Exhibit.

 

2. Services.

 

  2.1. Licensed Spaces. Subject to the terms and conditions of this Agreement and the applicable Service Orders, in consideration for the recurring charges for the Licensed Spaces set forth in the applicable Service Orders, AOL grants the applicable TW Company a license to use the Licensed Spaces during the Service Term. Each Licensed Space shall be sufficient to hold one rack the dimensions of which are no larger than 72 inches (height) by 19 inches (width) by 36 inches (deep). Power allocated to each tile space within the applicable AOL Collocation Facility is outlined below. Power usage by a TW Company in excess of this allocation shall obligate such TW Company to purchase access to additional Licensed Space, such that such TW Company’s aggregate usage of power does not exceed the maximum per tile power usage limitation. Any TW Company may provide the rack for each Licensed Space or request that AOL provide the rack at an additional cost.

 

Data Center

   Floor Tile Power
Density Rating

Frankfurt, Germany

   .95kw

Dulles, VA

   1.11kw

Manassas, VA

   1.41kw

Mountain View, CA

   1.52kw

 

  2.2 Set-up Services. In consideration for a TW Company’s payment of the set-up charges set forth in the applicable Services Schedules, for each Licensed Space AOL will perform the set-up for such Licensed Space, which consists solely of the selection, provision and installation of Inter-rack Cabling for Customer Equipment (“Set-up Services”).

 

  2.3

Collocation Services. For each Collocation Facility where a TW Company has Licensed Spaces, AOL will provide a redundant connection between the Customer Equipment and AOL’s routers and distribution network, with a Mbps base set forth in the Service Order, burstable to 100 Mbps (the “Collocation Network Services”). (The amount of bandwidth usage by a TW Company in any billing month will be determined according to the 95th -percentile, one minute interval method, calculated as follows: Actual bandwidth usage in Mbps will be sampled every one minute and these individual data points will be recorded and stored. At the end of each billing month, all such data points for these one minute intervals collected over the course of the billing month will be ranked in descending order. The top five percent of the ranked data points will then be discarded such that the highest of all the remaining data points, the 95th percentile one-minute interval, will determine bandwidth usage for that month.). The recurring monthly charges for the bandwidth usage are set forth in the Services Schedules. For each month each TW Company will be billed for actual bandwidth usage as set forth in the Services Schedules. In addition to the above charges, there will be a non-recurring installation charge as set forth in the Service Order for the redundant connection referred to in this Section 2.3. In addition, as part of the Network Services, at a TW Company’s request, (i) such TW Company may use a reasonable number (as determined by AOL in its sole discretion) of Internet Protocol Addresses (“IP Addresses”) selected by AOL from the address space assigned to AOL; (ii) AOL will provide and administer reverse look-up domain name services (“Domain Name Services”), as

 

C-1


 

determined by AOL, including primary and secondary services, to the extent that AOL deems reasonable; and (iii) at a TW Company’s request, AOL shall delegate reverse Domain Name Services authority to such TW Company. The IP Addresses are the sole property of AOL and AOL reserves the right to change at any time the IP Addresses that a TW Company may use. In the event of a change, AOL shall provide not less than sixty (60) days prior written notice of the change and the affected TW Company shall have the right to schedule the date of change within such 30-day notice period. For additional charges as set forth in the Services Schedules, a TW Company may order additional redundant connections similar to the redundant connection referred to above.

 

  2.4 Fundamental Services. AOL will provide the Fundamental Services (as defined in Exhibit C-1 attached hereto and incorporated herein) for each applicable TW Company at no extra charge for each room with Licensed Space.

 

3. Access to, and Use of, the Rooms, and Use of Customer Equipment.

 

  3.1 Responsibilities, Representations, Warranties and Covenants. Except to the limited extent set forth in Section 3 and the Services Orders, AOL shall have no obligations as to the Customer Equipment. Each TW Company shall maintain Customer Equipment in accordance with all documented specifications and the functionality of such equipment shall be consistent with the use provided for hereunder. Each TW Company will be solely responsible for configuring, providing, placing, installing, upgrading, adding, maintaining, repairing, and operating the Customer Equipment. A TW Company may engage in such actions only to the extent permitted by, and subject to, the terms and conditions of this Agreement. No TW Company shall use the Services in any improper or unlawful manner, and each TW Company shall at all times use such Services in accordance with applicable law. Each TW Company represents, warrants and covenants that such TW Company has the legal right and authority, and will continue to have the legal right and authority throughout the Term, to operate, configure, provide, place, install, upgrade, add, maintain and repair the Customer Equipment as contemplated by this Agreement.

 

  3.2 Compliance with Policies. Each TW Company shall appoint one or more individuals (which may be Third Parties) to act on their behalf with respect to the Collocation Services (each, an “Authorized Person”). The TW Companies will at all times abide by, comply with, and observe the Policies set forth in Exhibit C-1. Notwithstanding anything to the contrary in this Agreement, AOL hereby agrees to exercise reasonable judgment or discretion when denying an Authorized Person access to a Collocation Facility or withdrawing its consent to any of the Authorized Persons. The Policies are hereby incorporated into and made a part of this Agreement by reference. AOL may amend the Policies at any time in its reasonable discretion, which amendments will be incorporated into this Agreement and effective as to the TW Companies upon thirty (30) days’ advance written notice to the TW Companies. Any breach of the Policies by a TW Company shall be deemed a material breach of this Agreement of such TW Company (subject to cure pursuant to Section 11.2.1), but not a breach by any other TW Company.

 

  3.3 Responsibility for Authorized Persons. Each TW Company assumes full responsibility and liability for all acts or omissions of such TW Company’s Authorized Persons (and persons, if any, that such TW Company impermissibly permits to enter the Collocation Facilities) while present on the Properties or in the Collocation Facilities, and all such acts or omissions will be attributed to such TW Company for all purposes under this Agreement, including, without limitation, for purposes of determining responsibility and liability.

 

  3.4

Mechanics Liens. No TW Company shall allow a mechanic’s lien or similar lien to be filed by any individual or entity on AOL’s Collocation Facilities, Equipment, or property. In the event such a lien is filed as a result of a TW Company’s action or failure to act, such TW Company shall be responsible for the immediate satisfaction, payment or bonding of such lien. The foregoing obligation of the applicable TW Company shall be in addition to and not in lieu of any other obligations of such TW Company contained herein. AOL shall not allow a mechanic’s lien or similar lien to be filed by any

 

C-2


 

individual or entity on any Customer Equipment or Customer property. In the event such a lien is filed as a result of AOL’s action or failure to act, AOL shall be responsible for the immediate satisfaction, payment or bonding of such lien. The foregoing obligation of AOL shall be in addition to and not in lieu of any other obligations of AOL contained herein.

 

  3.5 Damage to Customer Equipment. Except for act of gross negligence, intentional misconduct and fraud, AOL will not be liable for any damage to, or loss of, the Customer Equipment or other property under the care, custody or control of a TW Company, to the extent that such loss or damage is, or is required to be under this Agreement, covered by such TW Company’s insurance.

 

4. Relocation.

At any time and at AOL’s sole discretion, AOL may relocate any Equipment, including Customer Equipment, except as set forth in the remainder of this Section 4, to another location within a Collocation Facility or to another AOL designated location upon the lesser of (i) sixty (60) days’ prior written notice to the affected TW Company, or (ii) in the event of an emergency which threatens the equipment in its current location, the amount of notice that may reasonably be given under the circumstances. If the request is at AOL’s sole discretion, then all such costs of relocation (including, for example, reinstalling Customer Equipment) shall be at AOL’s expense and shall be performed so as to not cause any interruption in the Services provided by AOL related to such Equipment. In addition, upon a TW Company’s receipt of the notice required herein, and prior to the move of the Equipment, such TW Company shall have the right to terminate the portion of this Agreement related to the Equipment. Notwithstanding the foregoing, if such relocation is at the request of or is caused by a TW Company, or is necessitated by a Force Majeure event or any other reason beyond AOL’s control, and AOL decides in its sole discretion to perform (or have performed) such relocation, the cost of such relocation will be borne by the affected TW Company. No TW Company shall perform a relocation itself, but it may perform portions of the relocation (such as, for example, reinstalling the Customer Equipment) as AOL reasonably requests.

 

5. Term and Termination.

 

  5.1 Additional Grounds for Termination by AOL. AOL may terminate this Agreement as to any affected collocation Service if: (i) regardless of the cause, the affected Licensed Spaces (or other portions of the Collocation Facility, which, if damaged, materially affect the Services) are materially damaged; (ii) any portion of the Collocation Facility in which the affected Services are located becomes subject to a condemnation proceeding or is condemned; (iii) regardless of the cause or reason, AOL cannot legally provide the TW Companies with access to the Licensed Spaces as contemplated herein for a period exceeding thirty (30) days; or (iv) regardless of the cause or reason, AOL cannot legally provide some or all of the Services to be provided at the affected Licensed Spaces for a period exceeding thirty (30) days.

 

  5.2 Effect of Expiration or Termination. After the expiration or earlier termination of this Agreement, and except in the event of an active dispute between the parties regarding the right to terminate this Agreement for breach, AOL may promptly disconnect any Customer Equipment from the AOL electric power sources and from AOL’s network and remove all Inter-rack Cabling from such Customer Equipment. Within five (5) days after AOL completes its disconnection work, AOL shall provide such limited access to the Licensed Space as to allow the TW Companies to remove such Customer Equipment from the applicable Collocation Facilities and return the applicable Licensed Space to AOL in the same condition as they were in on the Effective Date, normal wear and tear excepted. If any TW Company does not remove such property after thirty (30) days, AOL will have the option to (i) move any and all such property to storage and charge such TW Company for the cost of such removal and storage; or (ii) ship such property to such TW Company at such TW Company’s sole expense.

 

6. Miscellaneous.

This Agreement is a services agreement and is not intended to and will not constitute a lease of any real or personal property. Each TW Company acknowledges and agrees that (i) it has been granted only a license to use the Licensed Spaces in accordance with this Agreement; (ii) it has not been granted any real property

 

C-3


interest in any portion of the Collocation Facilities (including, without limitation, the Licensed Spaces); and (iii) it has no rights as a tenant or otherwise under any real property or landlord/tenant laws, regulations, or ordinances. AOL hereby reserves all rights in and to the Collocation Facilities not specifically granted to a TW Company in this Agreement, including, without limitation, the right (i) of access to and use of the Collocation Facilities for its own use; (ii) to grant additional licenses to other persons for the use of portions of the Collocation Facilities; and (iii) to exercise or grant other rights not inconsistent with the rights granted in this Agreement.

 

7. License Grant.

Solely for the purposes of fulfilling its obligations under the terms of this Agreement, and subject to AOL’s confidentiality obligations hereunder, the applicable TW Companies grant to AOL and the AOL Affiliates (in accordance with the terms of this Agreement) a worldwide, limited, revocable license to install, copy, perform, use, and display the Customer Site in accordance with the terms and conditions herein. AOL obtains no rights (including, without limitation, no ownership rights) in the Customer Site other than the limited license explicitly granted herein.

 

8. Customer Obligations.

 

  8.1 Customer Site. The applicable TW Company shall, at its sole cost and expense, develop in accordance with the Technical Specifications and provide to AOL the architecture and all Content for the Customer Site to be located at the Customer Domains. In the event a TW Company chooses to have AOL provide systems administration services, such TW Company shall provide to AOL in advance any updates or upgrades to the Customer Site or any Content contained therein (each an “Update”) in the manner and format specified by AOL. With respect to the Hosting environments that AOL maintains for Customer Sites, AOL will maintain such environments during the Term in the same manner and to achieve the same degree of Payment Card Industry compliance as prior to the Separation.

 

  8.2 Unauthorized Code. In the event a TW Company chooses to have AOL provide managed services, such TW Company represents and warrants that the Customer Site and any Updates as delivered will not contain any Unauthorized Code. Using a current version of a reputable “antivirus” program, such TW Company shall test the Customer Site and any Updates thereto for Unauthorized Code.

 

  8.3 Access. The applicable TW Company shall provide AOL and its contracted agents with access to Customer Equipment, such TW Company’s systems and Customer Data (subject to Section 6.1 of the Agreement) as necessary to perform any other obligations of AOL hereunder requiring such access, subject to such TW Company’s access and security policies as disclosed to AOL in writing; provided, that should such TW Company not provide AOL prompt access, AOL shall not be responsible for any delay or outage caused by such lack of access or delayed access.

 

  8.4 Hosted Domains. From and after the Separation until March 31, 2010, AOL shall Host any and all Customer Domains that AOL hosted prior to the Separation, and resolve queries against those Hosted Customer Domains, in the same manner and with the same degree of care from and after the Separation as prior to the Separation. The applicable TW Company shall promptly notify AOL in the event that such TW Company has knowledge (i) that the registration of any Customer Domain, or the manner in which such TW Company uses or permits others to use such Customer Domain, directly or indirectly infringes the legal rights, including but not limited to intellectual property rights, of AOL or any Third Party or (ii) that any party has claimed such infringement is occurring.

 

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EXHIBIT C-1 – COLLOCATION POLICIES

This Exhibit C-1 sets forth the procedures, rules, regulations, safety practices or other policies of any type adopted by AOL for the Properties (together, the “Policies”).

 

1. Additional Services.

 

  1.1 Fundamental Services. AOL will provide Fundamental Services to the Rooms at no extra charge to the TW Companies. Fundamental Services consist solely of (i) for each TW Company’s Licensed Space, the use of one 20 AMP, 120 AV Circuit, not to exceed the maximum kW per tile noted below; and (ii) routine maintenance of such TW Company’s Inter-rack Cabling.

 

Data Center

   Floor Tile Power
Density Rating

Frankfurt, Germany

   .95kw

Dulles, VA

   1.11kw

Manassas, VA

   1.41kw

Mountain View, CA

   1.52kw

 

  1.2 Additional Power. Any TW Company may order an additional 20 AMP, 120 AV Circuit, not to exceed the maximum kW per tile noted in section 1.1 above at an additional charge for the installation and additional recurring monthly charges, as set forth in the Applicable Services Orders.

 

  1.3 URL Monitoring. If a Service Order includes URL Monitoring services, AOL agrees to (i) monitor, in the same manner that AOL monitors its own URLs, the TW Company URLs that the Parties have agreed AOL will monitor; and (ii) provide oral notification to the applicable TW Company of any problems AOL discovers relating to such TW Company URLs that AOL is monitoring. The TW Company URLs that AOL will monitor on behalf of a TW Company will be listed in an applicable Service Order.

 

  1.4 Server Monitoring. If a Service Order includes Server Monitoring services, AOL agrees to (i) monitor the status of a TW Company’s servers in one or more Rooms through the use of pings; and (ii) provide oral notification to such TW Company of any problems that AOL uncovers relating to such TW Company’s servers.

 

  1.5 On-Location Remote Hands. If a Service Order includes On-Location Remote Hands service, AOL agrees to provide On-Location Remote Hands service. On-Location Remote Hands service consists of the following: (i) upon request by a TW Company to AOL’s Network Operations Center, an on-site AOL or third party technician will perform remote power cycling of Customer Equipment; (ii) upon request by a TW Company to AOL, an onsite AOL or third party technician will verify the hardware status of Customer Equipment; (iii) if AOL and the applicable TW Company agree, an on-site AOL or third party technician will change backup tapes on the Customer Equipment in accordance with a back-up scheduled agreed to by AOL and the applicable TW Company; (iv) all repair or replacement of Inter-rack Cabling (other than routine maintenance of such Inter-rack Cabling), and any modifications to, upgrades of, or additions to, any and all Inter-rack Cabling; and (v) any other services that a TW Company requests AOL to perform, and AOL in its sole discretion agrees to perform on such TW Company’s behalf, in connection with the Agreement, other than the Network Services or either the Server or URL Monitoring Services referenced above.

 

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AOL charges for On-Location Remote Hands service on an hourly basis in increments of  1/2 hour rounded to the nearest  1/2 hour but with a minimum charge of a  1/2 hour (i.e. services under 15 minutes shall be rounded up to  1/2 hour). If a TW Company commits in advance under a Service Order to pay for a certain number of hours of On-Location Remote Hands service each month regardless of whether it orders that number of hours of On-Location Remote Hands service each month (“Pre-Committed Hours”), such TW Company will pay a lower hourly rate for On-Location Remote Hands service for such Pre-Committed Hours than the TW Company will pay for hours that are not Pre-Committed Hours.

 

2. Access to the Collocation Facilities.

 

  2.1 Authorized Persons. TW Company access to the Collocation Facilities is limited to Authorized Persons. Authorized Persons will provide AOL with such information as is required under the Data Center Access Request which may be accessed at http://ibs.aol.com. AOL may in its sole discretion deny any Authorized Persons access to a Collocation Facility or withdraw its consent to any of the Authorized Persons for good reason. Each TW Company shall ensure that its Authorized Persons behave in a courteous and professional manner while in the Collocation Facilities and not cause any disturbance.

 

  2.2 Collocation Facility Access. AOL may deny an Authorized Person entry to a Collocation Facility if such Authorized Person does not present photo identification upon seeking entrance to the Collocation Facilities.

 

  2.3 Permitted Areas Within Collocation Facility. Authorized Persons may access the Collocation Facilities solely for the purpose of accessing the applicable TW Company’s Licensed Spaces. A TW Company’s Authorized Persons will have access solely to the entrances, corridors and passageways at the Collocation Facilities, and portions of the Rooms, designated by AOL for the purpose of accessing the Licensed Spaces.

 

  2.4 Hours of Access. AOL is not required to provide a TW Company access to the Collocation Facilities during an emergency affecting any portion of the Collocation Facility or where it is otherwise necessary to deny access for a good faith reason. At all other times, AOL will give Authorized Persons access to the Collocation Facilities 24 hours a day, 7 days a week upon 2 hours advance notice to AOL for emergency repair work that a TW Company needs to perform. For scheduled maintenance and planned installation of Customer Equipment, a TW Company will give AOL a minimum of 24 hours notice of such scheduled maintenance, and AOL will grant such TW Company’s Authorized Persons access to the Collocation Facilities only during the times of the day from time to time designated by AOL’s Network Operations Centers at the Collocation Facilities. AOL will notify the applicable TW Company of the designated times upon request.

 

  2.5 Escort. While in the Licensed Spaces or any other part of the Collocation Facilities, Authorized Persons will at all times be accompanied by an authorized representative of AOL if AOL so chooses.

 

  2.6 AOL Access to Licensed Space. AOL has the right to access the Licensed Spaces (1) to the extent necessary to perform its obligations under the Agreement; (2) to the extent necessary to perform services for the use of the Collocation Facilities by other clients, licensees and customers; and (3) during emergencies.

 

3. Use of Licensed Space.

 

  3.1 Use. Each TW Company will use the Licensed Spaces only for the purposes of configuring, providing, placing, installing, upgrading, adding, maintaining, repairing and operating the Customer Equipment in a safe and lawful manner. Each TW Company will use the Licensed Spaces only for its own benefit and not for the benefit of any Third Party without the express written consent of AOL. Each TW Company will maintain the Licensed Spaces in good repair and in a clean, orderly and good condition (reasonable wear and tear only excepted). No TW Company will litter or leave unnecessary items overnight in or around its Licensed Spaces.

 

  3.2 Entrance to Collocation Facility. No TW Company will permit any person that is not an Authorized Person to enter or use in any way any part of the Collocation Facilities. Each TW Company must ensure that its Authorized Persons act only on behalf of such TW Company with regard to their activities at the Collocation Facilities.

 

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  3.3 Compliance with Laws. Each TW Company will ensure that such TW Company’s use of the Licensed Spaces, and such TW Company’s services, operations, products, materials, data and information used or provided in connection with, or arising out of or relating to, the Agreement or such TW Company’s use of the Licensed Spaces, will not violate any laws, these Policies or any terms or conditions of the Agreement or cause such TW Company to violate any laws, these Policies or any terms or conditions of the Agreement.

 

  3.4 Restrictions on Use. No TW Company will:

(1) store or place any items in any area of the Collocation Facilities other than in Licensed Spaces (and a TW Company may only store Customer Equipment, racks and cabling provided by AOL and a TW Company’s equipment manuals in the Licensed Spaces);

(2) bring into, or use in, the Licensed Spaces or other areas of the Collocation Facilities any of the following items: food or beverages of any kind, tobacco products, weapons, magnetic devices, illegal substances, photographic equipment, boxes or other cardboard, explosives, chemicals, radioactive materials and any waste, substance or other material that may be dangerous to health or the environment;

(3) take photographs (whether by use of a camera, video camera or otherwise) of any part of the interior or exterior of the Collocation Facilities;

(4) alter, tamper with, adjust, or repair any equipment or property in or around the Collocation Facilities other than the Customer Equipment; For the avoidance of doubt, the TW Company may not alter, tamper with, adjust or repair power cables, data cables or fiber, cable management systems, switches or routers that are not Customer Equipment. Violation of this clause may, in AOL’s sole discretion, be considered a material breach.

(5) erect signs of any type in or on the Collocation Facilities, including, without limitation, in or on the Licensed Spaces, the exterior of the rack cabinets, cubicles or cages or on the sides of open racks;

(6) erect devices of any type on the exterior of the racks or on the sides of open racks;

(7) except to the extent permitted in clause (8), make alterations or improvements to any (exterior or interior) portions of the Collocation Facilities; or

(8) without obtaining the prior written consent of AOL, make alterations or improvements to such TW Company’s Licensed Spaces.

 

  3.5 Non-Interference. No TW Company will harm, damage, breach the security of, or interfere with (nor will any TW Company use any Customer Equipment, tools or methods that will harm, damage, breach the security of, or interfere with) any of the following:

(1) the Collocation Facilities (including, without limitation, the Rooms, Licensed Spaces and the electrical and other building systems of the Collocation Facilities); or

(2) any services offered by personnel of, or property owned, leased or licensed by any of the following: (a) AOL, its owners, parent, officers, directors, employees, Subsidiaries, Affiliates, partners, agents and contractors; (b) the vendors, lessees, licensees, contractors or customers of any of the parties listed in (a) other than the applicable TW Company; and (c) the occupants of the Collocation Facilities (other than the applicable TW Company).

 

4. Equipment.

 

C1-3


  4.1 AOL Consent. The applicable TW Company will obtain AOL’s written approval prior to providing, placing, installing, upgrading or adding Customer Equipment to a Collocation Facility, which approval will not be unreasonably withheld, conditioned or delayed AOL may request from time to time, and the applicable TW Company will provide such additional information as AOL reasonably believes is necessary to grant approval.

 

  4.2 Racks. AOL will install, place, upgrade and add Customer Equipment in Licensed Spaces only in racks approved or provided by AOL. AOL shall designate the location of each rack.

 

  4.3 Compliance with Policies and Laws. Each TW Company will configure, provide, place, install, operate, repair, maintain, upgrade and add Customer Equipment in full compliance with: (i) all laws (and such TW Company will obtain and maintain all necessary approvals); (ii) all applicable industry standards, practices and procedures, and as they may be instituted or amended from time to time; and (iii) the Policies and any other security procedures, rules, regulations, policies or safety practices that may be instituted or amended from time to time by AOL and as disclosed to the applicable TW Company in writing; provided, however, that if such TW Company determines in its reasonable discretion that it does not intend to follow such policies, procedures or practices because compliance with such policies, procedures or practices will cause such TW Company undue financial or business hardship, such TW Company may terminate this collocation agreement upon sixty (60) days prior notice.

 

  4.4 Equipment Location and Labeling. Each TW Company will ensure that Customer Equipment (i) fits neatly and securely in the Licensed Spaces, (ii) is clearly labeled to reflect such TW Company’s ownership, custody or control of Customer Equipment and in accordance with AOL’s then standard labeling procedures, and (iii) is configured and operated at all times in compliance with the manufacturers’ environmental and other specifications, including power outlet, power consumption and clearance requirements.

 

  4.5 Interconnections. No TW Company will connect Customer Equipment to equipment or wiring or other property of any person or entity other than such TW Company. No TW Company will connect Customer Equipment to other Customer Equipment in a Licensed Space except where such TW Company uses Intra-rack Cabling to connect Customer Equipment within a rack in a single Licensed Space. AOL will have no obligation to connect Customer Equipment to equipment or wiring or other property of any person or entity other than AOL, and as to AOL only to the extent expressly set forth in, and under the terms and conditions of, the Agreement.

 

  4.6 Inter-rack Cabling. No TW Company will configure, provide, place, install, upgrade, add, maintain or repair Inter-rack Cabling (or the Inter-rack Cabling for any other client); and, AOL will only do so for Inter-rack Cabling to the extent agreed by AOL and the applicable TW Company under the terms and conditions of the Agreement.

 

5. Contacts.

Each TW Company utilizing collocation Services under a Service Order will provide AOL with the names, cell phone numbers and e-mail addresses of at least three (3) person(s) AOL may contact at any time in the event of an emergency or otherwise as needed by AOL. AOL will provide such TW Companies with the telephone numbers to call in the event of an emergency.

 

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EXHIBIT D – TRANSIT SERVICE SCHEDULE

 

1. Definitions

Unless otherwise defined herein, all capitalized terms shall have the meaning set forth in the Agreement or the specific exhibits attached hereto. Unless otherwise noted, all Section references set forth in this Exhibit are to Sections in this Exhibit.

 

2. Delivery of Transit Service

 

  2.1 Submission of Transit Service Order(s). To order any Transit Service, a TW Company shall contact AOL to discuss the service needs. AOL will prepare a Transit Service Order and forward to the TW Company for approval.

 

  2.2 Acceptance by the TW Company. Upon receipt of a new Transit Service Order, the TW Company will accept the Service Order or request changes to the Service Order. AOL, in its sole discretion, will either accept or reject proposed changes and shall work in good faith with the TW Company to reach agreement.

 

  2.3 Customer Premises. If necessary for AOL to provide the Transit Services, the applicable TW Company shall allow AOL access to the Customer Premises to the extent determined by AOL for the installation, inspection and scheduled or emergency maintenance of Transit Facilities relating to the Transit Service. The applicable TW Company will be responsible for providing and maintaining, at its own expense, the level of power, heating and air conditioning necessary to maintain the proper environment for the Transit Facilities on the Customer Premises. In the event the applicable TW Company fails to do so, such TW Company shall reimburse AOL for the actual and reasonable cost of repairing or replacing any Transit Facilities damaged or destroyed as a result of such TW Company’s failure. The applicable TW Company will provide a safe place to work and comply with all laws and regulations regarding working conditions on the Customer Premises.

 

  2.4 AOL Transit Facilities. Except as otherwise agreed, title to all Transit Facilities shall remain with AOL. AOL will provide and maintain the Transit Facilities in good working order. No TW Company shall, nor shall it permit others to, rearrange, disconnect, remove, attempt to repair, or otherwise tamper with any Transit Facilities, without the prior written consent of AOL. The Transit Facilities shall not be used for any purpose other than that for which AOL provides them. No TW Company shall take any action that causes the imposition of any lien or encumbrance on the Transit Facilities. In no event will AOL be liable to any TW Company or any other person for interruption of Transit Service or for any other loss, cost or damage, in each case caused or related to improper use or maintenance of the Transit Facilities by a TW Company or third parties provided access to the Transit Facilities by a TW Company in violation of this Agreement, and the applicable TW Company shall reimburse AOL for any damages incurred as a result thereof. Each TW Company agrees (which agreement shall survive the expiration, termination or cancellation of any Transit Service Order) to allow AOL to remove the Transit Facilities from the Customer Premises:

(A) after termination, expiration or cancellation of the Term of the Agreement or the Service Order in connection with which the Transit Facilities were used; or

(B) for repair, replacement or otherwise as AOL may determine is necessary or desirable, but AOL will use reasonable efforts to minimize disruptions to the Transit Service caused thereby.

 

  2.5 Network Maintenance. AOL shall use Commercially Reasonable Efforts to notify the applicable TW Company at least twenty-four (24) hours in advance of any regularly scheduled maintenance that AOL believes may result in a material interruption of Transit Service.

 

  2.6 Customer Equipment. AOL will not install certain Customer Equipment upon installation of Transit Service, and AOL shall not be responsible for the operation or maintenance of any Customer Equipment. AOL undertakes no obligations and accepts no liability for the configuration, management, performance or any other issue relating to a TW Company’s routers or other Customer Equipment used for access to or the exchange of traffic in connection with the Transit Service.

 

D-1


3. Billing

 

  3.1 Commencement of Billing.

(A) Upon installation of the Transit Service ordered in any Transit Service Order, AOL will deliver to the applicable TW Company a Connection Notice. Upon receipt of the Connection Notice, the applicable TW Company shall have a period of seventy two (72) hours to confirm that the Transit Service has been installed.

(B) In the event a TW Company delivers written notice to AOL within such seventy two (72) hour period that the Transit Service is not installed in accordance with the Transit Service Order, AOL shall promptly remedy the defect or failure specified in such TW Company’s notice. Thereafter, AOL shall again provide the applicable TW Company a Connection Notice with respect to such Transit Service and such TW Company shall thereafter have a period of seventy two (72) hours to confirm that the Transit Service has been properly installed. The procedure set forth in this Section 3.1 shall apply again and successively thereafter until AOL has installed the Transit Service in accordance with the Transit Service Order and the Transit Service is functioning.

(C) Unless a TW Company delivers written notice to AOL within such seventy two (72) hour period following delivery of the applicable Connection Notice that the Transit Service is not installed in accordance with the Transit Service Order, billing shall commence on the applicable Transit Service Commencement Date, regardless of whether such TW Company has procured services from other carriers needed to operate the Transit Service, and regardless of whether such TW Company is otherwise prepared to accept delivery of ordered Transit Service.

 

  3.2 Fees and Payments. The Transit Service Order will set forth the applicable non-recurring charges and recurring charges for the Transit Service. Unless expressly specified in the Transit Service Order or otherwise agreed between the parties, any non-recurring charges shall be invoiced by AOL to the applicable TW Company as part of the first invoice for the recurring charges for the Transit Services. If a TW Company requests and AOL approves (in its sole discretion) any changes to the Transit Service Order or Transit Service after acceptance by AOL, including, without limitation, the Transit Service installation date or Transit Service Commencement Date, additional non-recurring charges and/or monthly recurring charges not otherwise set forth in the Transit Service Order may apply.

 

4. [Intentionally Omitted]

 

5. Acceptable Use Policy

 

  5.1 Each TW Company warrants that its use of the Transit Service shall be in compliance with AOL’s Acceptable Use Policy and Privacy Policy (the “Policy”). The Policy is posted at http://www.atdn.net/aup.shtml. The Policy may be modified, replaced, or discontinued by AOL at any time and is within AOL’s sole discretion.

 

  5.2 AOL shall be allowed to take all appropriate action (including but not limited to suspension of Transit Service to the extent necessary) where use of the Transit Service by a TW Company or any third party gaining access to the Transit Service through such TW Company threatens the viability of the AOL network or in the event of a denial of service attack.

 

D-2


6. Minimum Traffic

 

  6.1 In the event that the TW Company’s total traffic falls below the minimum traffic commitment as agreed in the Transit Service Order for two consecutive months, AOL may terminate the Services upon ninety (90) days written notice to the TW Company.

 

7. Upgrades

 

  7.1 Each TW Company may request a port upgrade, which will be subject to a non-recurring installation charge to be mutually agreed by the Parties. Port upgrade requirements will be determined by AOL in its sole discretion, based on the traffic volume exchanged between AOL’s network and TW Company’s network.

 

D-3


EXHIBIT D-1 – SAMPLE TRANSIT SERVICE ORDER

 

1. Usage Charges for Transit Service.

All traffic usage of the Transit Service will be billed at the following rates:

 

Usage (Mbps)

 

Price (US$)

 

2. Non-Recurring Installation Charge for Transit Service.

 

Port Type

 

Installation Charge (non-recurring)

 

3. Interconnection Charges.

TW Company is solely responsible for the arrangement of and all costs associated with access and/or Local Loop charge (including cross connect charges) in order to utilize the Transit Service provided hereunder.

 

4. Interconnection Points

 

Location

  

Interface Type/Speed

  

Minimum Traffic Commitment

           
           
           
           

 

5. Term of the Transit Service: Two Years

 

AOL Inc.

   

[TW Company]

By:       By:  
Name:       Name:  
Title:       Title:  
Date:       Date:  

 

D1-1


EXHIBIT D-2

Calculation of Port Utilization and Billable Traffic

Measurement of Traffic.

Each TW Company shall be charged based on AOL’s determination of such TW Company’s port utilization and billable traffic at the end of each calendar month. Such charges shall be based solely on AOL’s port utilization data. Utilization on each Port shall be calculated as follows:

 

  (A) All ingress and egress traffic will be measured in one (1) minute intervals (“Measurement Values”).

 

  (B) All ingress Measurement Values for the billing period will be ranked from highest to lowest and the top five percent (5%) of the ingress Measurement Values will be discarded.

 

  (C) All egress Measurement Values for the billing period will be ranked from highest to lowest, and the top five percent (5%) of the egress Measurement Values will be discarded.

 

  (D)

The next highest Measurement Value (the higher of ingress or egress Measurement Value), after discarding the top five percent (5%) shall be deemed to be the 95th percentile port utilization.

The 95th percentile port utilization value of the higher of either Ingress or Egress will be used to determine the applicable TW Company’s monthly charge based on the usage charge set forth in the Transit Service Order.

 

D2-1


EXHIBIT E – CONTENT DISTRIBUTION ORDER FORM

See attached.

 

E-1


EXHIBIT F – SERVICE ORDER FORMS

See Attached.

 

F-1


SCHEDULE 8.3 – NOTICE FOR INFORMATION BREACH

HBO

Michael Gabriel, CIO

917-690-5763

Michael.gabriel@hbo.com

Tom Woodbury

212-512-1722

Tom.woodbury@hbo.com

Time Inc.

Service Desk (24x7) at 212-522-7777.

Mitchell A. Klaif

Information Technology

Time Inc.

1271 Avenue of the Americas

New York, NY 10020

With a copy to:

General Counsel

Time Inc.

1271 Avenue of the Americas

New York, NY 10020

Time Warner Corporate

General Counsel at 212-484-8000

Senior Manager of Application Security at 212-484-6000 and TTS.CSC@turner.com

Turner

Michael D. Hauser

Assistant General Counsel

Turner Broadcasting System, Inc.

One CNN Center

Atlanta, GA 30303-2762

404-878-2627 (direct)

michael.hauser@turner.com

Warner Bros.

Todd Barnum

Vice President of Information Security and Enterprise Architecture

4000 Warner Blvd., Bldg: 168 Rm: 5356

Burbank, CA, 91522

Telephone: 818-954-5822

Fax: 818-977-7136

Gwen Whitson

Sr. Vice-President, Deputy General Counsel

Business & Information Systems

Warner Bros. Entertainment Inc.

Ph.: 818-954-2992

Fax: 818-954-5490

 

SCHEDULE 8.3

EX-10.74 18 dex1074.htm EXHIBIT 10.74 EXHIBIT 10.74

Exhibit 10.74

Private Label Publisher Master Services Agreement

This Private Label Publisher Master Services Agreement (the “Master Terms”) is entered into between Time Inc., a Delaware Corporation located at 1271 Avenue of the Americas, New York, NY 10020 (“Time”) and Quigo Technologies, Inc., a Delaware Corporation located at 90 Park Avenue, 10th Floor, New York, NY 10016 (“Quigo”) as of the later of the two signature dates below (“Effective Date”).

Time desires that the Time Publisher Websites receive certain services described in these Master Terms and in the Enrollment Forms executed between Quigo and each participating Time Publisher. The Enrollment Forms shall be in substantially similar format as the sample Enrollment Form attached hereto as Exhibit 1. All Enrollment Forms executed between the Time Publishers and Quigo shall be incorporated herein by reference, and, together with these Master Terms and all exhibits hereto, set forth the entire agreement (“Agreement”) between Time, the Time Publishers and Quigo; provided, however, that the rights and obligations of any Time Publishers that execute an Enrollment Form shall be limited to such Publisher’s Publisher Website and the applicable Enrollment Form. In the event of any conflict between an Enrollment Form and these Master Terms, unless expressly stated otherwise in such Enrollment Form, the terms of these Master Terms shall control. Unless otherwise defined in the executed Enrollment Forms or elsewhere in these Master Terms, capitalized terms used in these Master Terms shall have the meanings assigned to them in Section 1 below.

1.        Definitions. As used herein, the following capitalized terms shall have the respective meanings assigned to them:

(a) “Ad” means a reference to an Advertiser website, content, information, product or services (whether or not it includes a link to a website) that is included in an Ad Template. Unless otherwise agreed to by Time or a Time Publisher in an Enrollment Form, in its sole discretion, Ads shall be limited to Text Ads only and shall not include Graphical Ads, Video Ads or Inline Ads. A “Text Ad” consists of text only. A “Graphical Ad” contains one or more graphical elements and may also contain text. A “Video Ad” includes one or more video components, such as a click-to-play video or automatically initiated video and may also contain text. An “Inline Ad” consists of a word within text which, when clicked or rolled over by a mouse, links to or displays an Ad.

(b) “Adjusted Gross Revenue” means the total Gross Ad Revenue as defined in Section 1 of the Master Terms set forth below less: (i) promotional and marketing expenses, including but not limited to free clicks; (ii) standard serving and operational support costs, and fees paid to credit card companies; and (iii) any applicable taxes paid by Quigo (other than taxes on Quigo’s income, capital or franchise); provided, however, that: (a) Quigo shall not incur any promotional and marketing expenses (with the exception of free clicks), as referenced in subsection (i) of this Section 1(b) without the prior written consent of Time or the applicable Publisher in each instance; and (b) in any particular month, the total amounts described in subsection (ii) of this definition of Adjusted Gross Revenue shall not exceed five percent (5%) of Gross Ad Revenues earned during such month

(c) “Ad Template” means a unit or frame created by Publisher or, on Publisher’s behalf, by Quigo, to be populated by Quigo with one or more Ads in response to a Query, and to be served by Quigo for display to an End User visiting Publisher Pages. An Ad Template that does not conform to the mock-ups and other exhibits set forth in an applicable Enrollment Form with respect to such Ad Template’s size, placement, header or aesthetic attributes shall be subject to Publisher’s prior written approval.

(d) “Advertiser” means a person or entity who is offering products, content, information and/or services on or through the Internet, who is a party to an agreement with Quigo or Publisher for the display thereof through an Ad on Publisher Pages or other parts of the Quigo Network, and who has agreed to pay for such Ad on a basis measured by cost-per-click (CPC), cost-per-action, (CPA), cost-per-thousand (CPM), cost-per-time (CPT) or such other method determined by Quigo.

(e) “Affiliate” shall mean: (i) with respect to Quigo, an entity that controls, or is controlled by, or is under common control with Quigo, where “control” means ownership of fifty percent (50%) or more of the outstanding voting securities; or (ii) with respect to Time, any entity controlling or controlled by or under common control with Time, where “control” is defined as the ownership of at least fifty percent (50%) of the equity or beneficial interest of such entity, and any other entity with respect to which Time or any entity controlling or controlled by or under common control with Time has significant management or operational responsibility (even though Time or such entity may own less than fifty percent (50%) of the equity of such entity);

 

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(f) “Branded Advertiser Interface” means a software interface specifically designed and developed by Quigo which shall contain the Publisher Trademarks and the Quigo’s Trademarks. The Branded Advertiser Interface is more fully described in Section 3.3 of these Master Terms;

(g) “Gross Ad Revenue” means revenue generated during the Term and actually collected by Quigo during or after the Term which (i) results directly from the display of Ads on the Ad Templates or (ii) results directly from End User click-throughs on Ads on the Ad Templates. “Gross Ad Revenue” excludes any bad debt and chargebacks and revenue from Prohibited Clicks Generation unless such revenue from Prohibited Clicks Generation is actually collected and retained by Quigo and not refunded;

(h) “Contextual Access Code” means an HTML code provided by Quigo to Publisher, to be applied by Publisher to the Publisher Pages in accordance with the instructions contained within Quigo’s Publisher Administration Tool;

(i) “Core Publisher Page Views” mean the number of Publisher Page Views on the Publisher Website, excluding Innovation Publisher Page Views (as defined below) and excluding mobile and WAP;

(j) “End User” means a human end user of a Publisher Website or Innovation Publisher Pages;

(k) “Innovation Publisher Pages” means (i) any web pages made available by Publisher to End Users on the Publisher Website, where such web pages include one or more Video Ads, Inline Ads, or Graphical Ads served by Quigo, or (ii) any content made available to End Users by Publisher on other Publisher media (excluding the Publisher Website), where such content includes one or more Text Ads, Video Ads, Inline Ads, and/or Graphical Ads. For the purpose of this Section 1(k), “Other Publisher Media” shall include, without limitation, RSS feeds, newsletters or any other content, pages or displays mutually agreed upon in writing by the parties, but shall exclude mobile and WAP. For avoidance of doubt, all forms of Other Publisher Media shall be limited to media generated solely by Publisher;

(l) “Innovation Publisher Page Views” means any Innovation Publisher Pages on which Time or Publisher displays at least one Ad Template with Ads;

(m) “Launch” shall have the meaning assigned to it in the applicable Enrollment Form with respect to each Publisher;

(n) “PageMatch” means Quigo’s proprietary system for serving non-contextually matched and non-search based Ads on specific Publisher Pages that Quigo has auctioned off;

(o) “Prohibited Clicks Generation” means clicks resulting from applying manual or mechanically automated clicks on mouse or keyboard or any non-human click generation processes (including but without limitation robots, spiders, scripts or other software) created for the purpose of artificially increasing Publisher Page Views or click-throughs from methods that Quigo determines, in its sole reasonable discretion, are intended to increase Publisher Page Views or click-throughs in a manner that is fraudulent in nature;

(p) “Publisher” or “Time Publisher” means any Affiliate of Time that has elected to receive the AdSonar Service or a portion thereof pursuant to this Agreement by having a duly executed Enrollment Form with Quigo. The initial list of Time Publishers is set forth in Exhibit 4. Time may request, and Quigo may approve, additional Publishers. Such requests and approvals shall be made in writing (including via email) and shall be documented by the execution of an Enrollment Form between Quigo and such Publisher. Quigo shall not unreasonably withhold or delay approval.

(q) “Publisher Pages” mean the Web pages on the Publisher Website and Innovation Publisher Pages that contain Qualified Content;

(r) “Publisher Page Views” mean the number of times that Publisher Pages which include one or more Ad Templates are served to End Users for viewing, including automated page refreshes that refresh all or a part of the content on a Publisher Page through the use of asynchronous java and XML (AJAX) or JavaScript Object Notation (JSON) techniques or formats without a new End User initiated page load and that display any Ads different from those served to such Publisher Page immediately prior to the refresh (the foregoing referred to herein as “Permitted Refreshes”). The parties agree that any Permitted Refreshes occurring prior to the seventh month of the first Year will not be counted towards the Core Publisher Page View Commitment. Notwithstanding the foregoing, in the event that both (i) more than ten percent (10%) of Publisher Pages of a Publisher Website served in any given month (it being understood that a Permitted Refresh shall be counted as a Publisher Page being served) consists of Permitted Refreshes, and (ii) a Cumulative Revenue Threshold is not satisfied, the parties shall make good faith efforts to agree upon a revised definition of “Publisher Page Views” that does not have a material negative impact on the value of a Publisher Page View as it relates to this Agreement.

(s) “Publisher Trademarks” means the logos, servicemarks and trademarks of Publisher;

(t) “Publisher Website” means a website or websites owned or operated by Publisher, and set forth in the applicable Enrollment Form;

(u) “Qualified Content” means content in the English language or any other language mutually agreed upon, in textual format (as opposed to Flash, graphics, Java applets, Java Script or other non-textual format);

 

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(v) “Query” means a request, generated by an End User, to display one Ad Template on a Publisher Page;

(w) “Quigo Network” means the network of sites that use the AdSonar Service;

(x) “Quigo’s Publisher Administration Tool” means the Publisher Administration Tool that Quigo will provide Publisher access to during the term of this Agreement;

(y) “Quigo Trademarks” means the logos, servicemarks and trademarks owned by Quigo, including but not limited to: Quigo®, AdSonar® and PageMatch®; and

(z) “Year” shall mean each consecutive twelve (12) month period during the Term of an Enrollment Form commencing upon the First Year Commencement Date (as defined in the applicable Enrollment Form).

2.          Contextual Access Code; Publisher Website Analysis.

2.1         Contextual Access Code; Page Views. Quigo will provide Publisher the Contextual Access Codes. Publisher will apply such Contextual Access Code on, at minimum, the number of Core Publisher Page Views per Year as specified in the applicable Core Publisher Page View Guarantee (as explained in Section 5.2 below and as set forth in the Enrollment Form and in any exhibits attached thereto). In addition, Publisher may, in its discretion, display at least one (1) Ad Template on additional Publisher Pages, including without limitation any Innovation Publisher Pages. Publisher agrees to implement the Ad Templates pursuant to the implementation guidelines set forth in Exhibit 3, and in accordance with all mock-ups and exhibits included in the applicable Enrollment Form. Publisher understands and agrees that each Contextual Access Code must be applied by Publisher to the Publisher Pages, in order for such pages to be processed and served hereunder. Publisher may not: (y) apply the Contextual Access Code with respect to any specific Publisher Page in a manner that will result in such Publisher Page being associated with more than: (i) three (3) Ad Templates without Quigo’s prior written approval (including via email); (ii) one (1) pop-up window Ad Template; and (iii) one (1) pop-under window Ad Template; or (z) alter or modify the content of the Contextual Access Code.

2.2         Publisher Placement Changes and Website Redesigns.

(a) Cumulative Revenue Threshold. If at any time during the Term, the amount that a Publisher would have earned if it were paid by Quigo solely based on the Revenue Share without an Annual Payment Guarantee equals the sum of all Monthly Guaranteed Installments paid or payable to the Publisher at such time (the “Cumulative Revenue Threshold”), Publisher may, in its sole discretion, move or change the aesthetic or size characteristics of Ad Templates on the Publisher Pages for the remainder of the Term. If, at any point after the Publisher implements such changes, the Cumulative Revenue Threshold is not met, Publisher shall, at Quigo’s request, within five (5) business days, revert back to all of the placements, aesthetic attributes and size characteristics of the Ad Templates that were in effect prior to the date on which Publisher implemented the foregoing changes and to restore the Cumulative Revenue Threshold.

(b) Redesign. Quigo acknowledges and agrees that a Publisher may redesign the Publisher Website or Publisher Pages (each such change, a “Redesign”); provided, however, (a) the display and attributes of the Ad Templates will remain, in all material respects, in the same placements, sizes and aesthetics in conformance with the applicable exhibits to the applicable Enrollment Form, and (b) the Publisher will use reasonable efforts to keep Quigo informed of all planned material Redesigns of the Publisher Website or Publisher Pages to the extent they relate to the Ad Templates.

(c) Change in Placement of Ads. In the event that a Redesign by a Publisher results in a change in the placement of Ads or otherwise results in the Ad Templates deviating from the Pre-Approved Aesthetics (as defined herein) and such Redesign results in a decline in the Gross Ad Revenue during the calendar month immediately following the implementation of the Redesign versus the calendar month immediately preceding the Redesign, the parties agree to work in good faith to restore the Gross Ad Revenue to the level that existed prior to the Redesign and to make up for lost Gross Ad Revenue experienced after such Redesign by a mutually agreed upon mechanism (such as, providing Innovation Publisher Page Views), including without limitation making adjustments to the placements, sizes and aesthetic attributes of the Ad Templates for such purpose or including Innovation Publisher Page Views. The provisions of this Section 2. 1(c) shall not apply in the event that Publisher implements a Redesign at any time that the Cumulative Revenue Threshold has been met.

 

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2.3         Publisher Website Analysis; Queries. When Quigo receives a Query with respect to a certain Publisher Page, Quigo shall utilize the AdSonar Service to analyze the Qualified Content on the corresponding Publisher Page and shall serve an Ad Template with Ads for display to the End User visiting that Publisher Page. To the extent that pages of Publisher Pages do not contain sufficient text or information to allow analysis of the Publisher Pages, Quigo shall use commercially reasonable efforts to serve Ads on such Publisher Pages based on the non-textual content of such pages, and any Core Publisher Page Views that occur on such Publisher Pages shall be included in the calculation of Publisher’s Core Publisher Page View Guarantee. Quigo is not responsible in any manner for Publisher Website, including its content, functionality or any other aspect thereof. Quigo shall abide by the Service Level Agreement attached hereto as Exhibit 2.

2.4         Strategic Collaboration and Innovation. The parties agree that one important goal of their relationship herein is to identify and pursue key initiatives for strategic collaboration and innovation. Therefore, the parties agree that once per fiscal quarter they will hold meetings to discuss strategy and the overall operational status of the partnership (“Strategy Meetings”). During such meetings (which will be separate and distinct from the regular operating meetings held monthly by the parties), the parties will discuss strategic initiatives and potential areas of collaboration that may include, but will not be limited to, the following: (i) Resource Centers (branded or unbranded advertorial content marketplaces that incorporate relevant Publisher content); (ii) graphical/display targeting solutions (including a solution to target display ads to key words or context); (iii) auction-based or dynamic rate card-driven ad inventory exchange marketplace solutions; (iv) collaborative and integrated sales solutions; (v) Time digital publisher network (to potentially include pre-approved publishers outside the Time Affiliates). During each Strategy Meeting, the parties agree to use good faith efforts to select at least one strategic initiative to focus on for the following quarter. Within ten business days of each Strategy Meeting, Quigo will create and propose a plan for the development and implementation of the proposed strategic initiative. Time and the Publishers will use good faith efforts to consider and respond to Quigo’s proposed plan within ten (10) business days of receipt. Notwithstanding the foregoing, the parties acknowledge that Time may either accept or reject any Quigo proposal under this Section, in its sole discretion.

3.          Ad Templates’ Display and Access; Filtering; Branded Advertiser Interface.

3.1         Ad Templates’ Display and Access. Each time Publisher sends Quigo a Query, Quigo will match its then current Ad index to keywords or topics deemed relevant to the Qualified Content on that Publisher Page using either contextual or PageMatch targeting to create an Ad Template deemed appropriate and send it for display to the End User visiting that Publisher Page. Ads will be served on Publisher Pages based on such factors as relevancy, CPC rates, click-through rates and ad rotation algorithms. In order to maximize click-through rates, Quigo reserves the right to change the aesthetic attributes of the Ad Template within the parameters set forth in an Enrollment Form and any exhibits thereto. Such agreed-upon attributes may include, but are not limited to, specified background colors, headers, borders, font types, font sizes, and font colors of the Ads, as well as the number of Ads to be included within the Ad Template (collectively, “Pre-approved Aesthetics”). Any changes to aesthetic attributes other than Pre-approved Aesthetics shall be subject to Publisher’s prior written consent, which shall not be unreasonably withheld or delayed (and which may be provided via email or other written correspondence). Time or Publisher shall be entitled to request a change to an aesthetic attribute (including without limitation the Pre-approved Aesthetics) if Time or the applicable Publisher, in its good faith, determines that the Ad Template’s aesthetic attributes do not comply with the then-current American Society of Magazine Editors’ Guidelines for Editors and Publishers or otherwise do not appropriately distinguish between editorial and advertising content.

3.2         Filtering. Each Publisher may use a procedure specified in Quigo’s Publisher Administration Tool to filter or direct Quigo to filter Ads by domain, URL, keywords within the Ad title and description, IP address, IP range, or any combination of the foregoing which Publisher deems, in its sole reasonable discretion, to be competitors of Publisher (“Competitor Content”), and Competitor Content will not be displayed through the Ad Templates on any Publisher Pages. Publisher agrees to identify the initial list of such Competitor Content in Exhibit B to the Enrollment Form (the “Competitors and Additional Prohibited Content Lists”). Additional Competitor Content filtered via the Publisher Administration Tool from time to time will be deemed to be incorporated by reference into the list in Exhibit B to the Enrollment Form. Publisher understands and agrees that filtering Competitor Content might result in fewer Ad Templates sent to Publisher and/or in fewer Ads in each Ad Template and/or lower cost-per-click (“CPC”) rates and lower overall revenues for the Publisher. Quigo shall also filter all Prohibited Content (as defined in Section 7 below) to ensure that Ads containing Prohibited Content will not be displayed on Publisher Pages. Notwithstanding Quigo’s obligation to filter Prohibited Content and Competitor Content in the event that

 

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such Prohibited Content or Competitor Content is displayed: (i) Publisher may immediately remove any such content at any time via the Publisher Administration Tool; and (ii) Quigo will provide telephone and/or e-mail support twenty-four (24) hours per day, seven (7) days per week that Publisher may use to request Quigo to remove and cease further delivery of Prohibited Content or Competitor Content (the relevant contact information is provided in the Service Level Agreement attached hereto as Exhibit 2). Upon receiving such a request from Publisher, in addition to all other rights and remedies available to Publisher under this Agreement, at law, or in equity, Quigo will promptly, but in no more than two (2) hours from receiving such a request, cease delivery and take all reasonable measures to prevent future delivery of such Prohibited Content or Competitor Content.

3.3         Branded Advertiser Interface. Quigo and the applicable Publisher will use commercially reasonable efforts to design and develop the Branded Advertiser Interface and Quigo shall create and host the Branded Advertiser Interface. The parties shall use their best commercially reasonable efforts to make the Branded Advertiser Interface available to Advertisers and potential Advertisers within thirty (30) days of the execution of the applicable Enrollment Form. Publisher will, in its reasonable discretion, market and promote the Branded Advertiser Interface (including, without limitation, promoting the Branded Advertiser Interface in a manner which may include ways that Publisher promotes other advertising opportunities on the Publisher Website). Quigo shall include the Publisher Trademarks on the Branded Advertiser Interface in a manner that shall be subject to Publisher’s prior written approval, which approval Publisher shall consider in good faith. If Publisher has an “Advertise” section on Publisher’s homepage, Publisher may, in its sole discretion, include a link to the Branded Advertiser Interface in its “Advertise” section. Each party may use reasonable commercial efforts to sell Ads served on the Publisher Pages pursuant to this Agreement. Advertisers that come through the Branded Advertiser Interface will be given the option to opt-out of having their Ads served on the Quigo Network (other than the Publisher Pages). Advertisers that come through the Branded Advertiser Interface will sign up for Quigo’s standard terms and conditions and Quigo will perform the following services: (i) all billing and collections; (ii) editorial review; and (iii) account management and customer service. Any Advertiser’s use of the Branded Advertise Interface to Advertise on the Publisher Pages shall be subject to Quigo’s terms of service and privacy policy and Quigo shall place links to such terms of service and privacy policy in a reasonably conspicuous manner on the Branded Advertiser Interface. Publisher shall have the right, in its sole discretion to approve of the “look and feel” of the Branded Advertiser Interface, which approval Publisher shall consider in good faith. Notwithstanding the foregoing, Quigo may in its sole discretion, determine pricing and methods of pricing (e.g. CPC, CPA, CPT etc.) for ads sold on the Branded Advertiser Interface; provided, however that in the event that Quigo offers ads for sale on the Branded Advertiser Interface on a cost per thousand (CPM) basis, the minimum price charged on a cost per thousand basis shall be subject to Publisher’s prior written approval in each instance. In no event will Advertisers be capable of knowingly purchasing ads on any specific third party websites through the Branded Advertiser Interface.

3.4         Press Release. Within ten (10) business days of the execution of this Agreement, Time and Quigo shall publish a joint press release announcing their relationship herein. The content of the press release shall be agreed upon by both parties.

4.          Proprietary Rights; License; Confidentiality.

4.1         Proprietary Rights. As between Quigo, Time and the Time Publishers, Quigo is the sole and exclusive owner of all right, title and interest in and to the AdSonar Service, the technology associated with the AdSonar Service and the Quigo Trademarks. Quigo reserves all rights not expressly granted in this Agreement. As between Quigo, Time and the Time Publishers, Time and/or the Time Publishers are the sole and exclusive owner of all right, title and interest in and to the Publisher Pages, the Publisher Websites (including all content contained on the Publisher Pages and Publisher Websites other than the Ads, Ad Templates, Contextual Access Codes and other content supplied by Quigo under this Agreement), the Publisher Trademarks and all End User Data. Time and the Time Publishers reserve all rights not expressly granted in this Agreement. Except as expressly set forth herein, neither party shall acquire any right, title or interest in the other party’s copyrights, trademarks, intellectual property, or technology.

4.2         Licenses. Time and the Time Publishers grant to Quigo, solely in connection with providing the AdSonar Service, a limited, non-transferable, worldwide, royalty-free license to cache and reproduce the relevant content on the URLs of Publisher Pages and to reproduce, distribute, publicly perform and publicly display the Ad Template solely to provide the AdSonar Service pursuant to the terms of this Agreement. Time and the Time Publishers grant to Quigo a limited, worldwide, royalty-free license to use and reproduce the Publisher Trademarks to create the

 

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Branded Advertiser Interface and to market and promote the AdSonar Service; provided, however, that any use of any Publisher Trademarks shall be subject to Time’s prior written approval, which shall not be unreasonably withheld or delayed and which may be provided through an Enrollment Form or by email or other written correspondence. Time and the Time Publishers grant to Quigo a limited, worldwide, royalty-free license to use and display on Quigo’s website Publisher’s topics for sale and approximations of impression volume, bid prices, click-through rate and effective cost per thousand. All use of the Publisher Trademarks shall be in accordance with Publisher’s trademark usage guidelines and shall inure to the benefit of Publisher. Quigo grants to Time and the Time Publishers a limited, non-transferable, worldwide, royalty-free license, without the right to sublicense, to use and reproduce the Quigo Trademarks to market and promote the AdSonar Service (provided Time and the Publishers shall not be obligated to undertake any such marketing and promotion except as stated in this Agreement). All use of the Quigo Trademarks shall be in accordance with Quigo’s trademark usage guidelines and shall inure to the benefit of Quigo. Upon Publisher’s reasonable request, Quigo may support the Publisher’s sales staff by providing marketing materials or joining sales calls.

4.3         Confidentiality.

(a)         Quigo and Time acknowledge that, in the course of their dealings hereunder, each (“Recipient”) may receive or otherwise become familiar with information about the other (“Discloser”), including without limitation, information about the Discloser’s technology, client order information, business activities and operations, strategies, information about the Discloser’s personnel, products, financial information, marketing and pricing strategies services future business plans and its trade secrets which is proprietary or by its nature should be reasonably understood to be confidential (the “Confidential Information”). Confidential Information includes the terms of this Agreement. Information collected by Time and the Time Publishers regarding End Users, including without limitation all information collected by Time and the Time Publishers concerning traffic, statistics and data relating to Publisher Websites or use of or traffic to Publisher Pages, audited and unaudited visits, click-throughs and impressions, and any other data, information and records regarding End Users’ such as name, address, phone number, e-mail address, fax number, content consumption patterns, advertisement viewing patterns, geo-location target marketing opportunities, demographic target marketing, any shopping patterns or history, and any demographic or psychographic information and any aggregate or derivative information thereof, (collectively, “Time-Collected End User Data”) shall be deemed Confidential Information of Time and such Time Publishers. Quigo shall use Confidential Information of Time or any Time Publishers (including without limitation any Time- Collected End User Data) solely to the extent necessary to provide the services contemplated hereunder. Information collected by Quigo regarding End Users (including without limitation Ads viewed, Publisher Pages viewed, search queries submitted, IP address, browser and operating system versions, Internet service provider, general geographic location, click-throughs, impressions, Publisher Page Views, etc., but excluding personally identifiable information of End Users such as name, address, phone number, e-mail address, social security number, credit card number or fax number) (collectively, “Quigo-Collected End User Data”) shall be deemed Confidential Information of Time and the Publisher, and shall be owned by Time and such Publisher. The Time-Collected End User Data and the Quigo-Collected End User Data are collectively referred to as “End User Data”. Time and Publisher (as applicable) hereby grants to Quigo a perpetual, worldwide, royalty-free right and license to collect, store and use the Quigo-Collected End User Data solely: (i) in an aggregate form in accordance with Section 4.5 below, and (ii) for frequency capping, fraud detection and normal internet communication between client and server. Except for the aggregate use set forth in 4.5 below, in no event shall Quigo disclose the Quigo-Collected End User Data to any third party without the prior written consent of Time or the applicable Publisher in each instance.

(b)         Recipient hereby agrees to take all reasonable measures to maintain the confidentiality and secrecy of the Confidential Information of Discloser and to avoid its disclosure. Recipient agrees to limit access to the Confidential Information to authorized employees and outside advisors, accountants, lawyers, and other individuals and entities who have a substantial need to know and who by reason of agreement or operation of law are obligated to keep such information confidential. Recipient will not attempt to reverse engineer the design and function of any of the Confidential Information of the Discloser. Upon expiration, cancellation or termination of this Agreement, Recipient shall, upon Discloser’s request, promptly return the Discloser’s Confidential Information or at the Discloser’s option, delete or destroy all copies of such Confidential Information from its possession and certify in writing to Discloser of such deletion or destruction. The foregoing notwithstanding, Confidential Information will not include any information to the extent that it: (a) is or becomes publicly available through no act or omission on the part of the Recipient; (b) is disclosed to Recipient by a third party having no obligation of confidentiality with respect thereto; (c) is released from confidential treatment by written consent of Discloser; or (d) is required to be disclosed by applicable law or regulation; provided however, if Recipient is required to disclose the Confidential

 

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Information or any part thereof to a tribunal or governmental or regulatory agency, then unless Recipient is restricted by law or order, it will notify Discloser prior to such disclosure to allow it to obtain protective orders maintaining the confidentiality of such information. Subject to the parties’ obligations in Section 3.4 above, neither party shall issue a press release regarding this Agreement without the other party’s prior written approval. Notwithstanding anything to the contrary herein, nothing shall prohibit Time from disclosing the terms and conditions of this Agreement to any Time Affiliate, provided that (i) such disclosure shall not extend to any other Confidential Information of Quigo; (ii) such Time Affiliate shall be subject to confidentiality obligations that are no less restrictive than those set forth in this Agreement, and (iii) the terms and conditions of this Agreement shall not be disclosed to the entities listed in Section 13 (Exclusivity).

4.4         Non-Solicitation. During the Term of this Agreement and for a period of one (1) year thereafter, without the prior written consent of the other party, Quigo, Time and the Time Publishers shall not, directly or indirectly, solicit the services of or employ any employee of the other party; provided, however, that the foregoing provision shall not prevent either party, nor any Affiliates thereof, from (a) employing a candidate who contacts such party at his or her own initiative without any direct or indirect solicitation by such party, (b) placing public non-targeted advertisements consistent with such party’s past practices or using recruiters, provided such recruiters have not been directed to contact the other party’s employees, or (c) employing a person who is (1) terminated by such party, as the case may be, or (2) employed by a third party at the time of such person’s hiring. Each party will be responsible for any breach of these obligations by any of its employees, consultants, subsidiaries and representatives. Notwithstanding the foregoing, neither Time nor any Time Publisher shall be in violation of this Section 4.4 in the event that a third party service provider of Time or any Time Publisher employs or engages a former employee of Quigo and such former employee of Quigo is assigned to provide services to Time or a Time Publisher by such third party service provider.

4.5         Aggregate Information. Pursuant to the license to Quigo-Collected End User Data granted by Time in Section 4.3(a) above, Quigo may use, the Quigo-Collected End User Data in an aggregate form (e.g. in a manner that does not identify Time or any Time Publisher or relate specifically to Time, any Time Publisher or any End User) solely to the extent necessary to perform, enhance or improve the AdSonar Service and/or for Quigo’s internal financial accounting purposes.

5.          Payment; Make-Goods.

5.1         Payment. Quigo will pay Publisher the Annual Payment Guarantee set forth in the applicable Enrollment Form in equal monthly installments (each such installment is referred to herein as a “Monthly Guaranteed Installment”). The Monthly Guaranteed Installments shall be payable by Quigo within forty-five (45) days of the end of each calendar month commencing upon the calendar month in which the First Year Commencement Date (as defined in the Enrollment Form) occurs. Further, if the cumulative Revenue Share through a given month is greater than the cumulative Monthly Guaranteed Installments through such given month, then Quigo shall pay Publisher the balance due through such month based on the cumulative Revenue Share calculation in accordance with the terms specified in the applicable Enrollment Form. Subject to the audit rights set forth in Section 6, payment shall be calculated based solely on records maintained by Quigo. Quigo may ignore click-throughs and/or withhold charge or credit back payments to Publisher with respect to click-throughs that resulted from Prohibited Clicks Generation or if Quigo was charged or credited back in their respect by the Advertiser. Promptly upon the beginning of each month, Quigo shall display in a Publisher reporting interface an estimate of the revenue share (exclusive of the monthly guaranteed installment), the total Publisher Page Views, total click-throughs, and revenue per thousand Publisher Page Views (exclusive of the monthly guaranteed installment). Within forty-five (45) days of the end of each month, Quigo shall provide Publisher an electronic copy of the revenue earned by Publisher (inclusive of the monthly guaranteed installment), a year-to-date sum of the Adjusted Gross Revenues (as defined in the Enrollment Form) and all other data necessary to verify the estimate of the Gross Ad Revenue, the Adjusted Gross Revenue and the Revenue Share calculation due to Publisher with a comparison of the cumulative Revenue Share to the cumulative Monthly Guaranteed Installments and expected balance due. The foregoing reports shall reflect: (a) cumulative and year-to-date totals updated as of the immediately preceding calendar month; (b) cumulative and year-to-date totals of the immediately preceding calendar month; and (c) aggregate totals from the applicable First Year Commencement Date updated as of the immediately preceding calendar month. The reports shall be in a form substantially similar to the sample report set forth in Exhibit 5 hereto or such other form reasonably acceptable to the Publisher.

 

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5.2         Publisher Page View Commitment. A Publisher Website consists of more than one category of pages (each, a “Page Type”). For example, a Publisher Website may consist of a homepage (each a “Home Page”) and story pages consisting of specific stories or a particular subject matter (each a “Story Page”) and such other Page Types as mutually agreed upon by Quigo and the applicable Publisher. Each Publisher expects to provide Core Publisher Page Views to Quigo equaling at least the minimum number of Core Publisher Page Views, broken down by Page Type, as specified in the applicable Enrollment Forms and exhibits thereto during each Year of the Term of the applicable Enrollment Form (such minimum number of Core Publisher Page Views by Page Type during each Year is referred to herein as the “Page Type Targets” and the total of the Page Type Targets for each Year is referred to herein as “Core Publisher Page View Commitment”). The Parties agree that the Publishers’ obligations regarding the provision of Core Publisher Page Views within a particular Page Type shall be fully satisfied so long as the Publishers achieve the applicable Page Type Target for that Page Type. The Parties further agree that if the Publishers provide a number of Page Views that is greater than the Page Type Target for a particular Page Type, then the amount of Page Views in excess of the Page Type Target (“Page View Surplus”) will count towards the Core Publisher Page View Commitment as specified below. The Publishers agree to provide Quigo with the Core Publisher Page View Commitments, or otherwise “make-good” on any shortfall as more fully set forth in section 5.3, in a manner that fully satisfies this commitment.

5.3         Publisher Page View Commitment Fulfillment or “Make-Good” Options. In the event that, at the end of a Year, a Publisher has not provided Quigo with the Core Publisher Page View Commitment for such Year, including the achievement of each Page Type Target, and if a Cumulative Revenue Threshold (as defined in Section 2.2(a) above) has not been satisfied, then a “Target Shortfall” has occurred. A Target Shortfall may be offset by the delivery of Publisher Page Views in excess of Page Type Targets and/or the inclusion of additional Innovation Publisher Page Views by Publisher as described below. The methods by which Publishers may offset a Target Shortfall and options available to Publishers to Make-Good on Target Shortfalls are more fully described below:

 

  5.3.1 Target Shortfall Offset Method 1: Offset the Target Shortfall with a Different Mix of Page Views. The Publisher may fulfill the Core Publisher Page View Commitment by providing additional Core Publisher Page Views whose collective value is equivalent to or greater than the Target Shortfall Value (as defined below and as more fully described herein). There shall be a Page-Type-specific standard value per thousand Publisher Page Views (“VPM”) for each category of Page Type of a Publisher Website. This VPM shall be established for Year one by dividing the actual Gross Ad Revenue realized during the first twelve (12) months of the Term from a specific Page Type of a specific Publisher Website by the Page Views of such Page Type delivered during the first twelve (12) months of the Term. For Years two and three, the VPM shall be established using the trailing twelve month periods ending with month 24 and month 36, respectively. Each Page-Type-specific VPM shall be multiplied by the corresponding amount of Target Shortfall for each Page Type where such Target Shortfall exists to arrive at a Target Shortfall Value by Page Type. The sum of the Target Shortfall Values by Page Types becomes the overall “Target Shortfall Value”. Publisher may offset the Target Shortfall by delivering a Page View Surplus whose overall value (calculated by multiplying the VPM for each Page Type by the Page View Surplus for each Page Type where such surplus exists during the Year or Term) is at least equal to the overall Target Shortfall Value.

 

  5.3.2 Target Shortfall Offset Method 2: Offset the Target Shortfall by Delivering Innovation Publisher Page Views. At any point during the Term, the Publishers can choose to place Ad Templates on Innovation Publisher Pages, thereby creating Innovation Publisher Page Views. Innovation Publisher Page Views will be assigned a standard VPM in the manner described above to the extent Innovation Publisher Page Views were supplied during such time periods (or using a trailing six month period from the point of the calculation, or at least a trailing thirty-day period from the point of the calculation if Innovation Publisher Page Views have not been delivered for the preceding six month period). The product derived by multiplying the Innovation Publisher Page Views delivered by the VPMs for such Innovation Publisher Page Views shall count towards offsetting the Target Shortfall for the purposes of satisfying the Core Publisher Page View Commitment. For example, a Publisher who is otherwise at risk of a Target Shortfall can avoid or offset a Target Shortfall by adding email newsletters as Innovation Pages, so long as the Target Value of the email newsletter pages so delivered compensates for the Target Shortfall caused by the under-delivery of Page Views of other Page Types.

 

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5.3.3        Annual Three-Month In-Term Extensions. In the event that a Target Shortfall exists at the end of Year One or Year Two during the Term of an applicable Enrollment Form including any application of the offset methods described in Sections 5.3.1 and 5.3.2 above, then such Year of the Term can be extended for up to three months or until the end of the calendar month in which, after any application of the offset methods described in Sections 5.3.1 and 5.3.2 above, the Target Shortfall has been cured, whichever is sooner (an “In Term Extension Period”). Subject to the Five Percent Threshold provision specified in 5.4, the requirement to make Monthly Minimum Guaranteed Installments will be suspended during such In-Term Extension Period, allowing Quigo an opportunity to mitigate any cash flow deficits caused by the Target Shortfall; provided, however, that in the event that the Target Shortfall is cured (subject to Section 5.4) prior to the expiration of the In Term Extension Period, during the period between the date upon which the Target Shortfall is cured and the end of such month, Publisher shall be paid the Revenue Share Amount.

5.3.4        End Of Term Six-Month Extension. In the event that a Target Shortfall still exists at the end of the Term, then the Term can be extended for up to six months or until the end of the calendar month in which the Publisher cures the Target Shortfall, whichever is sooner. In the event that the Target Shortfall is cured (subject to Section 5.4) prior to the expiration of such six month extension, during the period between the date upon which the Target Shortfall is cured and the end of such month, Publisher shall be paid the Revenue Share Amount.

5.3.5        Shortfall Buyout. In the event that a Publisher experiences a Target Shortfall and prefers not to extend the third Year of the Term for the purpose of curing the Target Shortfall, then the Publisher can choose to “buy out” the Target Shortfall at the end of the third Year of the Term. Publisher may buy out the Target Shortfall at the end of the third Year by paying Quigo an amount equal to the lesser of: (a) Target Shortfall Value; and (b) the amount necessary to meet the Cumulative Revenue Threshold.

 

5.4 Five Percent Threshold. The Publishers shall be under no obligation to provide an In-Term Extension Period unless at the end of Year One or Year Two, an overall Target Shortfall exists after any application of the offset methods described in Sections 5.3.1 and 5.3.2 that is greater than five percent of the Core Publisher Page View Commitment on a VPM-weighted average basis. However, if a Target Shortfall still exists at the end of Year three of the Term, Publisher must still make up for such Target Shortfall by choosing one of the Make-Good options set forth in Sections 5.3.4 and 5.3.5 or a combination thereof.

 

5.5 Choice of Make-Good Options at Publisher’s Sole Discretion. In the event of a Target Shortfall, the Publisher shall be obligated to make up for such Target Shortfall through one or more of the available Make-Good options. Subject to the foregoing sentence, such Publisher can choose between any applicable Make-Good Options, or a combination of options, at its sole discretion (provided, however, that the Shortfall Buyout shall not apply until the end of the third Year).

 

5.6 Example. The following examples are intended to help clarify the provisions of 5.2 and 5.3:

 

Per Enrollment Form    Core Publisher
Page-View-
Commitment per  
Enrollment Form
(in thousands)
     Calculated  
VPM
           

Publisher Homepage

     500.0        $ 2.00          

Publisher Story Page

   2000.0       $ 3.00         

Total

   2500.0       $ 2.80         

 

Actual Delivered   

Publisher Page      
Views Actually      
Delivered      

(in thousands)      

   Calculated      
VPM        
   Target    
Shortfall      
   Target      
Shortfall      
Value      

 

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Publisher Homepage

   300.0        $ 2.00          200        $ 400    

Publisher Story Page

   1600.0       $ 3.00         400       $ 1200   

Total

   1900.0                  600       $ 1600   

Weighted average VPM

        $ 2.84             
           
     

Potential Make-Good Options

                              
Option    Make-good
delivery
     VPM      Value     

(i) Additional Publisher Page

   500 Homepage       $ 2.00        $ 1,000       

Views Delivered

   200 Story Pages       $ 3.00       $ 600      

(ii) Innovation Publisher Page

               

Views Delivered

   400       $ 4.00       $ 1,600      

Note: In the example above the Publisher can offset the Target Shortfall by applying either or both of the two options numbered (i) and (ii).

 

5.7 Cash Covenant. During the Term, Quigo shall at all times maintain a cash balance of no less than ten million dollars ($10,000,000). Within fifteen (15) days of the end of each calendar month, Quigo will send a notice to Time stating whether it is in compliance with the foregoing sentence. Time will have the right to verify such cash balance by contacting Quigo’s bank and Quigo shall instruct its bank to respond to any queries from Time regarding Quigo’s compliance with this Section 5.7. A failure by Quigo to comply with this Section 5.7 shall be deemed to be a material breach of the Agreement, and shall entitle Time and the Publishers to terminate the Agreement (or, with respect to the Publishers, to terminate the applicable Enrollment Forms) immediately upon written notice and no cure period shall apply for such a breach.

 

5.8 Events of Default Under Enrollment Forms. In the event that a Payment Default occurs, Time or the applicable Time Publisher shall have the right, in addition to all other rights and remedies available to them under this Agreement, at law, or in equity, to terminate an Enrollment Form immediately upon written notice to Quigo. For purposes hereof, a “Payment Default” shall occur if: (a) Quigo fails to pay a Monthly Guaranteed Installment when due and such failure is not cured within thirty (30) of Quigo’s receipt of written notification thereof; or (b) Quigo fails to timely pay a Monthly Guaranteed Installment when due during any six (6) month period following a failure by Quigo to pay a Monthly Guaranteed Installment that is cured within thirty (30) days of Quigo’s receipt of written notification thereof.

6.      Audit. In the event that Publisher has a reasonable, good-faith belief that Quigo has under reported or under-paid amounts due to Publisher under the Agreement, it may send Quigo a written request for review no more than twice in any calendar year. Upon receipt of such a written request, Quigo shall have seven (7) business days to perform an internal review of its records in order to determine whether Quigo reported and paid Publisher the correct amount due pursuant to this Agreement. In the event that Quigo, during the course of the internal review, discovers a discrepancy, Quigo shall notify Publisher of any errors or omissions, and promptly compensate Publisher for any shortfall with interest at the rate of one and one-half percent (1.5%) per month or the highest amount allowed by law, whichever is less. In the event that Quigo’s internal review does not reveal any errors, and Publisher maintains a reasonable, good-faith belief that Quigo has underpaid, Publisher may itself, or may retain an independent third party reasonably acceptable to Quigo to, audit the relevant Quigo or third party records, with not less than seven (7) business days notice to Quigo no more than twice in any Year. Said audit shall be at Publisher’s expense, during Quigo’s normal business hours, and limited solely to those records relevant to Publisher and this Agreement, including but not limited to all Reports, server logs, all statistics, and all records of sales to, and receipts of payments from, third parties for Ad placements on Publisher Pages (the “Records”). Notwithstanding the foregoing, if the audit reveals an underpayment by Quigo, Quigo shall promptly pay Publisher the shortfall With interest at the rate of one and one-half percent (1.5%) per month or the highest amount allowed by law whichever is less and it the audit reveals an error that amounted to an underpayment of five percent (5%) or greater of the total due for the period under audit, Quigo shall pay or promptly reimburse Publisher for the reasonable costs associated with the audit in addition to the amount of underpayment plus interest. In the event that Publisher retains a third party to conduct the audit such third party shall execute a written agreement, reasonably satisfactory to Quigo to maintain in confidence all information obtained during the course of such audit except for disclosure to Publisher as

 

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necessary for the above purpose. Quigo will maintain Records during the term of this Agreement and for three (3) years following termination of the Agreement and the foregoing audit rights of Time shall survive the termination or expiration of this Agreement for such three (3) year period.

7.          Prohibited Content. Unless otherwise agreed to in writing by a Publisher with respect to such Publisher’s Publisher Website, Quigo agrees that the Ads shall not contain or disseminate: (i) pornographic material, sexually explicit material with minors or other inappropriate adult content, (ii) tobacco, gambling or alcohol-related material or promotions, (iii) multilevel-marketing schemes (i.e., marketing plans whose sole purpose is to offer commissions for recruiting new distributors) or other material which in Quigo’s good faith judgment is deceptive, fraudulent, misleading, or otherwise non-compliant with the Federal Trade Commission Act or any state consumer protection laws, (iv) spyware, malware, adware, viruses, worms, Trojan horses, time bombs or similar contaminating or destructive feature or other code designed to cause damage to or interruption of computer systems, or any code or software or feature that enables a third party to access information regarding the End User or the activities or preferences of the End User or information from the End User’s computer, or that enables such third party to alter the settings or displays on the End User’s computer, including without limitation spyware, malware or adware, (v) content that promotes violence, discrimination, harassment or hate speech, (vi) Competitor Content, (vii) any additional content listed on Exhibit B of an Enrollment Form (collectively, (i)-(vii) of this Section 7 shall constitute “Prohibited Content”).

8.          Representations and Warranties.

8.1        Representations and Warranties of Time. Time and each Time Publisher, solely with respect to such Time Publisher’s Publisher Website represents and warrants that: (a) it has full power and authority to enter into this Agreement and applicable Enrollment Form, to grant the rights granted therein and to perform its obligations under this Agreement and applicable Enrollment Form; (b) it is the owner of, and/or is legally authorized to act on, the Publisher Website; (c) the Publisher Pages, the Publisher Website and the Publisher Trademarks are not libelous, defamatory, or promote hate, violence or racism or adult related materials or violate any law or regulation or infringe or dilute in any manner any copyright, trademark, trade secret, United States patent or any other intellectual property or other third party right; and (d) the Publisher Trademarks do not infringe any third party trademark or other third party right.

8.2        Representations and Warranties of Quigo. Quigo represents and warrants that: (a) it has the full power and authority to grant the rights granted herein and to perform its obligations under this agreement; (b) it is the owner of the Quigo Trademarks, the AdSonar Service, Quigo’s Publisher Administration Tool and PageMatch; (c) it has all necessary licenses and clearances to use, and for Publisher to use, the Ads and the content contained in the Ads that is displayed on Publisher Pages, and that it is fully authorized to place Ads on Publisher’s Websites (including without limitation any Innovation Pages); (d) the AdSonar Service and Branded Advertiser Interface (excluding third party content in the Ads) will comply at all times with all applicable laws, rules, regulations and industry standards relevant to data and information security and shall not violate any contractual obligations or duties owed by Quigo to any third party; (e) Quigo shall at all times comply with any obligations assumed by or imposed on it pursuant to any Quigo terms of service or privacy policy applicable to the Branded Advertiser Interface; (f) Quigo has entered into terms and conditions with the Advertisers which include representations and warranties from the Advertisers that the Ads and Quigo’s display of the Ads shall not violate or infringe or dilute in any manner any copyright, trademark, trade secret, United States patent or other intellectual property or other third party right, and such terms and conditions require the Advertisers to indemnify Quigo and the Publishers for claims arising from the Ads (unless otherwise agreed to in writing by Time or a Publisher with respect to a particular Advertiser and a particular Publisher Website); (g) the AdSonar Service (excluding third party content in the Ads), the Quigo Trademarks, Quigo’s Publisher Administration Tool, PageMatch and Time or the Time Publishers’ use of any of the foregoing contemplated in this Agreement do not and shall not, and shall not at any time during the Term, violate any law or regulation or infringe or dilute in any manner any copyright, trademark, trade secret, United States patent or other intellectual property or other third party right; (h) the Ads shall not contain any Prohibited Content; (i) Quigo shall use its best commercially reasonable efforts to become compliant with the Payment Card Industry data security standards (“PCI Standards”) and to remedy the additional security deficiencies set forth in Item 1 of Schedule A to Exhibit 6 hereof (“Additional Deficiencies”) within ninety (90) days of the Effective Date; provided, however, that, if Quigo fails to become compliant with the PCI Standards or remedy the Additional Deficiencies upon expiration of the ninety (90) day period, Quigo shall notify Time and shall cure such failure within thirty (30) days of expiration of the original ninety (90) day period. In the event that Quigo fails to become

 

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compliant with the PCI Standards or remedy the Additional Deficiencies on or before the expiration of the thirty (30) day cure period set forth in the preceding sentence, Quigo shall be deemed to be in material breach of this Agreement and Time may, in its sole discretion and in addition to all other rights and remedies available to it under this Agreement, at law, or in equity, terminate this Agreement upon written notice to Quigo; (j) the AdSonar Service will not adversely affect the performance, operation or functionality of the Publisher Websites; (k) Quigo shall provide the AdSonar Service in accordance with the SLA set forth in Exhibit 2; and (1) as of the Effective Date, Quigo has remedied the Additional Deficiencies set forth in Item 1 of Schedule A to Exhibit 6 hereof and agrees to allow Time, or Time’s designee, to test Quigo systems upon fourteen (14) days prior written notice during the Term to verify the foregoing. If Quigo disputes the results of such test, the parties will engage in a Discussion Period pursuant to the procedure set forth in Section 10.2.

9.          Indemnification; Liability.

9.1        Time shall indemnify, defend and hold Quigo harmless from and against any and all third party claims, actions, losses, liabilities, damages, costs and expenses (including without limitation reasonable attorneys’ and other professionals’ fees) (collectively, “Claims”) arising out of or relating to the breach or alleged breach of any express warranty or representation made by Time or Publisher (solely with respect to such Publisher’s Publisher Website). However, with respect to other third party content in the Publisher Pages and the Publisher Website, such indemnification shall be limited to five million dollars ($5,000,000). In the event that Time’s indemnification of Quigo pursuant to this Section 9.1 is insufficient to hold Quigo harmless with respect to such Claim (a “Time Indemnification Shortfall”), Quigo shall have the right to terminate this Agreement or the applicable Enrollment Form in accordance with the procedure set forth in Section 10.3(i).

9.2        Quigo shall indemnify, defend and hold Time and the Time Publishers harmless from and against any and all Claims arising out of or relating to (a) the breach or alleged breach of any express warranty or representation made by Quigo in Section 8.2 of this Agreement, or (b) the Ads. However, with respect to third party content in the Ads, such indemnification shall be limited to five million dollars ($5,000,000), unless the Claim arises from Quigo’s display of Prohibited Content. In the event that both (i) an Advertiser’s indemnification of Time and the applicable Publisher for a Claim arising from an Ad is insufficient to hold Time and the applicable Publisher harmless with respect to such Claim, and (ii) Quigo’s indemnification of Time and the applicable Publisher pursuant to this Section 9.2(b) is insufficient to hold Publisher harmless with respect to such Claim ((i) and (ii) are collectively referred to as a “Quigo Indemnification Shortfall”), Time or the applicable Publisher shall have the right to terminate this Agreement or the applicable Enrollment Form and/or its participation in this Agreement in accordance with the procedure set forth in Section 10.3(ii).

9.3        Indemnification Procedure. The foregoing indemnification obligations are conditioned upon the indemnified party: (a) promptly notifying the indemnifying party in writing of such Claim; (b) reasonably cooperating with the indemnifying party, at the indemnifying party’s expense, in the defense of such Claim; and (c) giving the indemnifying party the right to control the defense and settlement of any such Claim, except that the indemnifying party shall not enter into any settlement that affects the indemnified party’s rights or interests without the indemnified party’s prior written approval.

9.4        EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE ADSONAR SERVICE IS MADE AVAILABLE TO PUBLISHER “AS IS” AND WITHOUT ANY WARRANTY OR REPRESENTATION, WHETHER EXPRESS OR IMPLIED, OF ANY KIND INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABLE QUALITY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR THOSE ARISING BY LAW, STATUTE, USAGE OF TRADE, OR COURSE OF DEALING. . QUIGO DOES NOT GUARANTEE THAT IT WILL HAVE RELEVANT ADS FOR ANY GIVEN PUBLISHER PAGE AND, EXCEPT AS EXPRESSLY STATED HEREIN, QUIGO, INCLUDING ITS HOSTING VENDOR AND ITS OTHER SUPPLIERS AND SUBCONTRACTORS, DO NOT WARRANT OR GUARANTEE THAT THE ADSONAR SERVICE OR THE OPERATION THEREOF WILL BE UNINTERRUPTED OR WILL MEET PUBLISHER’S NEEDS.

9.5        EXCEPT FOR CLAIMS THAT ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTIONS 9.1 AND 9.2, CLAIMS BASED ON A BREACH BY EITHER PARTY OF ITS CONFIDENTIALITY OBLIGATIONS UNDER SECTION 4.3 OR CLAIMS BASED ON THE FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF EITHER PARTY, IN NO EVENT WILL QUIGO, TIME OR A TIME

 

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PUBLISHER BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL OR OTHER SIMILAR DAMAGES OR ANY LOSS OF PROFITS, LOSS OF USE OR LOSS OR CORRUPTION OF DATA, WHETHER UNDER TORT, CONTRACT OR OTHER THEORIES OF RECOVERY, EVEN IF SUCH PARTY WAS OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES’ RESPECTIVE INDEMNIFICATION OBLIGATIONS SHALL BE LIMITED TO THE EXTENT SET FORTH IN SECTIONS 9.1 AND 9.2(b)

.

10.          Term and Termination. This Agreement shall commence on the Effective Date and shall continue in effect until the termination or expiration of all Enrollment Forms unless earlier terminated in accordance with the terms hereof. Any termination of these Master Terms shall cause all outstanding Enrollment Forms to terminate. In addition, the following termination rights shall apply:

10.1        Termination for Material Breach. If either party materially breaches the terms and conditions of an Enrollment Form, or the terms and conditions of these Master Terms as they apply to an Enrollment Form and such breach, if capable of being cured, is not cured within thirty (30) days of written notice thereof, then the non-breaching party may immediately terminate such Enrollment Form upon written notice to the breaching party.

10.2        Termination for Non-Curable Material Breach. (i) In the event of a material breach that is not capable of being cured by either party of its confidentiality obligations or any representation or warranty hereunder (a “Non-Curable Material Breach”), the non-breaching party may provide written notice to the breaching party, and thereafter parties shall in good faith use their best commercially reasonable efforts to come to a mutually agreeable resolution through discussions between their Primary Business Contacts during the fifteen (15) days following such written notice (the “Discussion Period”). In the event that the Primary Business Contacts are unable to agree upon a mutually agreeable resolution during the Discussion Period, the non-breaching party may terminate immediately after the end of the Discussion Period by providing the breaching party with written notice; and (iii) in the event that the Grievous Breach described in item (i) continues to occur during the Discussion Period, the non-breaching party may terminate immediately upon written notice to the breaching party. For the purposes of this Section 10.2, “Primary Business Contacts” shall mean all of the following individuals or their designees: Kevin Fortuna for Quigo, Vivek Shah for Time, and for each Publisher shall be designated in the Enrollment Form.

10.3        Termination for Indemnification Shortfall. (i) In the event of a Time Indemnification Shortfall as set forth in Section 9.1, Quigo may provide Time or Publisher with written notice thereof and request that Time or Publisher continue to indemnify Quigo until such time as Quigo is held harmless from the Claim. If Time or Publisher do not agree to comply with such request within five (5) business days of receipt, Quigo may immediately terminate the applicable Enrollment Form or this Agreement upon written notice; and (ii) in the event of a Quigo Indemnification Shortfall as set forth in Section 9.2(b), Publisher may provide Quigo with written notice thereof and request that Quigo continue to indemnify Publisher until such time as Publisher is held harmless from the Claim. If Quigo does not agree to comply with such request within five (5) business days of receipt, Publisher may immediately terminate the applicable Enrollment Form and/or its participation in this Agreement upon written notice.

10.4        Effect of Termination. Upon termination of an Enrollment Form, the applicable Publisher will reasonably promptly remove Contextual Access Code from all Publisher Pages so terminated, or in the case of termination of this Agreement in its entirety, from all Publisher Pages, and shall no longer use Contextual Access Code. Termination (including without limitation a termination pursuant to Section 10.3 hereof) will not limit either party from pursuing any other remedies available to it under any agreement and/or applicable law, including injunctive relief. The rights and obligations of the parties as provided in this Section 10 and the following provisions of this Agreement will survive any expiration, cancellation or termination of this Agreement: Sections 1, 4.1, 4.3, 4.4 (for a one year period following termination), 4.5, 5 (to the extent of any outstanding payment or make-good obligations), 6 (for a three year period following termination) 8, 9 and 12. After the termination of this Agreement, Publisher shall have no right to share any Adjusted Gross Revenue, including Adjusted Gross Revenue from Ads initially brought into the Quigo Network through the Branded Advertiser Interface.

11.          Force Majeure. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY DELAY IN THE PERFORMANCE OF ANY OF ITS OBLIGATIONS, INCLUDING ITS PAYMENT OBLIGATIONS, HEREUNDER DUE TO ANY CAUSE BEYOND SUCH PARTY’S REASONABLE CONTROL OR DUE TO ACTS OF GOD, ACTS OF CIVIL OR

 

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MILITARY AUTHORITIES, TERRORIST ACTS, FIRES, LABOR DISTURBANCES, FLOODS, EPIDEMICS, GOVERNMENTAL RULES OR REGULATIONS, WAR, RIOT, DELAYS IN TRANSPORTATION, SHORTAGES OF RAW MATERIALS, SHORTAGES OF SERVICES, POWER OUTAGES, OR UNAUTHORIZED HACKING ON OR THROUGH THE INTERNET (EACH, A “FORCE MAJEURE EVENT”); PROVIDED, HOWEVER, THAT IN THE EVENT THAT FORCE MAJEURE EVENT RESULTS IN EITHER PARTY’S DELAY IN THE PERFORMANCE OF ITS OBLIGATIONS HEREUNDER AND SUCH DELAY CONTINUES FOR A PERIOD OF FIVE (5) BUSINESS DAYS, THE OTHER SHALL HAVE THE RIGHT TO TERMINATE THIS AGREEMENT (OR AN APPLICABLE ENROLLMENT FORM) IMMEDIATELY UPON WRITTEN NOTICE. THE PROVISIONS OF THIS SECTION 11 SHALL BE SUBJECT TO EACH PARTY’S COMPLIANCE WITH ITS BUSINESS CONTINUITY AND DISASTER RECOVERY PROCEDURES (SET FORTH IN EXHIBIT 2(IV)(H) IN THE CASE OF QUIGO). TIME OR THE APPLICABLE TIME PUBLISHERS SHALL USE REASONABLE EFFORTS TO DEVELOP A DISASTER RECOVERY AND BUSINESS CONTINUITY PLAN THAT IS, IN TIME OR THE APPLICABLE TIME PUBLISHER’S REASONABLE DISCRETION, APPROPRIATE FOR THE APPLICABLE PUBLISHER WEBSITES.

12.          Miscellaneous. Any notice required or permitted hereunder shall be sent by overnight mail, facsimile transmission, or email to the addresses set forth in the Enrollment Form. A copy of any notice sent to Time or a Publisher shall be copied to: Time Inc. 1271 Avenue of the Americas, New York, New York 10020, Attention: General Counsel. This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof. This Agreement shall not be deemed to create any rights with any other person or entity (including Advertisers, publishers (other than Publishers who have executed an Enrollment Form with Quigo) or End Users). This Agreement may not be modified by either party unless such modification is signed by an authorized representative of each party. Neither party (including without limitation the Publishers) may assign this Agreement, nor any right under or obligation pursuant to this Agreement, without the other party’s prior written consent which shall not be unreasonably withheld or delayed, except that Quigo shall assign this Agreement to the entity resulting from its merger, acquisition, or other transaction of similar nature involving a transfer of all or substantially all of its business, and Time on behalf of itself or on behalf of a Publisher (as the case may be) may assign this Agreement within the context of its merger, acquisition or other transaction of similar nature involving the transfer of all or substantially all of its business. In the event that Time, on behalf of a Publisher assigns this Agreement in the context of such Publisher’s merger, acquisition or other transaction of a similar nature, Time may, in its sole discretion, terminate this Agreement (as it applies to such Publisher) upon written notice to Quigo provided that within forty-five (45) days of such termination, Time shall pay to Quigo a Publisher Termination Fee. The “Publisher Termination Fee” shall be equal to one and one half (1.5) multiplied by the remaining Monthly Guaranteed Installments (or portion thereof) that would have been due to such Publisher but for such termination. Following the effective date of termination by Time on behalf of such Publisher, Quigo shall not have any obligation to pay any remaining unearned Monthly Guaranteed Installments or Revenue Share payments to Publisher. The parties expressly agree that the Publisher Termination Fee is reasonable and may not be offset by other costs, expenses or performance metrics (excluding payments otherwise due and owing by Quigo pursuant to the terms and conditions of this Agreement). In the event that Time assigns this Agreement in the context of its merger, acquisition or other transaction of a similar nature, Time may, in its sole discretion, terminate this Agreement upon written notice to Quigo provided that within forty-five (45) days of such termination, Time shall pay to Quigo the following Time Termination Fee. The “Time Termination Fee” shall be equal to one and one half multiplied by the remaining Monthly Guaranteed Installments (or portion thereof) that would have been due to the Time Publishers but for such termination. Following the effective date of termination by Publisher, Quigo shall not have any obligation to pay any remaining unearned Monthly Guaranteed Installments or Revenue Share payments to any Time Publishers. The parties expressly agree that the Time Termination Fee is reasonable and may not be offset by other costs, expenses or performance metrics (excluding payments otherwise due and owing by Quigo pursuant to the terms and conditions of this Agreement). Any assignment in violation of this Section shall be void ab initio. This Agreement will be governed by and construed in accordance with the substantive laws of the State of New York without regard to its conflict of law principles. In any dispute to enforce its rights under this Agreement, each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts in New York County, New York. The captions appearing in this Agreement are inserted only as a matter of convenience and shall not affect the interpretation of this Agreement. No waiver by a party of any breach of any provision of this Agreement will constitute a waiver of any other breach of that or any other provision of this Agreement. In the event that any of the provisions contained in this Agreement are held to be unenforceable such provisions will be narrowed (or deleted if necessary) to the minimum extent necessary to make them enforceable. Each party will perform its obligations as an independent contractor and will be solely responsible for its own financial obligations. This

 

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Agreement will not create a joint venture, partnership, or principal and agent relationship between the parties. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original and all together will be deemed to be one instrument.

13.          Exclusivity. During the Term, each Time Publisher agrees and acknowledges that Quigo shall be the exclusive third party provider of content-targeted (excluding search targeted, structured search (e.g. Bankrate or Golf Course Finder) or site search targeted text advertising services and services substantially similar to PageMatch for all of the Publisher Pages on all of Publisher Websites (including Innovation Publisher Pages). Each Time Publisher agrees that it will not run content-targeted (excluding search targeted) text advertising or services substantially similar to PageMatch from other providers including but not limited to Google AdSense, Ebay AdContext, MSN AdCenter, Kanoodle/Pulse 360, Industry Brains and Yahoo! Content Match. The foregoing exclusivity provisions refer solely to advertising consisting of text ads (whether or not such advertising contains links to other websites), and not to graphical, video or audio advertising.

14.          Implementation. Both parties will use their best commercially reasonable efforts to adhere to the Launch and Implementation schedules attached hereto as Exhibit 4. If Exhibit 4 is not finalized on the Effective Date, the parties will use reasonable commercial efforts to finalize it promptly and may revise and amend Exhibit 4 by a writing signed by both parties. Each Publisher shall assign a project manager to supervise the timely Launch, ongoing implementation and day-to-day management of the AdSonar Service on the Publisher Websites. Such project manager shall serve as the primary point of contact for the implementation of this Agreement. Quigo and each Publisher’s project manager shall attend monthly status meetings in order to discuss and optimization of the program, communicate any questions or problems that may arise, and cooperate to resolve and improve the performance of the program.

15.          Insurance. During the term of this Agreement and, with respect to any claims-made policies, for a period of three years thereafter, Quigo will maintain in full force and effect the following insurance coverage: (i) Commercial General Liability insurance with limits of no less than $2 million per occurrence and $2 million as an annual aggregate, including but not limited to products and completed operations and advertising liability, (ii) Workers’ Compensation insurance in compliance with all statutory requirements, (iii) Errors and Omissions liability insurance with limits of no less than $2 million per claim and $2 million as an annual aggregate, including but not limited to copyright, trademark, defamation and misappropriation of ideas and any other errors, omissions or negligent acts (including but not limited to loss of data, content or other indirect loss), and (iv) unless included in clause (iii) above, Cyber-Liability, e-commerce Liability and/or Professional Liability insurance with limits of $2 million per occurrence and $2 million as an annual aggregate. Time and its respective parents, subsidiaries, affiliates and assigns existing now or hereafter shall be named as additional insureds on all such policies. Policies shall be written with a licensed insurance company with a Best’s Rating of no less than A- VIII. Quigo will provide, upon execution of this Agreement, a certificate of insurance evidencing all such coverages and providing that the insurance company shall provide to the additional insureds (i) 30 days prior written notice of cancellation and/or any material change in any such policy and (ii) a renewal certificate 15 days prior to the renewal of any such policy.

16.          Security. Quigo acknowledges and agrees that any servers, networks or systems that: (a) host any Time data or Time Confidential Information collected by Quigo pursuant to this Agreement; or (b) host any applications branded or co-branded with any Time or Publisher trademarks, including without limitation the Branded Advertiser Interface (the foregoing referred to herein as “Quigo Systems”) will be subject to Quigo’s standard computer security protections, which protections shall be disclosed to Time in Time’s Information Security Standard Questionnaire, a tentative draft of which is attached hereto as Exhibit 6, to be finalized within ten days after the Effective Date of this Agreement. Without limiting the foregoing, in order to ensure the protection of Time’s data, Advertiser data and End User or customer information (including, personally identifiable information, if any) collected on the Publisher Websites, it is a material term of this Agreement that Quigo is responsible for utilizing appropriate security measures, including technical, physical, and organizational controls of the data and information and ensuring the confidentiality, integrity and availability thereof, including without limitation firewall and other protective devices to secure and protect the Quigo Systems from unauthorized access or modification. Time reserves the right, upon no less than fourteen (14) days prior written notice, to audit the Quigo Systems and/or facilities. The Quigo Systems shall be reasonably monitored by Quigo to ensure compliance with Quigo’s security obligations, including without limitation that the Quigo Systems shall include automated monitoring features. Quigo shall promptly notify Time in writing of any material changes in its security standards and operations from the Information Security Standard questionnaire. In the event that there is a confirmed security incident involving the

 

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Quigo Systems including, without limitation, the End User Data or if Quigo has a reasonable suspicion that such a security incident has occurred, Quigo will report such to Time’s Director of Information Security at 212-522-7777. Time may request that Quigo engage a third party to assist with forensic analysis. The results of the third party forensic analysis that are applicable to Time or a Publisher must be delivered to the Time Inc. Legal Department, Attention: General Counsel, marked PRIVILEGED AND CONFIDENTIAL. Further, in no event shall Quigo transfer any of Time’s proprietary or Confidential Information to a third party without the prior written consent of Time, which shall not be unreasonably withheld or delayed. Quigo shall not locate the Quigo Systems outside of the United States.

IN WITNESS WHEREOF, Quigo and Time have executed these Master Terms as of the Effective Date.

 

QUIGO TECHNOLOGIES, INC.    TIME INC.:
By: /s/ Rick Eaton    By: /s/ John Squires
Name:    Rick Eaton    Name:    John Squires
Title:    Chief Financial Officer    Title:    Executive Vice President
Date:    June 15, 2007    Date:    June 15, 2007

Address for notices to Quigo:

Attn: Chief Financial Officer

90 Park Avenue, 10th floor

New York, New York 10016

 

Fax: 212.719.4277

Email: ricke@quigo.com

  

Address for notices to Time and a Publisher:

Time, Inc.

1271 Avenue of the Americas

New York, New York 10020

Attn: Vivek Shah, President, Digital Publishing

Fax: 212-522-1555

Email: vivek_shah@timeinc.com

A copy of any notice sent to Time or a Publisher shall be

copied to: Time Inc. 1271 Avenue of the Americas, New

York, New York 10020, Attention: General Counsel.

.

 

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EXHIBIT 1

SAMPLE ENROLLMENT FORM

QUIGO TECHNOLOGIES, INC.

PRIVATE LABEL PUBLISHER ENROLLMENT FORM FOR:

             (“Publisher”)

Publisher desires to receive from Quigo Technologies, Inc. (“Quigo”) certain services described in this Private Label Publisher Enrollment Form as of the later of the two signature dates below (the “Enrollment Form Effective Date”). This Enrollment Form shall be governed by the Private Label Publisher Master Services Agreement executed between Time Inc. and Quigo on                      (the “Master Terms”). This Enrollment Form and the Master Terms (collectively, the “Agreement”) set forth the entire agreement between Quigo and Publisher. Unless otherwise defined herein, capitalized terms used in this Enrollment Form shall have the meanings assigned to them in the Master Terms.

 

1. Publisher Contact Information:

Publisher Name:

   E-Mail:

State Of Incorporation (if applicable):

 

   Address:

Primary Business Contact Name:

    

Tel.:

    

Fax:

    

 

2. Publisher Accounting Contact Information (if different):

Billing Contact Name:

   E-Mail:

Tel.:

   Billing Address (If Different):

Fax:

    
      

 

     3. Core Publisher Page View Commitment:     
     (a) Subject to Section 5.2 of the Master Terms, Publisher shall display the Ad Templates on the number of Core Publisher
Page Views per each Year of the Term in accordance with Core Publisher Page View Guarantees for applicable classifications
of Publisher Pages set forth in the Page View Guarantee Table below.
    
     Publisher Page Type  

Year 1

(Page Type Target)

 

Year 2

(Page Type Target)

 

Year 3

(Page Type Target)

    
   

Home Page

               
   

Channels

               
   

Story / Article

               
   

Other

               
                     
                     
   

TOTAL CORE

PUBLISHER PAGE

VIEW

COMMITMENT

               

 

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(b) Innovation Publisher Page Views. Publisher may also, in Publisher’s sole discretion, display the Ad Templates on Innovation Publisher Pages. Publisher makes no guarantee as to the number, if any, of Innovation Publisher Pages that will include Ad Templates.

(c) The Publisher Website to which this Enrollment Form pertains is the website currently located at the following URL, or the collection of web pages available under any successor uniform resource locators:

www.            .com

  

 

4. Launch: Pursuant to Section 3.3 of the Master Terms, the Branded Advertiser Interface is to be made available on Publisher Website within thirty (30) days of the Enrollment Form Effective Date (the actual day of such availability is referred to herein as the “Service Start Date”). If the Enrollment Form Effective Date occurs on or before June 15, 2007, and if the Service Start Date occurs on or before July 15, 2007, then a “Prelude Guarantee Period” shall commence on July 15, 2007. If the Enrollment Form Effective Date occurs after June 15, 2007, then the Prelude Guarantee Period shall begin on the thirtieth day after the Enrollment Form Effective Date, or the Service Start Date if later. The “Prelude Guarantee Period” will end on the end of the calendar month in which it begins. If the Service Start Date occurs prior to the expiration of the thirty days following the Enrollment Form Effective Date, the period between the Service Start Date and the Prelude Guarantee Period will constitute an “Early Service Period”.

(a) For example:

   

if the Enrollment Form Effective Date occurs on June 20th, and

   

the Service Start Date is July 15th, then

   

the Prelude Guarantee Period shall begin on July 20th and end on July 31st (inclusive).

   

the First Year Commencement Date would be August 1st, and

   

the “Early Service Period” shall begin July 15th and end on July 19th.

   

Publisher shall receive payment for the Early Service Period and the Prelude Guarantee Period on September 14th

   

Publisher shall receive the first Monthly Guaranteed Installment on October 15th

(b) As another example:

   

if the Enrollment Form Effective Date occurs on June 20th, and

   

the Service Start Date is August 5th, then

   

the Prelude Guarantee Period shall begin on August 5th and end on August 31st (inclusive)

   

the First Year Commencement Date would be September 1st, and

   

There would be no “Early Service Period”

   

Publisher shall receive payment for the Prelude Guarantee Period on October 15th

   

Publisher shall receive the first Monthly Guaranteed Installment on November 14th

(c) As another example:

   

if the Enrollment Form Effective Date occurs on June 15th, and

   

the Service Start Date is July 20th, then

   

the Prelude Guarantee Period shall begin on July 20th and end on July 31st (inclusive).

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the First Year Commencement Date would be August 1st, and

   

There would be no “Early Service Period”

   

Publisher shall receive payment for the Prelude Guarantee Period on September 14th

Publisher shall receive the first Monthly Guaranteed Installment on October 15th

 

5. Term: This Agreement shall commence on the Enrollment Form Effective Date and shall terminate on later of the three (3) year anniversary of the First Year Commencement Date or the end of any Make-Good Period at the end of the third Year, as set forth in Section 5.3 of the Master Terms (collectively, the “Term”). The “First Year Commencement Date” is the first day of the first full calendar month after the expiration of any Prelude Guarantee Period. For avoidance of doubt, in no event shall the First Year Commencement Date occur before the expiration of thirty (30) days from the Enrollment Form Effective Date.

 

6. Payment:

I. Annual Payment Guarantee:

At a minimum, Quigo shall pay Publisher the Annual Payment Guarantee in equal Monthly Guaranteed Installments as follows:

(a) Year One. With respect to each calendar month of the Term during the first Year immediately following the First Year Commencement Date, Quigo shall pay Publisher Monthly Guaranteed Installments of              Dollars ($             ).

(b) Year Two. With respect to each calendar month of the Term during the second Year, Quigo shall pay Publisher Monthly Guaranteed Installments of              Dollars ($            ).

(c) Year Three. With respect to each calendar month of the Term during the third Year, Quigo shall pay Publisher Monthly Guaranteed Installments of              Dollars ($             ).

(d) Payment Timing. The Monthly Guaranteed Installments, any Prelude Guarantee Payments, or any applicable Revenue Share Amount (including any Revenue Share Amount to be paid with respect to an Early Service Period) shall be paid within 45 days following the end of each calendar month commencing upon the Service Start Date (or within 45 days following the effective date of termination of the Agreement or this Enrollment Form).

II. Revenue Share Amount:

(a) At the end of each calendar month during the Term, Quigo shall calculate the amount of payments that would have been paid to Publisher if Publisher were paid solely based on the Revenue Share from the First Year Commencement Date through to the end of such month (the “Term-to-Date Revenue Share Amount”).

(b) In addition, at the end of each calendar month during the Term, Quigo shall calculate the sum of the Monthly Guaranteed Installments paid or payable by Quigo to Publisher through the end of such month.

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(c) At the end of each calendar month during the Term, Quigo shall owe Publisher the greater of the Term-to-Date Revenue Share Amount or the sum of the Monthly Guaranteed Installments.

(d) Quigo shall pay Publisher, in accordance with Section 6(I)(d) above, the difference between the amount Quigo owes at the end of such month and the amount it owed at the end of the prior month.

(e) For purposes hereof, “Revenue Share” shall mean the sum of: (i) seventy-five percent (75%) of Adjusted Gross Revenue to Publisher for Ads served to the Publisher Pages; and (ii) fifteen percent (15%) of adjusted gross revenue as calculated per the agreement applicable to a third party website for Ads served on the Quigo Network (other than on the Publisher Pages or the pages of any other Time Publisher or Time Affiliate) that come through the Branded Advertiser Interface through a Publisher initiative or marketing effort, or otherwise result primarily through Publisher’s initiatives or marketing efforts.

(f) For specific examples regarding the payment of the Revenue Share Amount, the parties are referred to the Sample Report attached as Exhibit 5 to the Master Terms.

III. Payment With Respect to the Early Service Period. Publisher shall be paid the Revenue Share amount with respect to the Early Service Period. The Annual Payment Guarantee shall not apply during the Early Service Period. Any payments and revenue earned during this period shall not apply towards the Term-to-Date Revenue Share Amount, nor shall Publisher Page Views delivered during this period apply towards the Core Publisher Page View Commitment.

IV. Payment With Respect to the Prelude Guarantee Period: With respect to the Prelude Guarantee Period, Publisher shall be paid the greater of: (a) the lesser of (i) the Annual Payment Guarantee for the first Year multiplied by the total number of Core Publisher Page Views delivered by Publisher during the Prelude Guarantee Period divided by the total Year 1 Page View Guarantee, and (ii) the Annual Payment Guarantee for the first Year multiplied by the number of days in the Prelude Guarantee Period divided by 365; and (b) the Revenue Share amount applicable during the Prelude Guarantee Period. The Annual Payment Guarantee shall not apply to such time period. Any payments and revenue earned during this period shall not apply towards the Term-to-Date Revenue Share Amount, nor shall Publisher Page Views delivered during this period apply towards the Core Publisher Page View Commitment.

 

7. Placement Guarantee:

(a) Subject to the terms and conditions of the Agreement, Publisher shall place the Ad Templates on the Core Publisher Page Views of the Publisher Website specified in Section 3 above in accordance with the mock-ups and any descriptions attached to this Enrollment Form as Exhibit A.

(b) In order to maximize click-through rates, Quigo reserves the right to change the aesthetic attributes of the Ad Template within the parameters set forth in Exhibit C to this Enrollment Form. Publisher will make good faith efforts to periodically test additional

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placements and aesthetic appearance of the Ad Templates in cooperation with Quigo in order to determine the best demonstrated practices for Publisher specifically and to optimize the click-through of the Ads. Any test Ad Templates displayed pursuant to this Section 7(b) shall be included in the calculation of the Core Publisher Page View Guarantees set forth in Section 3 of this Enrollment Form.

 

8. Services to be provided by Quigo to Publisher pursuant to this Agreement: The AdSonar® Service, which includes proprietary technology and functionality for determining content of web pages and matching and serving of Ads deemed relevant to those pages as well as PageMatch® (collectively, the “AdSonar Service”).

 

9. Competitor and Additional Prohibited Content. Exhibit B to this Enrollment Form lists the Competitor Content and Additional Prohibited Content to be filtered by Quigo pursuant to Section 3.2 and Section 7 of the Master Terms.

 

10. Approved Trademark Usage. Quigo shall be entitled to use the Publisher Trademarks in the manner set forth in Exhibit D hereto.

 

11. Additional Terms (if any).

By signing this Enrollment Form, Publisher also agrees to the Private Label Publisher Master Services Agreement referenced above.

 

            QUIGO TECHNOLOGIES, INC.

 

                 PUBLISHER:

            By:

                 By:

 

    

 

 

            Name: Rick Eaton

 

    

 

            Name:

            Title: Chief Financial Officer

 

                 Title:

            Date:

 

                 Date:

            Address for notices to Quigo:

 

                 Address for notices to Publisher:

            Attn: Chief Financial Officer

 

    

            90 Park Avenue, 10th floor

 

    

            New York, New York 10016

 

    

            Fax: 212.719.4277

 

                 Fax:            -            -             

            Email: ricke@quigo.com

 

                 Email:

 

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ENROLLMENT FORM EXHIBIT A

Mock-ups Showing Placement for Ad Templates

by Publisher Page Types and Location on Publisher Pages

 

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ENROLLMENT FORM EXHIBIT B

Competitor Content and Additional Prohibited Content Lists

A. Competitor Content:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B. Additional Prohibited Content:

 

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ENROLLMENT FORM EXHIBIT C

Preapproved Aesthetics

 

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ENROLLMENT FORM EXHIBIT D

Pre-approved Trademark Usage

 

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AGREEMENT EXHIBIT 2

AdSonar and Other Services – SLA

The purpose of this Service Level Agreement (the “SLA”) is to describe the service level commitments that Quigo Technologies, Inc. (“Quigo”) is obligated to deliver under the Private Label Publisher Master Services Agreement between Time Inc. (“Client”) and Quigo (the “Agreement”). Specifically, the following obligations shall apply to Quigo’s AdSonar Service and any other contextual advertising services provided by Quigo on behalf of Client pursuant to the Agreement (collectively, the “Advertising Service”). The sections are as follows:

 

  I. Definitions

 

  II. Contacts

 

  III. Support Procedures

 

  IV. Operational Metrics

 

I. DEFINITIONS

 

A. Definitions.

 

  (i) Query. A request submitted by the Client in a mutually agreed format which includes a URL for which a Result Set is requested.

 

  (ii) Aggregate Response Time. The amount of time (measured in milliseconds) from the receipt of a Query to the delivery of a response to the Client.

 

  (iii) Availability Percentage. The number of minutes in an applicable measurement period where the Advertising Service is available, divided by the total minutes in such measurement period.

 

  (iv) NOC. Network Operations Center.

 

  (v) Normal Maintenance. Ongoing scheduled maintenance for the Advertising Service done by Quigo. During this maintenance, some or all of the Advertising Service will be unavailable. Normal Maintenance shall only be scheduled between the hours of 1:00am and 6:00am and shall occur no more frequently than once per week.

 

  (vi) Production Window. The time during which the AdSonar service will be interruption-free from Normal Maintenance. The Production Window shall be 5:59am through 12:59am (EST).

 

  (vii) Maintenance Window. The time outside the Production Window, during which Quigo may perform Normal Maintenance. Quigo shall inform Client in writing at least one (1) week prior to a Maintenance Window.

 

  (viii) Problem Definition

 

  ¡  

Priority 1 Problems. This is defined as an issue that critically impacts revenue and/or degrades performance of the Advertising Service or the Client website.

 

  ¡  

Priority 2 Problems. This is defined as an issue that impacts revenue and/or degrades user experience for users of the Advertising Service.

 

  ¡  

Priority 3 Problem. This is an issue that causes minor end user impact and/or zero revenue impact.

The foregoing individually referred to herein as a “Problem” and collectively, “Problems.

 

  (ix)

Problem Resolution. A correction, patch, fix alteration or temporary workaround that minimizes the effect of a Priority 1 or 2 Problem restoring the system and the

 

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Advertising Service to the level set forth in this SLA within the performance response times set forth in this SLA.

 

  (x) Results Set. A Results Set will consist of the requested number of Contextual Keywords or Contextual Ads to be delivered in response to a Query pursuant to the terms of the Agreement. The Result Set may also be a “No Contextual Keyword found” message or a “Theme filter applied” message or any similar message as agreed in writing between the parties.

 

  (xi) Advertising Service. The service provided by Quigo whereby Quigo processes Queries, determines the relevant Results Set, and displays the relevant Results Set on the correct Client URL. This includes, but is not limited to, AdSonar.

 

  (i) Temporary Workaround. A temporary technical solution that restores the system and the Advertising Service to the levels set forth in this SLA, although there may be ongoing or additional measures until a permanent solution can be implemented.

 

  (ii) Timeouts. A timeout refers to an action taken by the Client’s production servers when a Results Set is not received within the maximum Aggregate Response Time referred to as the “Critical Threshold”, as defined below.

 

  (iii) New URL. A URL submitted to Quigo which at the time of the Query is not stored within Quigo’s cache with a matching Result Set.

 

  (iv) URL Being Processed Response Time. The amount of time (measured in seconds) between the time Quigo receives a New URL in a Query from Client until a Result Set is matched and cached for that URL.

 

II. Contacts

Quigo contact list

 

Name    Escalation    Role / Responsibility    Email Address    Office Phone    Mobile Phone
           

24/7 support call center

   Priority 1 & 2    NOC / 24/7 call center    noc@quigo.com (goes to emergency pager)          
           

Kevin Fortuna

   Priority 1,2 & 3    Primary Business Contact    kevinf@quigo.com    (646) 289-6010      
           

Michael Fisher

   Priority 1,2 & 3    Technical    michaelf@quigo.com    (646) 289-6013    (917) 547-4589
           

Chris Lalonde

   Priority 1,2 & 3    Operations    chrisl@quigo.com    (646) 289-6003    (646) 431-5738

Client Contact list [TO BE COMPLETED]

 

Name    Escalation      Role / Responsibility    Email Address      Office Phone      Mobile Phone      Pager
          NOC / 24/7 call center                      
          Primary Business Contact                    
             
                               
             
                               
             
                               
             
                               
             
                               

 

III. SUPPORT PROCEDURES

 

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A. Support Procedures.

 

  (i) All Priority 1 and Priority 2 Problems reported by either party must be submitted to the other party, as appropriate, via the technical support telephone number or via email to the contact information set forth in the Support Table.

 

  (ii) Quigo shall inform Client’s technical support personnel of ongoing efforts to provide a Problem Resolution concerning Problems until such Problem Resolution is complete.

 

  (iii) In the event that there is a Priority 1 or 2 Problem outside normal business hours (9:00 a.m. to 6:00 p.m. EST), the reporting party shall contact the other party’s 24/7 support call center.

 

B. Quiqo Response. Upon receiving notification from Client, Quigo shall promptly determine the Priority level of the Problem according to the definitions set forth above. If it is determined by the parties that the issue is Quigo’s responsibility, then Quigo will respond to the request within the response times set forth in this SLA and shall resolve Problem in accordance with this SLA. If the parties agree that the Problem is not Quigo’s responsibility, then Quigo shall reasonably cooperate with Client to provide a Problem Resolution.

Quigo Support Table

 

Type of problem
reported
   Response Time    Time for implementing fixes and reporting obligations

Priority 1 Problem

   Initial response to request within 15 min.   

If Quigo is identified as the responsible party and the problem solution is not immediate, Quigo will provide continuous levels of communications and effort until the Problem Resolution has been implemented, or the Problem is downgraded in priority. All such notifications and updates will be to Client’s NOC or Call Center, as identified in Article II above.

In the event that Quigo is not the responsible party all resolution efforts and communication will follow the methods prescribed in Sections III.A. and III.B. of the SLA.

Priority 2 Problem

   Initial response to request within 30 min.   

If Quigo is identified as the responsible party it will provide hourly notifications or as mutually agreed upon. All such notifications and updates will be sent to Client’s NOC or Call Center, as identified in Article II above.

In the event that Quigo is not the responsible party all resolution efforts and communication will follow the methods prescribed in Sections III.A. and III.B. of the SLA.

Priority 3 Problem

   Initial response to request within two business days.    If Quigo is the responsible party, it will provide notifications to Client once per business day, or as otherwise agreed, until Problem Resolution.

 

IV. OPERATIONAL METRICS

 

A. Availability. Quigo shall ensure a 99.9% Availability Percentage for the Advertising Service (“Availability Objective”). This shall be calculated on a monthly basis for each window.

 

B. Response Times.

 

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  ¡  

Average Aggregate Response Time - Shall not exceed an average of 150 ms for 90% of all Queries, measured on an hourly basis from North America and 500 ms from outside North America.

 

  ¡  

Average Aggregate Response Times in excess of 500 ms will be considered unavailability for purposes of calculating the Availability Objective

 

  C. Critical Thresholds. Aggregate Response Time that is greater than 500 ms will result in Timeouts (the “Critical Threshold”).

 

  D. Timeouts. Quigo will provide Client with an Ad Unit and associated code to be hosted on Client’s Web servers. In no event will a Timeout result in Client’s inability to render Client content and display pages of the Client website that include any Contextual Access Codes (as defined in the Agreement) or other HTML codes or scripts provided by Quigo.

 

  E. Cure Period. If Quigo is identified as the responsible party for a Priority 1, 2 or 3 Problem, according to Article III, Section B or C, Quigo shall identify and communicate a Problem Resolution and shall comply with definitions set forth in this document. Quigo shall: (1) resolve Priority 1 Problems as soon as possible, but in any event within 48 hours, (2) resolve Priority 2 Problems within seventy-two (72) hours, and (3) resolve Problem 3 Problems within 30 business days.

 

  F. Failure to Meet the Availability Objective. Any failure on the part of Quigo to meet the Availability Objective shall place Quigo in a remediation period which will last thirty (30) business days. If after this remediation period Quigo is unable to meet the Availability Objective, this shall constitute a material breach of the Agreement and Client or Quigo may, in addition to any other rights and remedies available to it under this Agreement or otherwise, terminate the Agreement immediately upon written notice to Quigo.

 

  G. Maintenance Requirements. Quigo shall provide notification to Client of Maintenance Windows, at least two (2) days in advance. Quigo shall conduct Normal Maintenance between the hours of 1 am ET and 6 am EST. Quigo will make reasonable commercial efforts to ensure retro-compatibility on custom Contextual Access Code. In cases where maintenance and upgrades require changes to Client’s Custom Ad Unit Code, Quigo will notify Client at least 3 days in advance.

 

  H. Quigo Disaster Recovery Information & Procedures. As of the Effective Date, Quigo currently runs the Ad serving engine from two collocation facilities:

 

  1) Weehawken, NJ (“NJ Facility”), in which Savvis owns or operates the building and provides space, power and bandwidth services; and

 

  2) San Jose, CA (“SJC Facility”), in which ArcScale operates the facility and provides space, power and bandwidth services.

In addition, as of the Effective Date, Quigo currently utilizes the services of Akamai, who provides caching service for the critical adsonar.js file, which is downloaded by the end users’ browsers for the purpose of displaying the Ads.

Client customer traffic is load balanced between the two collocation facilities. Therefore, in the event of a catastrophic failure in either facility, only a portion (a maximum of 50%) of consumer traffic would be impacted while the other portion would continue to function as normal. Even with the loss of the primary databases and other servers, the AdSonar Service is designed such that if a single Quigo web server is available it will continue to serve Ads. The administrative

 

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system runs actively only from the NJ Facility. However, Quigo maintains the admin code base in the SJC Facility along with Oracle Standby’s of the primary and reporting databases.

In the event of a catastrophic failure in Quigo’s main facility (the NJ Facility), Quigo’s response plan (in the SJC Facility) is as follows:

 

  1) Lower DNS TTL for all VIPS

 

  2) Change DNS to point all VIPS to SJ hosts

 

  3) Shutdown replication db’s

 

  4) Copy physical standbys into replication databases

 

  5) Bring up db’s

 

  6) Make changes to configurations files on production hosts to point to new db’s and restart

 

  7) Copy production code from local servers or local cvs repository into stage environment

 

  8) Restart stage environment now as additional production capacity (At this point Quigo would have fully restored all services)

 

  9) Add NJ IP’s to SJ BGP

 

  10) Add NJ IP’s to LB to point to SJ hosts (This would allow consumers with cached DNS to see ads)

In the event of a catastrophic failure in Quigo’s secondary facility (the SJC Facility), Quigo’s response would include items 1, 2, 9, and 10.

Quigo’s expectation is that recovery time would take no more than 6 hours, though DNS propagation may extend the issue for certain customers. Steps 1 through 10 above are possible as Quigo keeps redundant online copies of the current data (lagged by no more than 2 hours) and keeps copies of the production code locally in the SJC Facility. Coupled with Quigo’s redundant links and ability to burst network traffic to 2Gig/s, Quigo’s belief is that the foregoing represents all the elements required for a short recovery time.

 

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Confidential

  

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AGREEMENT EXHIBIT 3

PUBLISHER AD TEMPLATE DISPLAY GUIDELINES

(a) The programming code of the Ad Template (including the title, description and domain tags) must not be truncated without the prior written approval of the account manager assigned by Quigo to Publisher’s account.

(b) The content of the Ad Templates must be displayed exactly in the order and manner provided by Quigo (i.e., the first Ad shown on the Publisher Page will be the first Ad provided by Quigo, the second Ad shown on the Publisher Page will be the second Ad provided by Quigo etc.). Additionally, the Ad Template must be displayed only within the Internet browser (and not within a toolbar or other software application);

(c) Publisher must not copy, cache, store or otherwise keep in its possession or under its control the Ad Templates and/or any other key or index describing the relation between the URL of a Publisher Page and the Ads contained in the related Ad Template, as clicks on ads served from cache will not be filtered or credited to Publisher.

(d) Publisher must not frame any page on Advertiser’s web site which was accessed by an End User clicking on an Ad;

 

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AGREEMENT EXHIBIT 4

Launch Schedule

 

Publisher Website

 

  

Launch Date

 

www.CNNMoney.com

   July 1, 2007

www.SI.com

   July 1, 2007

www.people.com

   July 1, 2007

www.Time.com

   July 1, 2007

www.InStyle.com

   July 1, 2007

www.EW.com

   July 1, 2007

www.golf.com

   July 1, 2007

www.CookingLight.com

   July 1, 2007

www.SouthernLiving.com

   July 1, 2007

www.CottageLiving.com

   July 1, 2007

www.southernaccents.com

   July 1, 2007

www.coastalliving.com

   July 1, 2007

www.sunset.com

   July 1, 2007

www.fannation.com

   July 1, 2007

www.myrecipes.com

   July 1, 2007

Implementation Schedule

Effective Date through June 25:

Publisher Deliverables:

 

   

Provide Quigo with Logos, Website Descriptions, Media Kit URLs, IP Filters, Program Name, Competitive URLs, Font Style Guides for Testing

 

   

Implement Contextual Access Code on Publisher Stage Sites and perform QA of Contextual Access Code implementation

Quigo Deliverables:

 

   

Develop Branded Advertiser Interface

 

   

Assist with implementation of Contextual Access Code on Publisher Stage Sites

 

   

Begin Advertiser sales process

 

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AGREEMENT EXHIBIT 5 (SAMPLE REPORT)

 

First Year Commencement Date

     8/1/2007             

 

 

 

Exhibit 5

Quigo Technologies, Inc.

Monthly Revenue report

Publisher X

  

  

  

  

Serving & operational support costs deduction %

     5%           

Revenue Share % of AGR

     75%           

Commission on Publisher’s advertisers on 3rd party websites

     15%           
              Month 1-12     Month 13-24      Month 25-36            
                           

Monthly Page View Commitment

     240,000,000     260,000,000      300,000,000            

Monthly Guarantee to Publisher

   $ 600,000.00   $ 750,000.00    $ 900,000.00            

Column Letter

     A      B      C      D     E      F      G      H      I    J   

Description of Calc

            B=?A      B*95%      C*75%     15%      =D+E      ?ofGuarantees     
 
Greater of
col. F or G
    
 
 
Diff of current and
prior month shown
in col. H
      

Month

   Gross Ad
Revenue
   Term-to-date
Gross Ad
Revenue
   Term-to-date
Adjusted
Gross
Revenue
(AGR)
   Term-to-date
Rev share
pursuant to
6:ll(e)(i)
  Term-to-date
Commission on
TW advertisers
pursuant to
6:ll(e)(ii)
   Term-to-Date
Revenue Share
6:ll(a)
   Term-to-date
Guarantee

6:ll(b)
   Term-to-date
amount paid /
payable

6:ll(c)
   Amount to be
paid / payable
each month
6:ll(d)
   Monthly
Publisher
Share of
AGR
 

August

   $ 500,000    $ 500,000    $ 475,000    $ 356,250   $ 10,000    $ 366,250    $ 600,000    $ 600,000    $ 600,000    126.32

September

   $ 500,000    $ 1,000,000    $ 950,000    $ 712,500   $ 20,000    $ 732,500    $ 1,200,000    $ 1,200,000    $ 600,000    126.32

October

   $ 700,000    $ 1,700,000    $ 1,615,000    $ 1,211,250   $ 30,000    $ 1,241,250    $ 1,800,000    $ 1,800,000    $ 600,000    90.23

November

   $ 800,000    $ 2,500,000    $ 2,375,000    $ 1,781,250   $ 40,000    $ 1,821,250    $ 2,400,000    $ 2,400,000    $ 600,000    78.95

December

   $ 900,000    $ 3,400,000    $ 3,230,000    $ 2,422,500   $ 50,000    $ 2,472,500    $ 3,000,000    $ 3,000,000    $ 600,000    70.18

January

   $ 1,000,000    $ 4,400,000    $ 4,180,000    $ 3,135,000   $ 60,000    $ 3,195,000    $ 3,600,000    $ 3,600,000    $ 600,000    63.16

February

   $ 1,100,000    $ 5,500,000    $ 5,225,000    $ 3,918,750   $ 70,000    $ 3,988,750    $ 4,200,000    $ 4,200,000    $ 600,000    57.42

March

   $ 1,100,000    $ 6,600,000    $ 6,270,000    $ 4,702,500   $ 80,000    $ 4,782,500    $ 4,800,000    $ 4,800,000    $ 600,000    57.42

April

   $ 1,100,000    $ 7,700,000    $ 7,315,000    $ 5,486,250   $ 90,000    $ 5,576,250    $ 5,400,000    $ 5,576,250    $ 776,250    74.28

May

   $ 1,100,000    $ 8,800,000    $ 8,360,000    $ 6,270,000   $ 100,000    $ 6,370,000    $ 6,000,000    $ 6,370,000    $ 793,750    75.96

June

   $ 1,100,000    $ 9,900,000    $ 9,405,000    $ 7,053,750   $ 110,000    $ 7,163,750    $ 6,600,000    $ 7,163,750    $ 793,750    75.96

July

   $ 1,100,000    $ 11,000,000    $ 10,450,000    $ 7,837,500   $ 120,000    $ 7,957,500    $ 7,200,000    $ 7,957,500    $ 793,750    75.96

August

   $ 1,100,000    $ 12,100,000    $ 11,495,000    $ 8,621,250   $ 130,000    $ 8,751,250    $ 7,950,000    $ 8,751,250    $ 793,750    75.96

September

   $ 900,000    $ 13,000,000    $ 12,350,000    $ 9,262,500   $ 140,000    $ 9,402,500    $ 8,700,000    $ 9,402,500    $ 651,250    76.17

October

   $ 700,000    $ 13,700,000    $ 13,015,000    $ 9,761,250   $ 150,000    $ 9,911,250    $ 9,450,000    $ 9,911,250    $ 508,750    76.50

November

   $ 900,000    $ 14,600,000    $ 13,870,000    $ 10,402,500   $ 160,000    $ 10,562,500    $ 10,200,000    $ 10,562,500    $ 651,250    76.17

December

   $ 1,000,000    $ 15,600,000    $ 14,820,000    $ 11,115,000   $ 170,000    $ 11,285,000    $ 10,950,000    $ 11,285,000    $ 722,500    76.05

January

   $ 1,100,000    $ 16,700,000    $ 15,865,000    $ 11,898,750   $ 180,000    $ 12,078,750    $ 11,700,000    $ 12,078,750    $ 793,750    75.96

February

   $ 1,100,000    $ 17,800,000    $ 16,910,000    $ 12,682,500   $ 190,000    $ 12,872,500    $ 12,450,000    $ 12,872,500    $ 793,750    75.96

March

   $ 1,100,000    $ 18,900,000    $ 17,955,000    $ 13,466,250   $ 200,000    $ 13,666,250    $ 13,200,000    $ 13,666,250    $ 793,750    75.96

April

   $ 1,100,000    $ 20,000,000    $ 19,000,000    $ 14,250,000   $ 210,000    $ 14,460,000    $ 13,950,000    $ 14,460,000    $ 793,750    75.96

May

   $ 1,100,000    $ 21,100,000    $ 20,045,000    $ 15,033,750   $ 220,000    $ 15,253,750    $ 14,700,000    $ 15,253,750    $ 793,750    75.96

June

   $ 1,100,000    $ 22,200,000    $ 21,090,000    $ 15,817,500   $ 230,000    $ 16,047,500    $ 15,450,000    $ 16,047,500    $ 793,750    75.96

July

   $ 1,250,000    $ 23,450,000    $ 22,277,500    $ 16,708,125   $ 240,000    $ 16,948,125    $ 16,200,000    $ 16,948,125    $ 900,625    75.84

August

   $ 1,400,000    $ 24,850,000    $ 23,607,500    $ 17,705,625   $ 250,000    $ 17,955,625    $ 17,100,000    $ 17,955,625    $ 1,007,500    75.75

September

   $ 1,550,000    $ 26,400,000    $ 25,080,000    $ 18,810,000   $ 260,000    $ 19,070,000    $ 18,000,000    $ 19,070,000    $ 1,114,375    75.68

October

   $ 1,700,000    $ 28,100,000    $ 26,695,000    $ 20,021,250   $ 270,000    $ 20,291,250    $ 18,900,000    $ 20,291,250    $ 1,221,250    75.62

November

   $ 1,850,000    $ 29,950,000    $ 28,452,500    $ 21,339,375   $ 280,000    $ 21,619,375    $ 19,800,000    $ 21,619,375    $ 1,328,125    75.57

December

   $ 2,000,000    $ 31,950,000    $ 30,352,500    $ 22,764,375   $ 290,000    $ 23,054,375    $ 20,700,000    $ 23,054,375    $ 1,435,000    75.53

January

   $ 2,150,000    $ 34,100,000    $ 32,395,000    $ 24,296,250   $ 300,000    $ 24,596,250    $ 21,600,000    $ 24,596,250    $ 1,541,875    75.49

February

   $ 2,300,000    $ 36,400,000    $ 34,580,000    $ 25,935,000   $ 310,000    $ 26,245,000    $ 22,500,000    $ 26,245,000    $ 1,648,750    75.46

March

   $ 2,450,000    $ 38,850,000    $ 36,907,500    $ 27,680,625   $ 320,000    $ 28,000,625    $ 23,400,000    $ 28,000,625    $ 1,755,625    75.43

April

   $ 2,600,000    $ 41,450,000    $ 39,377,500    $ 29,533,125   $ 330,000    $ 29,863,125    $ 24,300,000    $ 29,863,125    $ 1,862,500    75.40

May

   $ 2,750,000    $ 44,200,000    $ 41,990,000    $ 31,492,500   $ 340,000    $ 31,832,500    $ 25,200,000    $ 31,832,500    $ 1,969,375    75.38

June

   $ 2,900,000    $ 47,100,000    $ 44,745,000    $ 33,558,750   $ 350,000    $ 33,908,750    $ 26,100,000    $ 33,908,750    $ 2,076,250    75.36

July

   $ 3,050,000    $ 50,150,000    $ 47,642,500    $ 35,731,875   $ 360,000    $ 36,091,875    $ 27,000,000    $ 36,091,875    $ 2,183,125    75.35

 

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AGREEMENT EXHIBIT 6

Information Security Standard Questionnaire [Tentative Draft (not finalized)]

 

¡ Introduction

 

The Time Inc. Information Security Policy requires an evaluation of external companies who process or store Time Inc. information. This questionnaire should be completed by the IT representative within the company being contracted to provide services on behalf of Time Inc.

Please note that all IT outsourcing arrangements must be approved by the Deputy CIO of Time Inc. prior to contract execution and Information Security review. Please work with your Time Inc. business contact to ensure that this approval has been obtained and provided to Time Inc. Information Security along with this completed questionnaire.

The questionnaire consists of two columns, one with the question posed to the outside company, the second for the outside company’s response. The company may respond directly in the column if this document is available to them in electronic form. The respondent is not to modify or delete any of the questions. If the question does not apply to the services that are to be provided, then an “N/A” in the answer response column is sufficient.

Once the questionnaire is completed by the company, it is to be returned to the Time Inc. business contact. An Information Security resource will be assigned to work with the business sponsor and users to ensure an appropriate level of security is achieved.

 

¡ General Information

 

 

1.    Time Inc. Business Sponsor (name and phone).     
2.    Company Name and Address.   Quigo Technologies, Inc. 90 Park Ave, 10th Fl., New York, NY
3.    Company Website.   www.quigo.com
4.    IT Contact (name and phone).   Chris Lalonde, 646 289 6003
5.    List any other Time Warner contacts in which the company is doing business.    
6.    How long has your company been in the business of providing the service requested by Time Inc.?   3 years
7.    Number of employees.   92
8.    Have any independent 3rd party security reviews been performed on the company? If so, who performed the review and when was it performed?   No
9.    Will the company be processing, or storing credit or debit cards on behalf of Time Inc.? If so, is the company compliant with applicable Payment Card Industry (PCI) data security standards?  

After reviewing the PCI standards we agree with Ryan that we should become PCI compliant. I believe we are almost there but it will take some time to get all the appropriate mechanisms in place. We would like to suggest that under the terms of the agreement we will become PCI complaint within 90 days of the contract being signed.

 

 

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10.    At what address are the systems located that will be supporting Time Inc.’s services?

 

Weehawken, NJ

Sunnyvale, CA

 

 

11.    Does your company own/manage this environment? If not, please list who does.

 

Savvis – Weehawken NJ

ArcScale – Sunnyvale, CA

 

 

12.    Will the company be subcontracting any work?

 

No

 

 

¡ Physical Security

 

 

 

1.      Describe the security controls protecting physical entry to the facility and computer systems. (e.g. locked server cages, guarded access, video monitoring, visitor access controls)

 

Both collocations have locked server access and are guarded 24/7. Both also have video monitoring and visitor access controls are in place. Visitors must be escorted in the facility

 

 

2.      Where are backups stored? How are offsite backups secured?

 

Backups are stored on site at both facilities.

 

 

3.      Can a representative from Time Inc. visit the company’s facilities to observe the physical security controls in place?

  Yes

 

¡ Technical Controls

 

 

A. Segregation of Information Between Clients

 

 

1.      What security controls are in place to keep Time Inc. systems and data separate from other client data?

 

Time Inc. Data is segregated within the Admin application via the application itself and the Oracle database which stores the relevant info. All user access is done via https and requires password authentication so each individual session is secure. Employee access to the data on the server is given based on least privilege so anyone who does not need access is not given.

 

 

B. Operating System Security

 

 

1.      Do you have procedures for “hardening” your systems against vulnerabilities?

 

Yes. A base configuration is approved and this is used as a template for all further configurations. All unnecessary services are removed and all unnecessary programs are stopped and removed from startup.

 

 

2.      Do you perform routine vulnerability scanning of your customer environment? If so, what tools are used?

 

Yes. Nessus, Nikto, nmap and GFI languard are used.

 

 

3.      Do you have a patch management process?

 

Yes. Windows systems use a MS patching server Unix systems are patched quarterly or as needed.

 

 

4.      Is anti-virus software deployed on systems and how often are virus definitions updated?

 

Yes. We use Symantec updates are scheduled weekly.

 

 

C. Authentication and Authorization

 

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1.      Do you manage servers and network devices using secure encrypted protocols such as SSH? Please note any exceptions.

 

Yes. All systems use SSH or remote desktop with encryption.

 

 

2.      What type of authentication is required to access servers and network devices, both from on-site and remote access (e.g. passwords, SecurID)?

  Account level access and passwords
 

3.      Are the concepts of “least privilege” and “segregation of duties” applied to system access?

 

Yes. For example DBA’s do not have root access and developers are not allowed access to production systems.

 

 

4.      How would an authorized Time Inc. employee obtain remote access to the Time Inc. environment at your site? In general terms, describe the procedure and system requirements.

  We do not allow customer access to our systems.
 

5.      Can an employee in your company access your network remotely? If so, please describe the procedure and system requirements.

 

Yes. Remote access is via a VPN and requires a domain user name and password. We do require 2-factor authentication to gain direct access to our production environment however 2-factor is not required to gain access to our corporate environment. As this is part of the PCI standard we would remediate this as needed to become PCI compliant.

 

 

D. Web Application Security

 

 

1.      For web applications, are developers trained on the secure coding practices such as the OWASP Top 10, and are these principles applied to the development of web applications to be used by Time Inc.?

 

Developers participate in periodic training sessions provided by peers, team leads, or managers on a variety of subjects that can include security. A variety of controls and processes are used to ensure the security of our application including training, code reviews, and testing.

 

 

2.      Is all application input and output validated to prevent common vulnerabilities such as Cross Site Scripting or Injection attacks?

  Yes
 

3.      Is application security testing performed regularly to validate that secure coding practices are followed? Please describe.

 

Testing is performed during each quality assurance cycle for a variety of scenarios such as buffer overflow, error handling, etc.

 

 

E. Protection of Sensitive Data

 

 

1.      How is sensitive data, including credit/debit cards, protected?

 

Credit card information is protected in transit (both during submission from the client and to the Verisign API) via https, within the application credit card information is stored in memory and only for the life of the that individual transaction. To reduce the surface area for attack the complete application required for credit card processing exists within a single host so external communication is not required except for the

 

 

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submission of the credit card information to Versign for processing. Additionally the cc info stored in memory is cleared once the data has been formatted and submitted to Verisign and internally the application uses Verisigns libraries to format and submit the credit card information to ensure we meet their security requirements. Finally, access to the production hosts which process this data is limited to operations staff and privileged access is further restricted via to those individuals who require this level of access to carry out their job.

 

 

 

2.      Is sensitive data, including credit/debit cards, encrypted both in transit and in storage? If so, please describe key management practices and the encryption algorithms used (e.g. SSL, 3DES, AES).

  Yes it is encrypted in transit via SSL.

 

F. Network Security

 

 

1.      Are firewalls used to protect Time Inc. data and systems from the Internet and other untrusted networks? Please name devices used.

 

Customer systems are protected by external ACL’s. Any internal machines must use NAT to talk to the internet and these NAT rules are restricted to specific machines using specific ports. All internal traffic must past through a stateful firewall or through a load balancer that does

stateful packet inspection. All internal hosts are on private IP’s and their default routes point to the load balancer or to the firewall. Given our network configuration we believe this meets PCI standards.

 

 

 

2.      Are intrusion detection/prevention systems used? Please name devices used.

 

We have implemented an IDS system

 

 

 

3.      Are security logs monitored to detect malicious activity?

  Yes
 

4.      Do you correlate security events from different sources?

  No
 

5.      Will wireless technology be used in this environment? If so, how is this protected?

  No it is not used.

 

¡ Operational Controls

 

 

 

1.      What practices do you follow for disposal of media?

 

Old systems maybe resold or recycled only after the memory at HD have been removed from these systems. HD which are not serviceable are sent to an off site vendor for destruction. HD which are serviceable and bound for external use are formatted DOD grade erasure via 3rd party SW.

 

 

 

2.      What practices do you follow for disposal of sensitive written materials?

 

Any sensitive written materials are shredded and disposed of by 3rd party company.

 

 

 

Quigo Technologies, Inc.

Confidential

  

Private Label Publisher Member Agreement V10-25-06

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3.      Are access rights for physical and logical access periodically reviewed?

  Yes
 

4.      Do you have documented rules, or policies, for change?

  Yes
 

5.      How are requests for changes, including those from clients, submitted?

 

These are entered into our ticketing system.

 

 

6.      If you will be servicing Time Inc. customers or employees, what methods does the Help Desk use to verify a user’s identity?

 

We only communicate with individuals previously identified by Time Inc.

 

 

7.      Has the help desk received training against social engineering attacks?

 

N/A

 

 

8.      Has the help desk received training for incident recognition?

 

N/A

 

 

9.      Do you have procedures for reporting incidents to your clients? If so, please describe.

 

The procedures for reporting incidents is identical to any site event. Upon notification the on call engineer tracks the issue ur resolution. Hand off is done via verbal acknowledgement and documentation of events, actions taken and current status. Issue are identified by their severity and the chain of command has been identified for each severity level event. As part of our communication plan customers are notified of any severity 1 events. A full account of the event, actions taken and remediation is given to the customers within 72hrs of the event.

 

 

¡ Policy & Awareness

 

 

 

1.      Do you have an information security policy?

 

Yes

 

 

2.      How do you promote awareness of the policy?

 

It is included as part of the employee manual.

 

 

3.      What security education do administrators and developers receive?

 

Developers participate in periodic training sessions provided by peers, team leads, or managers on a variety of subjects that can include security.

 

 

4.      Who in the company is responsible for implementing an Information Security program?

 

VP of IT and Ops

 

 

5.      Is someone responsible for tracking compliance to security policy?

 

As the head of IT and Operations it is my role to ensure that decisions made with respect to architecture, policies, data and employees fall within our stated security policies. To that end in the last year we have expanded our policies and pursued programs that reflect our commitment to data integrity, availability and sustainability including; quarterly security scan tripling the number of firewalls in place, enforcing wireless access policies as well as expanding our AV solutions to provide more coverage.

 

 

6.      What background checks do you do for new hires and contractors?

 

References and previous employment is verified.

 

 

Quigo Technologies, Inc.

Confidential

  

Private Label Publisher Member Agreement V10-25-06

P. 38 of 39


Schedule A to Exhibit 6

Pursuant to the initial report prepared by BT INS based upon tests of Quigo’s system security conducted on May 31, 2007, the following security deficiencies were identified and have either been remedied by Quigo as of the Effective Date or shall be remedied by Quigo pursuant to Section 8.2 of the Master Terms.

1.    Additional Deficiencies:

C3) Cross-Site Tracing

H1) SSL 2.0 Supported

H2) Weak Encryption Supported

H4) UDP Source Port Pass Firewall

H6) Cookie Poisoning SQL Injection

H8) Cross-Site Scripting - The 5 pages w/ the 45 data entry points will be fixed prior to launch.

C1) Application Susceptible to Injection Errors

H7) Permanent Cookie Contains Sensitive information

2.    Remedied Deficiencies.

C2) Session Not Invalidated After Logout

H3) Encryption Not Forced

H5) Application has Weak Password Policy

H8) Cross-Site Scripting - Remaining cross-site-scripting issues

H11) Link Inject

 

Quigo Technologies, Inc.

Confidential

  

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P. 39 of 39

EX-10.75 19 dex1075.htm EXHIBIT 10.75 EXHIBIT 10.75

EXHIBIT 10.75

LOGO

John Squires

Time Inc.

1271 Avenue of the Americas

New York, NY 10020

October 10, 2008

 

Re: First Addendum to Private Label Publisher Master Services Agreement Dated June 15, 2007

Dear John:

This letter (“Addendum”) amends the above-referenced Private Label Publisher Master Services Agreement dated June 15, 2007 (the “Master Terms”) between Time Inc. (“Time”) and Quigo Technologies, Inc. (“Quigo”). Capitalized terms unless otherwise defined in this Addendum shall have the meanings assigned to them in the Master Terms. In the event of any conflict between this Addendum and any Enrollment Form and/or the Master Terms, this Addendum shall control.

Now, for mutual good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties agree that, as of the Effective Date written below (the “Addendum Effective Date”), the Master Terms are amended as follows:

The following text is added to the end of Section 3:

3.5   (a) In the event that Time or a Time Publisher elects to sell AdSonar inventory to its Advertisers or potential Advertisers by means of an insertion order (“IO”), a Time or Time Publisher representative will notify Quigo of the proposed buy so that Quigo can provide information with respect to pricing and estimated campaign performance prior to issuance of the IO by Time or the applicable Time Publisher. Quigo shall inform Time or a Time Publisher if it wishes to perform credit checks and check bank references of such Advertisers or potential Advertisers but Quigo must receive Time’s or a Time Publisher’s prior consent before performing such checks. In the event that Time or a Time Publisher does not consent to Quigo performing such credit checks, Quigo shall inform Time as to whether it wishes to proceed with such Advertisers or Potential Advertisers or whether it declines such Advertisers or potential Advertisers. In the event that Time or a Time Publisher consents to Quigo performing a credit check, if Quigo reasonably determines that the relevant Advertiser or potential Advertiser’s creditworthiness is questionable, Quigo may decline such Advertiser or potential Advertiser.

(b) The IO will include a line item stating that such Advertisers’ purchase of AdSonar inventory is subject to Quigo’s AdSonar Standard Terms and Conditions located at http://www.adsonar.com/admin/Advertisers/AdvertiserTerms.jsp, and that said Advertiser agrees to such AdSonar Standard Terms and Conditions. Advertisers who purchase AdSonar inventory using the method described in this Section 3.5 are hereafter referred to as the “Time IO Advertisers”.

Quigo Technologies, Inc.

Confidential

Page 1 of 3


(c) Quigo will provide to Time or the applicable Time Publisher, by the 5th calendar day of each month, a report detailing the estimated and actual campaign performance of the Time IO Advertisers during the previous calendar month.

(d) Quigo will invoice Time or the applicable Time Publisher for the amounts incurred with respect to the Time IO Advertisers on a monthly basis (which amounts shall reflect the amounts actually billed to such Time IO Advertisers by Time or the applicable Time Publisher based on the campaign performance report provided by Quigo pursuant to Section 3.5(c)), and, subject to Section 3.5(e) below, Time shall pay such invoice within sixty (60) days of the end of the month with respect to which the invoice applies, including any applicable taxes or charges imposed by any governmental entity (but excluding taxes on the net income of Quigo).

(e) Quigo agrees to hold Time or the applicable Time Publisher liable for payments solely to the extent proceeds have cleared from the Time IO Advertiser to Time or the applicable Time Publisher for Ads placed in accordance with the IO. For sums not cleared to Time or the applicable Time Publisher, Quigo agrees to hold the Time IO Advertiser solely liable. Time or the applicable Time Publisher shall make every reasonable effort to collect and clear payment from Time IO Advertisers on a timely basis. If Time IO Advertiser proceeds have not cleared for the IO, other Time IO Advertisers shall not be prohibited from advertising on AdSonar due to such non-clearance if such other Time IO Advertisers’ credit is not in question. Upon the request of Quigo, Time or the applicable Time Publisher will confirm whether the Time IO Advertiser has paid to Time or such Time Publisher funds sufficient to make payments pursuant to the IO. If Quigo reasonably believes that a Time IO Advertiser’s credit is or becomes impaired, Quigo may require payment in advance or may immediately stop serving and displaying such Time IO Advertiser’s Ads.

Quigo Technologies, Inc.

Confidential

Page 2 of 3


This Addendum constitutes the entire understanding of the parties with respect to its subject matter and, except as amended herein, the Agreement shall remain in full force and effect. If the terms of this Addendum are acceptable to you, please countersign this copy and return a copy to us.

 

Sincerely,
LOGO
Quigo Technologies, Inc.

Time Inc.:

 

By:

 

/s/    John Squires

Effective Date:

 

 

Name:

 

John Squires

Title:

 

EVP

Quigo Technologies, Inc.

Confidential

Page 3 of 3

EX-10.76 20 dex1076.htm EXHIBIT 10.76 EXHIBIT 10.76

Exhibit 10.76

LOGO

John Squires

Time Inc.

1271 Avenue of the Americas

New York, NY 10020

April 16, 2009

 

Re: Second Addendum to Private Label Publisher Master Services Agreement Dated June 15, 2007

Dear John:

This letter (“Second Addendum”) amends the above-referenced Private Label Publisher Master Services

Agreement dated June 15, 2007, as amended by the First Addendum dated October 8, 2008 (the “First Addendum” and collectively with the Second Addendum, the “Master Terms”) between Time Inc. (“Time”) and Quigo Technologies LLC (formerly Quigo Technologies, Inc.) (“Quigo”). Capitalized terms unless otherwise defined in this Second Addendum shall have the meanings assigned to them in the Master Terms. In the event of any conflict between this Second Addendum and any Enrollment Form and/or the Master Terms, this Second Addendum shall control.

Now, for mutual good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties agree that, as of April 30, 2009 (the “Second Addendum Effective Date”), the Master Terms are amended as follows:

 

1. The Addendum Effective Date of the First Addendum is October 14, 2008.

 

2. Section 3.5(b) is deleted in its entirety and replaced by the following:

(b) The IO will include a line item stating that such Advertisers’ purchase of AdSonar inventory is subject either to Platform-A’s advertising terms and conditions, a current copy of which is attached hereto as Exhibit A, or to such other terms and conditions as each of Quigo, Time and the relevant Advertiser approved in advance and in writing (email sufficing), and that said Advertiser agrees to such terms and conditions. Advertisers who purchase AdSonar inventory using the method described in this Section 3.5 are hereafter referred to as the “Time IO Advertisers”.

 


This Second Addendum constitutes the entire understanding of the parties with respect to its subject matter and, except as amended herein, the Agreement shall remain in full force and effect. If the terms of this Second Addendum are acceptable to you, please countersign this copy and return a copy to us.

 

Sincerely,
Quigo Technologies LLC

 

Time Inc.:  
By:  

/s/ John Squires

  6/9/09
Name:  

John Squires

 
Title:  

EVP

 


EXHIBIT A

PLATFORM-A INC.

QUIGO ADSONAR ADDENDUM TO ADVERTISING INSERTION ORDER

1. Terms and Conditions. The IO, this Addendum and all insertion orders hereunder will be governed by Version 2.0 of the Standard Terms and Conditions for Internet Advertising for Media Buys One Year or Less, as jointly published by the AAAA and the lAB and released on April 29, 2002 (the “Standard Terms”). For purposes of this IO, Platform-A will mean Platform-A Inc., AOL LLC, and all AOL affiliates worldwide.

2. Quigo - Adsonar. With respect to those line items in the Media Plan that reference the placement of Ads served by Quigo on the AdSonar Service of Quigo Technologies, Inc. (“Quigo”), the following will apply:

(a) With respect to Ads served by Quigo, the term “Ads” includes include all text, titles, descriptions, graphics, audio, keywords, keyword phrases, negative keywords (keywords that if included in the search will cause the advertisement not to be displayed), categories and topics and targeting as well as the web sites to which an Ad is linked (“Targets”).

(b) Quigo’s Affiliates include the owners and operators of the websites on which Quigo places Advertiser’s Ads. Quigo’s Affiliates are intended third party beneficiaries of Advertiser’s indemnification obligations to Quigo.

(c) Makegoods will not apply to CPC Ads under any circumstances. Advertiser’s sole remedy for a shortfall in the number of clicks will be to execute a new IO for the unspent amounts.

(d) Advertiser is subject to Advertiser Guidelines as published on Quigo’s website at http://www.quigo.com/adsonarAdvGuidelines.htm which are incorporated into the IO by reference. Ads will be served on Quigo Affiliate sites based on such factors as relevancy, CPC rates, click-through rates and ad rotation algorithms. Advertiser will protect its password and will be responsible for all activity occurring under its password.

(e) Advertiser must notify Quigo in writing within sixty (60) days of any claim relating to disputed charges. In the event Advertiser fails to make timely payment, Advertiser will be responsible for all reasonable expenses (including attorneys’ fees) incurred by Quigo in collecting such amounts.

(f) Except with respect to CPM Ads, Advertiser acknowledges that: (i) usage statistics provided by Quigo are the official, definitive measurements for the purposes of billing and for measuring Quigo’s performance on any delivery obligation and no other measurements or usage statistics (including those of Advertiser or a third party ad server) will be accepted by Quigo and (ii) the discrepancy clause in Section XIII(a) of the IO will not apply to Ads other than CPM Ads. Quigo disclaims any representations or warranties, express or implied, regarding the validity of clicks on any Ads, and Advertiser will not hold Quigo responsible for any clicks on any Ads, regardless of the source, nature, purpose or intent of the clicks. In the event that Advertiser believes that clicks on Advertiser’s Ads are the result of fraudulent activity, Quigo will work in good faith with Advertiser to investigate and resolve any disputes around any possible fraudulent activity. To the extent that Quigo determines that clicks on Advertiser’s Ads are the result of fraudulent activity, a refund of fees charged for any such fraudulent clicks will be provided to Advertiser.

3. Order of Precedence. This Addendum is supplementary to and modifies the IO. The terms of this Addendum supersede provisions in the IO only to the extent that the terms of this Addendum


and the IO expressly conflict. However, nothing in this Addendum should be interpreted as invalidating the IO, and provisions of the IO will continue to govern relations between the parties insofar as they do not expressly conflict with this Addendum.

4. Counterparts. This Addendum may be executed in counterparts, each of which will be deemed an original and all of which together will constitute one and the same document. This Addendum may be executed via facsimile.

AUTHORIZED SIGNATURES

In order to bind the parties to this Addendum, their duly authorized representatives have signed their names below on the dates indicated. This Addendum (including the terms incorporated by reference) will be binding on both parties when signed on behalf of each party and delivered to the other party (which delivery may be accomplished by facsimile transmission of the signature pages hereto).

 

PLATFORM-A INC.    ADVERTISER
By:  

 

        By:    

 

Print Name:  

 

        Print Name:  

 

Title:  

 

        Title:  

 

Date:  

 

        Date:  

 

EX-10.77 21 dex1077.htm EXHIBIT 10.77 EXHIBIT 10.77

Exhibit 10.77

Execution Version

 

Confidential

SEARCH SERVICES AGREEMENT

This Search Services Agreement (the “Agreement”), dated as of August 23, 2007 (the “Effective Date”), is between AOL LLC (“AOL”), a Delaware limited liability company, with offices at 22000 AOL Way, Dulles, Virginia 20166, and Time Inc. (hereinafter “TI”), a Delaware corporation, with offices at 1271 Avenue of the Americas. New York, New York 10020. AOL and TI may be referred to individually as a “Party” and collectively as the “Parties.”

INTRODUCTION

WHEREAS, AOL licenses from its Third Party Provider the right to receive Sponsored Link results from Advertisers, and certain branding rights and the right to provide such rights and services to Affiliates of Time Warner Inc.,

WHEREAS, AOL provides an Internet based program for directing Internet search engine users to a landing page of sponsored links relevant to the users’ search queries through the use of Result Terms or AOL Hand Mapped Terms (i.e. “Web Offers Links”):

WHEREAS, AOL wishes to provide and Tl, as an Affiliate of Time Warner Inc., wishes to receive through AOL the Sponsored Advertising Service and the Web Offers Links on Tl Sites, along with certain Third Party Provider branding rights;

WHEREAS, this relationship is further described below and is subject to the terms and conditions set forth in this Agreement;

NOW THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the Parties hereby agree as follows:

Defined terms used but not defined in the body of the Agreement shall be as defined on Exhibit A attached hereto.

TERMS

 

1.

SERVICES

 

 

1.1

Sponsored Links. Subject to the terms and conditions of this Agreement. AOL shall enable Tl Sites to request, and AOL will ensure that the Third Party Provider provides, Matched Results for display as Sponsored Links in the Sponsored Links Search Results Area throughout the Term (and where TI is required to provide notice pursuant to this Agreement with respect to increase, elimination or suspension of the Matched Results and/or Additional Matched Results Tl will comply with such notice requirement)

 

 

1.2.

Web Offers. Subject to the terms and conditions of this Agreement, AOL shall enable Tl Sites to receive the Web Offers Links.

 

2.

IMPLEMENTATION, MECHANICS AND PROCESS.

 

 

2.1.

Sponsored Link Implementation. Subject to the terms of this Agreement, AOL shall make available to Tl and Tl Users the Sponsored Advertising Service as set forth herein, and subject to Section 2.3. TI shall use the protocol in Schedule 2.1 (on the terms set forth therein, including Preamble thereto) (the “Protocol”) to: (a) enable Tl Users who query the Tl Search Service (from TI Sites) to receive the results of those Queries (including the Sponsored Links) on the Search Results Area (i.e., within Tl Sites), (b) provide tag(s) within the request for Matched Results indicating the number of Matched Results requested and whether the Matched Results will be displayed on First Pages or Next Pages, and (c) subject to Tl’s rights under this Agreement, serve the Matched Results in the form of Sponsored Links in response to the TI User Queries.

 

CONFIDENTIAL

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Execution Version

 

 

2.1.1.

Sponsored Links Required Characteristics. Unless changed pursuant to Section 2.1.2 or otherwise changed by mutual agreement of the Parties during the Term, all Sponsored Links will include the characteristics set forth in this Section 2.1.1 (such characteristics, collectively, the “Sponsored Links Required Characteristics”): The Sponsored Links shall (i) include at least three (3) Matched Results above the Search Results Area on the First Pages of Tl Sites, and at least two (2) Matched Results on the Next Pages of Tl Sites (to the extent a sufficient number of Matched Results are delivered; if fewer than the number of Matched Results specified above are delivered, Tl shall serve the number of Matched Results delivered by the Third Party Provider, subject to Tl’s rights hereunder), (ii) be titled “Sponsored Links” unless otherwise agreed upon by the Parties in writing; (iii) at Tl’s option, include AOL-approved “mouse-overs” on the Sponsored Links on Tl Sites (i.e., text that appears when the mouse sits on top of such title); (iv) as soon as reasonably practicable after the Effective Date, include the following disclosure language (or substantially similar language as agreed upon by the AOL and Tl) in relation to the group of Sponsored Links: “These listings are brought to you by a third party and are not necessarily endorsed by Tl” (in a font size similar to any other similar disclaimers on the same page or in accordance with each individual Tl Site’s generally applicable disclaimer policies); and (v) appear materially similar to the mock-ups attached hereto as Exhibit F, or as otherwise mutually agreed. With respect to subpart (i) above: (x) the Parties expressly agree that Tl shall have the right to implement certain Additional Matched Results in compliance with Exhibit D hereto, as further referenced in Section 9 below; and (y) in situations where Tl faces risk of imminent harm (e.g., including without limitation, in the event of a virus transmission, ongoing misuse of user data, or any Sponsored Link Excess Slippage (defined below)) which is material, Tl may eliminate or suspend the display of the Matched Results and shall only be required to deliver written notice (with email being sufficient) reasonably promptly following the elimination or suspension of Matched Results.

 

 

2.1.2.

Redesigns. Notwithstanding anything to the contrary herein, Tl expressly reserves the right to redesign or modify the organization, structure, “look and feel,” navigation and other elements of any part or all of each individual Tl Site, but excluding the text or Content of the Matched Results as provided by the Third Party Provider through AOL (“Redesigns”) at any time without notice to or consent from AOL, provided, however, if a Redesign to the Search Results Area causes the click-through rate (“CTR”) for Sponsored Links to decline by an average of twelve percent (12%) during the fifteen (15) days following the Redesign (versus the average during the thirty (30) days preceding the Redesign), AOL shall, at any time after such Redesign, notify Tl in writing of such decline (with e-mail being sufficient) and the Parties shall meet within three (3) business days of such notice to determine whether the decline in CTR was caused by the Redesign and if so, then to work together in good faith to agree on how to restore the CTR, as applicable, to the level that existed prior to the Redesign. If the Parties are unable to agree on how to restore the CTR, as applicable, to the level that existed prior to the Redesign then the Parties shall escalate such matter for further discussion to the Management Contacts identified in Section 1 of Exhibit E.

 

 

2.1.3

General Mechanics. This Section describes the general processes by which Tl will submit Queries to AOL and requests for Matched Results for display as Sponsored Links, and the Third Party Provider, through AOL, will deliver Matched Results to Tl, in accordance with the terms of this Agreement. Subject to Section 2.4. when TI Users initiate a search on the Tl Search Service (whether through a Query or from a link within a category or sub-category or otherwise) then Tl will deliver the Search Term (if the search is initiated from a link within a category, then Tl will deliver the corresponding Search Term) to the Third Party Provider (subject to Tl’s rights to decline to send a particular Search Term pursuant to Section 2.8) and a request for Matched Results. The Third Party Provider shall receive and process the Search Term, including selecting Matched Results that satisfy the Search Term and this Agreement (e.g., including without limitation the filtering requirements of Section 2.7). The Third Party Provider then shall deliver to Tl, via a means and format agreed upon by AOL and Tl, an XML data feed that includes up to the specified number of Matched Results set forth in Section 2.1.1 above or a “no result” notice. TI shall parse the data feed as appropriate and display all the provided Matched Results (again

 

CONFIDENTIAL

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subject to its rights to decline pursuant to Section 2.8 and subject to not receiving more than the number of Matched Results as set forth in Section 2.1.1) as Sponsored Links. All Sponsored Links shall contain mutually agreed Linking Mechanisms. The Sponsored Links shall be the highest-ranked qualifying Matched Results provided by the Third Party Provider (subject to the applicable filtering and blocking rules), provided, however, that the Parties may mutually agree otherwise with respect to the Next Pages.

 

 

2.2.

Web Offers Links.

 

 

2.2.1.

Web Offers Links Required Characteristics. Unless changed pursuant to Section 2.1.2 or otherwise changed by mutual agreement of the Parties during the Term, all Web Offers Links will include the characteristics set forth in this Section 2.2.1 (such characteristics, collectively, the “Web Offer Required Characteristics”): Tl shall include the Web Offers Links above the Search Results Area on the First Pages of Tl Sites. Tl will only be required to display such number of Web Offers Links that can be displayed within two (2) lines of text. In situations where TI faces risk of imminent harm (e.g., including without limitation, in the event of a virus transmission, ongoing misuse of Tl User data, or any Sponsored Link Excess Slippage (defined below)) which is material, Tl may eliminate or suspend the display of Web Offers Links and shall only be required to deliver written notice (with email being sufficient) promptly following the elimination or suspension of any Web Offers Links. Notwithstanding anything contained in this Agreement the Parties acknowledge that the Web Offers Links will not necessarily be active on the Tl Sites immediately upon the Effective Date and agree that Tl will activate the Web Offers Links on the Tl Sites as soon as reasonably practicable after the Effective Date; provided, however, that Tl shall activate the Web Offers Links on the Tl Sites no later than October 30, 2007, unless prevented from doing so by reasons beyond Tl’s sole control.

 

 

2.2.2.

General Mechanics. When Tl Users initiate a search on the Tl Search Service (whether through a Query or from a link within a category or sub-category or otherwise) then subject to Section 2.4, Tl will deliver the Search Term (if the search is initiated from a link within a category, then Tl will deliver the corresponding Search Term) to AOL (subject to Tl’s rights to decline to send a particular Search Term pursuant to Section 2.8) and a request for Web Offers Links. AOL shall receive and process the Search Term, including selecting Web Offers Links that satisfy the Search Term and this Agreement (e.g., including without limitation the filtering requirements of Section 2.7). AOL then shall deliver to TI, via a means and format agreed upon by AOL and Tl, an XML data feed that includes no more than the number of Web Offers Links that can be displayed within two (2) lines of text as set forth in Section 2.2.1 above. Tl shall parse the XML data feed as appropriate and display all the provided Web Offers Links (again subject to its rights to decline pursuant to Section 2.8). The Web Offers Links will direct Tl Users to the Web Offers Landing Page, which will reside in a TI template for each Tl Site, as agreed upon by the Parties.

 

 

2.3.

Vertical Searches. Notwithstanding anything to the contrary herein, including, without limitation, the terms of Sections 2.1, 2.1.3 and 2.2.1, Tl may, but shall not be obligated to, implement the Sponsored Advertising Service, including Sponsored Links or Web Offers Links, with Vertical Searches (e.g., Tl could implement a Vertical Search in the travel category on a Tl Site and not display Sponsored Links on the page that displays the results of the travel queries which results are provided by a third party). If, however, Tl elects to implement the Sponsored Advertising Service, including Sponsored Links or Web Offers Links, with Vertical Searches pursuant to this Section 2.3, Tl may not use any other paid search results within those Vertical Searches while using the Sponsored Advertising Service (including Sponsored Links or Web Offers Links). In addition, if TI implements Vertical Searches on a Tl Site using the same search box as it uses for Site Search, it will make Site Search the default search service in such search box on all Tl Site pages where such search box appears. For example, Tl may not categorize a query in the search box for Site Search on the pages of the Tl Sites as “travel” and send such searches to Tl’s travel vertical experience, but TI may, however, use Vertical Searches on the same search box that it uses for Site Search if such Vertical Search is not the default search and is accessed by some means such as being triggered by a Tl User toggling over to a vertical tab (like “Shopping” or “Travel”) on the

 

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main search box.

 

 

2.4.

Speed of Matched Results. Notwithstanding anything to the contrary herein, AOL will ensure that every Matched Result is fully queried, matched, processed, and delivered and received by Tl (including a complete http response, with a complete Matched Results Set result or a “no hit” set result served in XML format) (collectively, “Fully Processed and Served”) in less than one (1) second from the time the initial query is delivered to AOL or the Third Party Provider, as applicable, from Tl (i.e., the Tl server) (the “Maximum Delivery Time”). In the event that the Third Party Provider fails to Fully Process and Serve any individual Matched Result within the Maximum Delivery Time (“Timing Out”), then in addition to any other remedies available to Tl, Tl shall not be obligated to display any such individual Matched Results that take longer than the Maximum Delivery Time to be Fully Processed and Served (e.g., Tl may elect to “time out” or filter such Matched Results from the Sponsored Links).

 

 

2.5.

Branding. Notwithstanding anything to the contrary, TI shall not be obligated to display any branding of AOL or the Third Party Provider in connection with this Agreement. Notwithstanding the previous sentence, AOL hereby grants to TI the right to use the branding of the Third Party Provider on Tl Sites as mutually agreed by the Parties.

 

 

2.6.

Ownership. Subject to AOL and the Third Party Provider’s rights in the Sponsored Advertising Service and the Advertising Results (as applicable), and subject further to the rights of any of Advertisers in their advertisements, trademarks, and websites, TI owns and (as between AOL and Tl) shall operate the Tl Search Service, and Tl owns all right, title and interest in and to Tl Sites and all advertising and promotional spaces therein (including, without limitation, the pages on which the Advertising Results appear via the Sponsored Links as set forth herein), including all frames and other tools or navigation associated therewith.

 

 

2.7.

Sponsored Links Promotional Limitations.

 

 

(a)

First Level Filter. AOL shall implement a list for each of the Tl Sites of URLs and Search Terms that when queried, are more likely than not to produce search results that: (a) are pornographic, or that link to sites offering pornography; (b) would obviously link to a website that offers for sale an illegal substance, product or service; (c) are contrary to Tl’s written advertiser policy(ies); (d) Tl is prohibited from displaying within a service such as the Sponsored Links, because of a pre-existing (as of the Effective Date) agreement between Tl and a third party; or (e) are subject to the Second Level Filter (as defined in Section 2.7(b)) below, including any updates thereto as permitted under Section 2.7(c) below, in order to prevent such results during periods during which such updates are being implemented or generally to limit Second Level Failure (collectively, the “Sponsored Link First Level Filter”) (clauses (a) through (e) above, the “Sponsored Link First Level Filter Rules”). The Parties hereby agree that the Sponsored Link First Level Filter for Tl Sites shall initially include the URLs and Search Terms from AOL’s current filters with the Third Party Provider, as provided to Tl in writing prior to the execution of this Agreement and as amended and updated by AOL during the Term (and provided to Tl in writing, with email being sufficient). Tl may update the Sponsored Link First Level Filter at any time during the Term (as provided in Section 2.7(c) below. AOL shall use commercially reasonable efforts not to provide, or have the Third Party Provider provide, any Matched Results for the Search Terms or URLs included in the Sponsored Link First Level Filter; provided that the existence of a Matched Result that should have been excluded by the Sponsored Link First Level Filter (“Sponsored Link First Level Failure”) will not be deemed a breach of the Agreement. Instead, AOL shall remedy the Sponsored Link First Level Failure as set forth in Section 2.8. The lists referenced in this Section 2.7(a) above will be specific to Tl Sites and may be customized for each individual Tl Site.

 

 

(b)

Second Level Filter. AOL shall use commercially reasonable efforts to, and Tl shall assist AOL to, create (i) a filter that includes Search Terms (which shall be deemed to include reasonably likely misspellings), Prohibited Entities and URLs (which shall be deemed to include reasonably applicable sub-URLs) for Prohibited Entities (“Prohibited Entities” shall mean those companies

 

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described on the Prohibited Entities List (defined below)) and (ii) processes, including editorial review and post-incident instructions for removal of slippage, as applicable (as described below), to exclude the following from the Matched Results:    Matched Results that (a) are contrary to certain applicable standard advertiser policies (as delivered to AOL in writing, which writing may be in the form of an email) which are selected by Tl from Tl’s generally applicable standard advertiser policies for Tl Sites (as such selections may be updated by Tl from time to time); (b) link to a portion of a Prohibited Entity’s website on which is described or offered any product or service that Tl or any Tl Site Affiliate markets as part of one of its core businesses; or (c) promote, market, offer or distribute products or services which Tl identifies to AOL in writing (which writing may be in the form of an email) that Tl does not desire to display or distribute (for any reason as determined by Tl in its sole discretion) (collectively, the “Sponsored Link Second Level Filter”) (clauses (a), (b) and (c) above, the “Sponsored Link Second Level Filter Rules” and, together with the Sponsored Link First Level Filter Rules, the “Sponsored Link Filter Rules”). The initial list of Prohibited Entities and prohibited products and services for each individual Tl Site is attached hereto as Schedule 1 (the “Prohibited Entities List”), which such list may be updated upon mutual agreement between AOL and Tl and shall in any case be deemed to include reasonable variations, misspellings and singulars and plurals thereof. Through the Sponsored Link Second Level Filter, AOL is responsible for implementing Tl’s filtering rules that might be context dependent or subject to interpretation. For example, if the Search Term within the Sponsored Link Second Level Filter is “guns” and Tl’s policy forbids (or Tl does not desire to display or distribute) the sale of guns but permits (or otherwise does not object to) Content related to gun control or gun safety, then AOL would ensure that the the Matched Results exclude links to Advertiser Websites selling guns, but would be permitted (but not required) to provide links to Advertiser Websites containing Content about gun control issues. The Parties hereby acknowledge that Tl has provided the Search Terms and Prohibited Entities that are initially included in the Sponsored Link Second Level Filter as of the Effective Date; thereafter Tl may update the Sponsored Link Second Level Filter as set forth in Section 2.7(c) below. AOL shall exclude from Matched Results any items covered by the Sponsored Link Second Level Filter; provided that the existence of a Matched Result that should have been excluded by the Sponsored Link Second Level Filter (“Sponsored Link Second Level Failure”) will not be deemed a breach of the Agreement. Instead, AOL shall remedy the Sponsored Link Second Level Failure as set forth in Section 2.8.

 

 

(c)

Updates to First Level Filter and Second Level Filter. Tl may update the Sponsored Link First Level Filter and/or the Sponsored Link Second Level Filter and/or the Sponsored Link Second Level Filter Rules (including the Prohibited Entities List, upon mutual agreement with AOL, which will not be unreasonably withheld or delayed) at any time by providing written notice (which written notice may be in the form of email) to AOL of the Search Term, the URLs, standard advertiser policy, or the entity that should be included, and, for a Search Term, whether that Search Term should be included on the Sponsored Link First Level Filter or on the Sponsored Link Second Level Filter. Any updates must be consistent with the definitions and restrictions and rights (in the Sponsored Link First Level Filter Rules and Sponsored Link Second Level Filter Rules, as applicable) above, but may also include Search Terms, URLs, entities or policies that Tl reasonably and in good faith believes are necessary for inclusion to prevent (a) exposure of Tl to liability or (b) adverse effects to Tl, Tl Sites, or the Tl User experience (including, without limitation, to brand and/or editorial independence or integrity). For updates to the Sponsored Link First Level Filter, AOL shall implement such updates, as soon as practicable, but in any event within two (2) Business Days from delivery of such written notice. For updates to the Tl standard advertising policies subject to the Sponsored Link Second Level Filter or for products or services subject to Section 2.7(b)(ii)(c), AOL shall implement such updates as soon as practicable, but in any event within six (6) Business Days from delivery of such written notice (unless such updating requires the manual review of a material portion of the Third Party Provider’s database of existing advertisements, in which case AOL shall implement such updates as soon as practicable, but in any event within a period of time not to exceed twenty-one (21) Business Days).

 

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(d)

Relevance. All Advertising Results shall be Relevant to the applicable Search Term. If Tl reasonably believes that a particular Matched Result is not Relevant, then in addition to Tl’s other rights under this Agreement, Tl shall have the rights in Section 2.8(a) to block, and may inform AOL, in which case AOL shall consider that Matched Result not to be Relevant, and shall exclude it as a Matched Result within the time set forth in Section 2.8.

 

 

2.8.

Rights and Remedies in the Event of Sponsored Links Promotional Problems

 

 

(a)

Tl Right to Block. Notwithstanding any notice requirements elsewhere in this Agreement, Tl has the right, but not the obligation, to do any of the following: (a) decline to send a Query to AOL or the Third Party Provider (as applicable) that reasonably would produce an Excluded Result because the Search Term is on the Sponsored Link First Level Filter or Sponsored Link Second Level Filter, (b) filter the proposed Matched Results to remove, or decline to serve and display as part of the Sponsored Links those Matched Results that Tl reasonably believes are Excluded Results pursuant to the Sponsored Link First Level Filter or Sponsored Link Second Level Filter, or (c) filter the Matched Results to remove, or decline to serve and display as part of the Sponsored Links those Matched Results that Tl reasonably believes are not Relevant. In the event that Tl notifies AOL in writing (which writing may be in the form of an email) of a blocked Search Term or Search Result, such notice shall constitute a request to update the Sponsored Link First Level Filter or the Sponsored Link Second Level Filter, for which AOL shall take action pursuant to Section 2.7(c).

 

 

(b)

Slippage. The Parties acknowledge and agree that there will be minor occasions where Matched Results are not filtered out in accordance with Section 2.7 despite the commercially reasonable efforts of AOL and Third Party Provider (“Sponsored Link Slippage”), and in such event, the Parties will cooperate to remedy the situation as quickly as possible in a mutually agreed manner. Any immaterial and occasional Sponsored Link Slippage alone will not be deemed a material breach hereof; provided that AOL remedies such problems promptly; and provided further that TI shall retain its rights to block as set forth in Section 2.8(a) above. If Tl determines that, in its reasonable judgment, the Matched Results include Excluded Results, whether or not such Sponsored Link Slippage is material, then Tl may provide written notice to AOL (which written notice may be in the form of email). The notice must describe the Search Term, prohibited entity, or Advertiser Website affected, and the basis of the determination that it is an Excluded Result AOL shall then remedy the problem by ceasing to provide, or having the Third Party Provider cease to provide, them as part of the Matched Results, and in any event within three (3) Business Days from delivery of such written notice for Search Terms on the Sponsored Link First Level Filter, and seven (7) Business Days from delivery of such written notice for the Second Level Filter. In the event that the quantity or frequency of Slippage is becoming more than minor in scope or amount (including due to repetitive problems) (“Sponsored Link Excess Slippage”), Tl shall provide written notice thereof to AOL at any time. In the event that Tl notifies AOL of Sponsored Link Excess Slippage, senior account services representatives, or such other personnel as may reasonably be expected to be necessary to remedy the situation, from each Party, will work together in good faith for the five (5) day period commencing on the date of such notice. If AOL is unable to cure such Sponsored Link Excess Slippage within such five (5) day period, then Tl shall notify AOL in writing of such failure and, notwithstanding anything to the contrary, the Sponsored Link Slippage which is subject to such notice may constitute a material breach hereof, in which case such notice shall constitute Tl’s notice to AOL with respect to such material breach (and shall be deemed retroactive to the commencement of such five (5) day period).

 

 

2.9

No Syndication. Tl will not resell, assign, transfer or syndicate the Sponsored Advertising Service or the Web Offers Links onto any third party or other product, property or service other than the Tl Sites.

 

 

2.10

Additional Tl Implementation Requests. Notwithstanding anything to the contrary in this Agreement, any additional requests from Tl for implementing the Sponsored Advertising Service or the Web Offers

 

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Links on the TI Sites (e.g., additional functionality around site specific searches) during the Term that are not contemplated by this Agreement shall be discussed in good faith and if agreed by the Parties, shall be set forth in a written amendment to this Agreement, which may provide, among other things. AOL’s timing and cost estimate for any such new request(s).

 

 

2.11

Tl Data. As between AOL and Tl, AOL acknowledges and agrees that TI own(s) all right, title and interest in and to the data generated on or by use of the Tl Sites, including without limitation (and as applicable) the following: all Tl Sites User personal identification and site behavioral data; Tl Sites User demographic and psychographic data; Tl Sites User input data, preferences and Queries; Tl Sites User advertising and search result click-through data; and any information derived therefrom, in each case including without limitation any and all Intellectual Property Rights therein (together, the “Service Data”), and that neither AOL nor the Third Party Provider shall acquire any right, title, or interest therein or thereto. Notwithstanding the foregoing, to the extent any of the Service Data include any Search Results, the portion of such Service Data which is Search Results (and only such data) is and shall remain the sole property of AOL, subject to the rights granted to Tl pursuant to this Agreement. AOL and the Third Party Provider may use the Search Results and search result click-through data to improve AOL’s and Third Party Provider’s search algorithms so long as such data (a) is aggregated with other data from services operated by AOL or the Third Party Provider, (b) is not specifically identified as having been obtained from Tl, any Tl Sites User and (c) is not used to target or to create a profile of any Tl Sites Users; or (iii) for other purposes with the prior written consent of Tl in its sole discretion. The Parties acknowledge that each Party intends that no personally identifiable information shall be collected by AOL or the Third Party Provider or conveyed by Tl to AOL or the Third Party Provider. Both Parties further acknowledge that data regarding any user could be obtained by either Party through activities unrelated to this Agreement, and that any such data regarding users that is gathered through activities unrelated to this Agreement shall not be covered by this Agreement.

 

3.

OPERATIONS AND TECHNOLOGY; PROCESSES; QUARTERLY PERFORMANCE REVIEWS.

 

 

3.1.

Hosting, Serving & Technology.

 

 

3.1.1

AOL shall ensure that the Third Party Provider shall serve all Advertising Results (e.g., as set forth with respect to delivery of results in Section 2.1.3 above) and, subject to the technical specifications and processes on Exhibit C, shall serve the XML feed of the Matched Results (e.g., as set forth with respect to the Third Party Provider’s delivery of results in Section 2.2 above). No third party, except for the Third Party Provider, shall be permitted to serve the Matched Results without Tl’s express written consent.

 

 

3.1.2

To the extent that Tl requests Matched Results for display as Sponsored Links, it shall do so using the XML feed referred to in Section 3.1.1 above in accordance with the terms of this Agreement.

 

 

3.2.

Operating Standards. Tl reserves the right to review and test (as set forth in this Section 3.2 and in Exhibit C) the Matched Results as served into the Sponsored Links from time to time to ensure that such links and service remain compatible with the Tl Sites host software, and the other applicable portions of Tl Sites. AOL shall ensure that the Sponsored Advertising Service and Sponsored Links comply at all times with the standards set forth in Exhibit C attached hereto and made a part hereof.

 

 

3.3.

Advertising Terms and Conditions. AOL shall have, and shall ensure that Third Party Provider has, in place with each of its advertisers a set of written, standard, generally applicable advertising terms and conditions that may be negotiated with each of AOL’s and Third Party Provider’s Advertisers from time to time (the “Advertising Terms”). Notwithstanding any negotiation of such Advertising Terms, neither the Advertising Terms (e.g., in standard form or as may be negotiated) nor any other statement or representation of AOL or Third Party Provider shall provide or reasonably imply (at any time) that: (a) any Advertiser is guaranteed placement on Tl Sites; or (b) AOL’s or Third Party Providers relationship with the Advertiser gives rise to any relationship between the Advertiser and Tl (the “Prohibited Advertising

 

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Terms”). AOL shall ensure that the restrictions herein shall apply to all Advertisers. Nothing in the preceding two (2) sentences shall be construed to prevent any Advertiser from declining to participate in syndication of its advertisements on Tl Sites.

 

 

3.4.

Quarterly Performance Reviews. During each quarter of the Term (i.e., every three (3) months), AOL shall be entitled to conduct an overall review of the pages of each of the individual Tl Sites where the Sponsored Links and/or Web Offers Links appear (a “Quarterly Performance Review”). If, during the Quarterly Performance Review, AOL finds that the average monthly Net Revenue for the Sponsored Links and Web Offers Links during the months covered by such Quarterly Performance Review for a particular Tl Site(s) are at or below the lesser of (i) the monthly average of the Revenue Threshold for the Term (e.g., for CNNMoney.com - $124,502.36 ($4,482,085 / 36)) and (ii) AOL’s revenue projections, then AOL shall notify Tl in writing (with e-mail being sufficient) and set up a meeting with Tl within (1) one week to discuss possible changes to the pages of the particular Tl Site(s) where the Sponsored Links and/or Web Offers Links appear in order to optimize revenue for such pages. If the Parties are unable to agree on changes to the pages of such TI Site(s) where the Sponsored Links and/or Web Offers Links appear in order to optimize revenue for such pages then the Parties shall escalate such matter for further discussion to the Management Committee identified in Section 1 of Exhibit E.

 

4.

EXCLUSIVITY OBLIGATIONS.

 

 

4.1

Search-Based Sponsored Text Links Exclusivity.

 

 

(a)

So long as this Agreement is in effect with respect to a particular Tl Site(s), with respect to such Tl Site(s), AOL will be Tl’s exclusive third party provider for any Use of Search-Based Sponsored Text Links, including with respect to the Licensing thereof.

 

 

(b)

For the avoidance of doubt, under the foregoing exclusivity, Tl may not Use on Tl Sites any third party service that includes all the Attributes set forth in the definition of Search-Based Sponsored Text Links (taking into account the exceptions listed in the applicable definition), even if that third party service also includes additional features or functions unrelated to such Attributes. For example, if a third party service includes all of the Attributes set forth in the definition of Search-Based Sponsored Text Links, but also includes a spell checker, then Tl may not Use such Search-Based Sponsored Text Links, but may Use the spell checker from the third party service.

 

 

(c)

The exclusivity as set forth in this Section 4.1 will not apply to any Vertical Searches.

 

 

(d)

Under this Section 4.1. in addition to the foregoing, TI is also prohibited from redirecting Queries related to the Site Search on Tl Sites from Tl Sites to a page other than a page on the Tl Sites where the Search Results are displayed. For the avoidance of doubt, it is not considered to be redirecting Site Search Queries for the purpose of this paragraph if a user clicks on URL links that are delivered as Search Results

 

5.

ECONOMICS.

 

 

5.1.

Minimum Revenue Guarantee. Subject to Section 5.2 below, during the Term AOL will pay Tl a minimum revenue guarantee for each of the Tl Sites as set forth in Exhibit B-2 for each individual Tl Site (the “Minimum Revenue Guarantee”). The Minimum Revenue Guarantee shall be payable by AOL to Tl for each of the Tl Sites on a monthly basis, in equal installments, based on the annual Minimum Revenue Guarantee for each Tl Site (as set forth in Exhibit B-2) on the 1st day of each applicable month during the Term.

 

 

5.2.

Performance Revenue. At any point during the Term, when the cumulative Net Revenue recognized by AOL for an individual Tl Site during the Term exceeds the Revenue Threshold, AOL’s next monthly payment to Tl for the applicable TI Site will include all remaining monthly Minimum Revenue Guarantee

 

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payments plus eighty-five percent (85%) of the Net Revenue recognized for the applicable Tl Site in excess of the Revenue Threshold. During the remaining months of the Term, AOL will pay Tl eighty-five percent (85%) of the Net Revenue recognized by AOL for the applicable Tl Site (the “Threshold Revenue Share”). As used herein, “Revenue Threshold” shall mean the total Minimum Revenue Guarantee payments to the individual Tl Site (as set forth in Exhibit B-2) divided by the Threshold Revenue Share (e.g., for CNNMoney.com – $4,482,084 ($3,809,772 / 0.85)). As used herein, “Net Revenue” shall equal revenue recognized by AOL from the Third Party Provider or Advertisers, as applicable, for the Advertising Results delivered to each Tl Site during the Term. AOL shall pay Tl the Threshold Revenue Share for each Tl Site, as described in this Section 5.2, on a monthly basis within thirty (30) days following the end of each applicable calendar month in which such amounts were recognized.

 

 

5.3.

Wired Payments; Payment Contact. All payments required hereunder shall be paid in immediately available, non-refundable (except as expressly set forth in this Agreement) U.S. funds, which shall be either (a) wired to LaSalle Bank, Chicago, Illinois; ABA #071000505; Swift Address: LASLUS44 (for international wires only); Account #: 580039037; Account Name: Time Inc Misc., or (b) transferred in another manner as agreed upon by the Parties. In the event of any questions regarding a payment made (or expected to be made) by AOL to Tl, Tl may contact Susanna Wolfe at Susanna.Wolfe@corp.aol.com and/or (703) 265-2080.

 

 

5.4.

Taxes. As between AOL and Tl, AOL will pay any and all U.S. local, state, and national taxes (including, sales, use, personal property and excise taxes, customs fees, VAT, GST, and other Internet taxes), duties, levies, and assessments, however described or calculated (excluding taxes based on Tl’s net income) that apply to this Agreement (collectively, “Taxes”).

 

5.5

Reports and Auditing.

 

 

(a)

For each individual Tl Site and for all TI Sites in the aggregate, AOL shall provide Tl written reports in a mutually agreed format setting forth, for both Sponsored Links and Web Offers Links, regular (at least monthly) (i) performance data, (ii) revenue data, and (iii) any other mutually agreed upon data, which shall be the equivalent to the reporting tools utilized by AOL for the management of the AOL search business (the “Reports”). Tl shall be entitled to use the Reports in its business operations and to disclose information derived from the Reports in an aggregate form (e.g., combined with other Tl sales information and in a manner that prevents individual identification of Advertisers or information). In addition, AOL shall use commercially reasonable efforts to provide Tl (starting on November 30, 2007) with a report within thirty (30) days of the end of each quarter of the Term that lists the Search Terms that have been searched on the each individual Tl Site and all Tl sites in the aggregate during the previous quarter and the frequency with which each such Search Term was input.

 

 

(b)

Notwithstanding any other provision on reporting in this Agreement, Queries for each individual Tl Site and all Tl Sites in the aggregate shall be reported on a calendar monthly basis by AOL to TI based on AOL’s reporting (a “Monthly Query Report”). The number of Queries deemed delivered under this Agreement shall equal the number of Queries reported by AOL. If Tl disputes the number of Queries reported by AOL, then within thirty (30) days of Tl’s receipt of the applicable Monthly Query Report Tl shall notify AOL of such dispute in writing (with email being sufficient) and the Parties shall meet within three (3) Business Days of such notice to work together in good faith to resolve such dispute. If the Parties are unable to agree on how to resolve any such dispute then the Parties shall escalate such dispute to the Management Contacts pursuant to Section 1 of Exhibit E.

 

 

(c)

AOL (and Tl, as applicable and to the extent Tl maintains any such records in the ordinary course of its business) shall maintain, and AOL shall ensure that the Third Party Provider maintains, complete, clear and accurate records relating to the obligations hereunder (including summary logs used to calculate and track Queries), and compliance with this Agreement (“Records”). All such Records shall be maintained for a minimum of ninety (90) days following termination or

 

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expiration of this Agreement, except for Tl’s tape logs of Queries, each of which shall be maintained for one (1) year from the date a Query is generated.

 

 

(d)

For the purpose of determining, in the event of a dispute, the accuracy of Queries, UAs, UA spam, Queries Spam, and other elements of the Reports provided by AOL, TI shall have the right to direct a mutually agreeable independent third party auditor, which auditor must be a nationally recognized auditing firm (a “Metric Auditor”), subject to confidentiality restrictions consistent with those set forth in this Agreement (and any additional confidentiality restrictions as mutually agreed), to conduct reasonable and necessary copying and inspection of AOL’s Records and records of the Third Party Provider. Any such audit may be conducted after twenty (20) Business Days prior written notice, during normal business hours, no more frequently than once per year (and only with respect to a previously unaudited period) and shall be at TI’s expense; provided, however, that if such inspection reveals any inaccuracy in any report of more than ten percent (10%) of the disputed item or any, AOL shall reimburse TI for the reasonable fees charged by the Metric Auditor.

 

 

(e)

For the purpose of determining, in the event of a dispute, AOL’s compliance with any of its payment obligations under this Agreement and upon AOL’s payment of the Threshold Revenue Share. TI shall have the right to direct a mutually agreeable independent third party auditor, which auditor must be a nationally recognized auditing firm (a “Payment Auditor”), subject to confidentiality restrictions consistent with those set forth in this Agreement (and any additional confidentiality restrictions as mutually agreed), to conduct reasonable and necessary copying and inspection of AOL Records and records of the Third Party Provider. Any such audit may be conducted after twenty (20) Business Days prior written notice, during normal business hours, no more frequently than once per Year (and only with respect to previously unaudited period and no more than once per year), and shall be at TI’s expense; provided, however, that if an inspection reveals any inaccuracy in any report of more than ten percent (10%) of any disputed item, (i) AOL shall promptly pay all amounts due under the Agreement as revealed by the audit and reimburse TI for the reasonable fees charged by the Payment Auditor, and (ii) TI shall thereafter have the additional right to conduct an audit pursuant to this subpart (e) once per the applicable Year only with respect to the remainder of the Year in which such reporting inaccuracy occurs. For the avoidance of doubt, at the beginning of each Year, the frequency of TI’s audits shall be set at once per Year subject to this subpart (e).

 

6.

TERM; MAKE GOOD; TERMINATION; SUSPENSION.

 

 

6.1.

Term. This Agreement will commence on the Effective Date and shall expire on 11:59 p.m. (EST) on the date that is three (3) years after the last day of the calendar month in which the Effective Date occurs, unless extended pursuant to Section 6.2 below or terminated earlier as provided for in this Agreement (the “Term”). The Parties acknowledge and agree that the services under this Agreement for each individual TI Site shall commence on the dates noted on Exhibit G (the “TI Sites Services Launch Dates”). Notwithstanding anything contained in this Agreement, for the time period starting on each individual TI Site Services Launch Date through and including August 31, 2007 AOL shall pay TI the Revenue Threshold Share; and, thereafter, the provisions of Sections 5.1 and 5.2 shall apply. The intent of the foregoing is to provide that the “Term” as used in Sections 3.4, 5.1, 5.2, 6.2 and 6.9 of this Agreement shall mean September 1, 2007 through and including August 31, 2010. Notwithstanding anything to the contrary in this Section 6.1, if any TI Site(s) set forth in Exhibit G have not launched by September 1, 2007 due solely to the fault of TI, the Term with respect to such TI Site(s) only shall commence on the day such TI Site(s) launch and shall expire on 11:59 pm (EST) on the date that is three (3) years after the last day of the calendar month in which such TI Site(s) have launched.

 

 

6.2.

If, at the end of the Term with respect to an individual TI Site, the Queries are less than the Queries Target, then, as AOL’s sole and exclusive remedy, the Term of this Agreement for the applicable TI Site shall automatically extend until the earlier of: (a) the last day of an additional six (6) month period; or (b) the end of the month in which cumulative number of Queries equals or exceeds the Queries Target for

 

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the applicable TI Site (the “Make Good Term”). During any Make Good Term for an applicable TI Site, AOL shall retain one hundred percent (100%) of all Net Revenues until cumulative Net Revenue exceeds the Revenue Threshold for the applicable TI Site, and TI shall not be entitled to receive any portion of such revenues, provided however, if the cumulative number of Queries equal the Queries Target for the applicable TI Site prior to the end of the month that the Make Good Term expires, AOL shall pay to TI the Revenue Threshold Share for such excess Queries during the remainder of such month. Once the cumulative Net Revenue for an applicable TI Site equals the Revenue Threshold, AOL will pay TI the Threshold Revenue Share (i.e., eighty-five percent (85%) of the Net Revenue recognized by AOL) for the remainder of the Make Good Term

 

 

6.3.

Termination for Breach. Either Party may terminate this Agreement at any time in the event of a material breach of the Agreement by the other Party which remains uncured after thirty (30) days written notice thereof to the other Party; provided that, if the breaching Party is diligently working to effect a cure and requires more than thirty (30) days, then the cure period shall be extended for as long as reasonably necessary to effect the cure, but in no event more than thirty (30) additional days; provided further, that the cure period with respect to any payment shall be twenty (20) days from the date on which such payment is due as provided for herein without any extension of such cure period (“Payment Cure Period”).

 

 

6.4.

Termination for Bankruptcy/Insolvency. Either Party may terminate this Agreement immediately following written notice to the other Party if the other Party (i) ceases to do business in the normal course, (ii) is declared insolvent or bankrupt by a court of competent jurisdiction, (iii) is the subject of any proceeding related to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within ninety (90) calendar days or (iv) makes an assignment for the benefit of creditors.

 

 

6.5.

Termination on Change of Affiliate Status of TI. In the event that during the Term TI ceases to be an Affiliate of Time Warner Inc., AOL may terminate this Agreement by providing thirty (30) days written notice.

 

 

6.6.

Suspension of Services. In the event that the Sponsored Advertising Service is suspended by the Third Party Provider and not generally available to AOL, AOL shall have the right to suspend TI’s use of such service, until it is again made generally available to AOL. If the Sponsored Advertising Service is suspended by the Third Party Provider and not generally available to AOL beyond twenty (20) days, TI may terminate this Agreement upon written notice to AOL. In addition, (a) if AOL suspends the Sponsored Advertising Service pursuant to this Section, AOL shall continue to pay to TI the greater of the pro-rated Minimum Revenue Guarantee (as applicable for each individual TI Site) or the pro-rated amount of Revenue Threshold Share paid to TI (as applicable for each TI Site) during the preceding month (as applicable) for such time period, provided, however, that if TI terminates this Agreement pursuant to this Section 6.6 AOL shall only be obligated to pay TI the greater of the Minimum Revenue Guarantee or the Threshold Revenue Share paid to TI for each individual TI Site during the preceding month through the effective date of such termination, and (b) during the period of suspension, TI shall receive credit towards the Query Target for each individual TI Site as follows: the number of Queries delivered by TI during each day of any suspension period shall be deemed to equal the daily average number of Queries delivered by TI for the three (3) months preceding such suspension period.

 

 

6.7.

Termination of the IMA. In the event that during the Term the IMA is terminated (by either AOL or the Third Party Provider), AOL may terminate this Agreement upon thirty (30) days prior written notice, provided that: (a) TI shall be entitled to retain all amounts previously paid and amounts due and owing through the effective date of such termination, and (b) AOL shall only be obligated to pay TI (i) the Minimum Revenue Guarantee or (ii) the actual Threshold Revenue Share, as applicable for each individual TI Site, or (iii) if there is no revenue for all, or a portion of, this thirty (30) day period because service has been suspended and if cumulative Net revenue recognized by AOL through such date exceeds the Revenue Threshold, as applicable for each individual TI Site, AOL will pay TI the pro-rated amount of the Revenue Threshold Share paid to TI during the preceding month, as applicable for each individual TI Site, through the effective date of such termination. If, however, AOL is able to offer a

 

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replacement search provider, which is acceptable to Tl (as determined in Tl’s sole discretion), within thirty (30) days after giving notice to terminate this Agreement pursuant to this Section 6.7, then (i) AOL shall continue pay TI the Minimum Revenue Guarantee or the Threshold Revenue Share, as applicable, for the Term of this Agreement, and (ii) Tl will use commercially reasonable efforts to transition into using the applicable search services of the agreed upon replacement search provider.

 

 

6.8.

Termination on Change of Tl Site Status. In the event that during the Term any Tl Site ceases to be owned by Tl or its Affiliates, Tl may terminate this Agreement as it pertains to such Tl Site by providing thirty (30) days written notice. In the event that Tl elects to terminate the MyRecipes.com Tl Site within the Term for MyRecipes.com, then Tl will pay AOL (in lieu of the payment provided in Section 6.9) the difference between AOL’s reasonably calculated net profit through said termination date and AOL’s reasonably calculated projected net profit for the entire Term with respect to the MyRecipes.com, less $450,000. If Tl disputes the net profit calculations of AOL then the Parties shall escalate such dispute to the Management Contacts pursuant to Section 1 of Exhibit E.

 

 

6.9.

Effect of Termination. In the event of a termination of the Agreement on any date prior to the expiration of the Term (“Early Termination”), but without limiting the Parties’ other respective rights and remedies under this Agreement or at law, AOL shall pay to Tl: (i) within thirty (30) days following the date of such termination, the applicable portion of the Minimum Revenue Guarantee for each TI Site for the time period of the Term, through the date of termination, and/or, as applicable (ii) the Threshold Revenue Share for the applicable Tl Sites generated during the Term (and not yet paid) within thirty (30) days following the end of the month in which the applicable Threshold Revenue Share for the applicable Tl Sites were generated.

 

7.

RELATIONSHIP BETWEEN AOL AND ADVERTISERS.

 

 

7.1.

Generally. AOL shall be deemed a Tl advertiser on the Tl Sites, subject to all applicable limitations thereon, but all Advertisers shall not be deemed Tl advertisers as a result of such status. As between Tl and AOL, Tl is responsible for all complaints, issues, disputes and claims of Advertisers with respect to Tl’s promotion of the Sponsored Links, and for excluding Excluded Results from the Matched Results or otherwise with respect to this Agreement. AOL will discharge all such responsibility as expressly set forth in this Agreement.

 

 

7.2.

Claims by Advertisers for Termination. AOL shall ensure that it and the Third Party Provider have the ability to fulfill theirs obligations to their respective Advertisers other than through delivering the Advertising Results to Tl as Matched Results and Web Offers Links under this Agreement, such that, if TI exercises any express rights herein to block or decline to distribute a Matched Result or Web Offers Links, then an Advertiser shall not, as a result of its relationship with AOL or the Third Party Provider, have gained the right to make a claim against Tl therefor. AOL shall discharge all such responsibility pursuant to Section 3.3, Section 10 of Exhibit E and Section 7.6 below.

 

 

7.3.

Customer Service. As between the Parties, it is the sole responsibility of AOL, the Third Party Provider or Advertisers (and not Tl) to provide customer service to persons or entities purchasing products or services through the Advertiser Websites. AOL shall discharge all such responsibility pursuant to Section 3.3, Section 10 of Exhibit E and Section 7.6 below. Tl will have no obligations with respect to the products and services available on or through any Advertiser Website, including, but not limited to, any duty to review or monitor.

 

 

7.4.

Applicable Laws; Infringement. As between AOL and Tl, AOL will bear all responsibility for the Advertiser Websites (a) complying with all applicable federal, state and local laws and regulations (including without limitation, as related to contests, sweepstakes, consumer protection and disclosure, out of stock products, etc.); (b) not infringing on nor violating any copyright, trademark, U.S. patent or any other third party right, including without limitation, any music performance or other music-related rights; and (c) not containing any libelous, or materially false or misleading statements. AOL shall discharge all such responsibility pursuant to Section 3.3, Section 10 of Exhibit E and Section 7.6 below.

 

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7.5.

Expert/Specialist Content. If any Advertiser Website for which a Matched Result is provided professes to provide any expert advice, then as between TI and AOL. AOL shall be responsible for any third party claims brought against Tl to the extent based on allegations that such expert advice is not prepared or reviewed by licensed, insured and qualified practitioners/professionals in such field with expertise on the particular topic and to the extent based on allegations that such expert advice does not comply with applicable standards of the applicable profession or applicable laws and regulations. AOL shall discharge all such responsibility pursuant to Section 3.3, Section 10 of Exhibit E and Section 7.6 below.

 

 

7.6.

Indemnification for Advertiser Claims. Notwithstanding anything to the contrary, and without limiting any additional indemnification herein, in the event Tl delays, reduces or removes any Sponsored Links, temporarily or permanently, as permitted by this Agreement, or terminates this Agreement as permitted herein (“Tl Permitted Actions”), Tl shall not, as a result of this Agreement, have any liability to any Advertisers. AOL shall, pursuant to the procedures established in Section 10 of Exhibit E, defend, indemnify, save and hold harmless Tl and all its officers, directors, agents, affiliates, distributors, franchisees and employees, from and against any and all demands, liabilities, costs or expenses, including reasonable attorneys’ fees, arising from third party claims by Advertisers against Tl arising from the Tl Permitted Actions.

 

8.

STANDARD TERMS. The Standard Legal Terms & Conditions set forth on Exhibit E attached hereto are each hereby made a part of this Agreement.

 

9.

COMMERCIAL LINKS. The terms set forth on Exhibit D attached hereto are hereby made a part of this Agreement.

[Intentionally left blank – the next page is a signature page]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.

 

AOL LLC

  

TIME INC.

By:

 

/s/ Theodore Cahell

  

By:

 

/s/ John Squires

Name:

 

Theodore Cahell

  

Name:

 

John Squires

Title:

 

EVP

  

Title:

 

Executive Vice President

Date:

 

8-23-07

  

Date:

 

8/23/07

List of Exhibits

 

Exhibit A

 

Definitions

Exhibit B-1

 

Impressions Guarantee

Exhibit B-2

 

Minimum Revenue Guarantee

Exhibit C

 

Operations

Exhibit D

 

Commercial Links

Exhibit E

 

Standard Legal Terms and Conditions

Exhibit F

 

Sponsored Links Required Characteristics Mock-Ups

Schedule 1

 

Prohibited Entities and Products/Services Lists

Schedule 2.1

 

Ads Protocol and Protocol Implementation Process

 

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EXHIBIT A

Definitions

The following Definitions will apply to this Agreement:

Additional Matched Results. As defined in Exhibit D.

Additional Search(es). Any Vertical Searches or Site Searches

Advertisers. Third party advertisers receiving placement within Advertising Results or the Web Offers Links,

Advertiser Website(s). The Interactive Sites of the Advertisers, as linked directly or indirectly to the Sponsored Links or the Web Offers Links in accordance with this Agreement.

Advertising Results. Results generated by queries to the Sponsored Advertising Service (including those based on common misspellings and plurals) or through Web Offers Links from Tl Sites that are provided, as applicable, by or on behalf of paid Advertisers of the Third Party Providers and/or AOL, and not non-paid search results.

Advertising Terms. As defined in Section 3.3.

Affiliate(s). With respect to either Party, any entity that, directly or indirectly, controls, is controlled by, or is under common control with such Party, including any entity in which either Party or its parent, if any, holds, directly or indirectly, at least a twenty percent (20%) equity interest.

AOL Hand-Mapped Terms. Any web offers terms that result from an automated response to a query and that AOL did not obtain through licensed third party software Result Terms, but independently created or obtained.

Attribute. Means, for each of Search-Based Sponsored Text Links and Text-Based and Algorithmic Internet Search, each of the attributes numbered by romanettes (e.g. i, ii, etc.) in the applicable definition therefor.

Business Day. A weekday (e.g., Monday through Friday), excluding any day a national holiday is observed on such weekday. For the avoidance of doubt and by way of example, a Business Day which begins upon receipt of notice at 9:00 pm PST shall continue up through and including 11:59 pm PST of the following Business Day.

Change of Control. (a) The consummation of a reorganization, merger or consolidation or sale or other disposition of substantially all of the assets of a Party; or (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of either (i) the then outstanding shares of common stock of such Party; or (ii) the combined voting power of the then outstanding voting securities of such Party entitled to vote generally in the election of directors.

Confidential Information. As defined in Section 9(a) of Exhibit E.

Content. Text, images, video, audio (including, without limitation, music used in synchronism or timed relation with visual displays) and other data, products, advertisements, promotions, URLs, links, pointers and software, including any modifications, upgrades, updates, enhancements and related documentation.

Early Termination. As defined in Section 6.9.

Effective Date. As defined in the exordium of this Agreement.

Excluded Results. Any Advertising Results that would or should reasonably be excluded from the Matched Results in

 

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accordance with Sections 2.7 or 2.8.

First Pages. The initial page on which search results are displayed on TI Sites after a Query is entered.

Fully Processed and Served. As defined in Section 2.4.

IMA. The Amended and Restated Interactive Marketing Agreement dated October 1, 2003, as amended, between AOL and Google, Inc.

Interactive Site. Any interactive product, site or area, including, by way of example and without limitation, (i) a site on the World Wide Web portion of the Internet or (ii) a channel or area delivered through a “push” product (such as the Pointcast Network).

Liabilities. As defined in Section 10.3 of Exhibit E.

Licensed Content. All Content provided by the Third Party Provider or AOL to TI, pursuant to this Agreement (e.g., offline or online Promotional Materials, Content, Matched Results, etc.), including in each case, any modifications, upgrades, updates, enhancements, and related documentation. Licensed Content shall include, without limitation, (i) all other portions or aspects of the Matched Results provided by the Third Party Provider (e.g., contextual links and the XML formatting codes, functionality and/or URLs that enable a user of Sponsored Links to access the Sponsored Advertising Services, but shall expressly exclude all content of Advertisers on the Advertiser Websites, (ii) the Search Results, but in any event not including the Content of websites that are linked to by the Search Results, and (iii) the Web Offers Links.

Licensing. Means the licensing or similar procurement by TI of a technology solution from a single third party provider and/or its Affiliates, which technology solution enables TI to engage in substantially all aspects of the performance of any Search-Based Sponsored Text Links (e.g., the licensing from a single third party provider and/or its Affiliates of a platform for the sale of Search-Based Sponsored Text Links by TI).

Linking Mechanism. A mechanism provided in accordance with the Protocol in Schedule 2.1 (including the Preamble thereto) of this Agreement to enable TI Users to connect directly or indirectly via a redirect to TI Sites then to AOL or the Third Party Provider (in such a manner as allows AOL to count the UA corresponding to such link) and from AOL or the Third Party Provider to an Advertiser’s website as identified by a URL in such Advertiser’s Matched Result.

Make Good Term. As defined in Section 6.2.

Mapping Process. The query mapping and taxonomy development functions by which Queries are indexed, categorized, and organized using an AOL licensed third party software, and by which Result Terms are created and provided to TI ranked by relevancy and value.

Matched Results. Advertising Results that are processed by the Third Party Provider on behalf of AOL and TI pursuant to the IMA (including filtering, as applicable) in connection with Search Terms or other search queries from TI Users (e.g., including terms input by TI Users in the TI Search Service), using the Third Party Provider’s proprietary technology, and are then delivered to TI for TI to display as Sponsored Links as set forth herein and consistent with all applicable provisions and requirements hereof.

Matched Results Set. The set of all Matched Results (whether one (1) or more than one (1) Matched Result) with respect to any given page.

Maximum Delivery Time. As defined in Section 2.4.

Metric Auditor. As defined in Section 5.5(d).

Minimum Revenue Guarantee. As defined in Section 5.1.

Monthly Query Report. As defined in Section 5.5(b).

 

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Net Revenue. As defined in Section 5.2.

Next Page. To the extent within the Search Results Areas on Tl Sites, the “next” page containing Tl Search Results following an initial page on which Tl Search Results appear (but not such first (top level) screen) (i.e., if Matched Results appear as Sponsored Links as the result of a particular Tl Search Results search within the Tl Search Service (assuming that there are qualifying Matched Results), and such resulting page has a “next” button to see more Search Results for the same search, then the subsequent Search Results pages, which contain a continuation of the Search Results, are Next Pages).

Payment Auditor. As defined in Section 5.5(e).

Payment Cure Period. As defined in Section 6.3.

Press Release. As defined in Exhibit E, Section 9(d).

Prohibited Advertising Terms. As defined in Section 3.3.

Prohibited Entities List. As defined in Section 2.7(b)

Promotional Materials. As defined in Exhibit E, Section 9(e).

Protocol or Data Protocol. As defined in Section 2.1.

Quarterly Performance Review. As defined in Section 3.4.

Queries. Tl Sites Users search requests for results that are generated using the Tl Search Service (including those generated by inserting the applicable word, phrase or category ID into a search box, or (as approved by AOL, not to be unreasonably withheld) clicking on or (as approved by AOL, not to be unreasonably withheld) selecting from a pull down menu, and those generated when a search request consists of a Tl Sites User clicking to the Next Page to get more results or clicking on a Web Offers Link) or Additional Searches to be delivered to the Third Party Provider or AOL (as applicable). AOL hereby approves the “browse to search” functionality on the Tl Sites (e.g., getting to a search results page by browsing recipes on MyRecipes.com).

Query Spam. Those queries which have been reasonably determined by AOL or the Third Party Provider to be generated through any automated, deceptive, fraudulent or other invalid means (including, but not limited to, click spam, robots, macro programs, and Internet agents).

Query Target. The number of Queries for each of the Tl Sites as set forth on Exhibit B-1.

Records. As defined in Section 5.5(c).

Redesigns. As defined in Section 2.1.2.

Relevant. Advertising Results that are clearly and obviously reflective of the search term, the line listing (title and description) accurately describes why the Web site is listed for the search term, and the Web site is clearly and obviously reflective of the search term.

Reports. As defined in Section 5.5(a).

Result Terms. High value cost per click terms yielded from licensed third party software by running the Mapping Process, and taxonomies (including data, node definitions for each taxonomy, query terms in each node, positive/negative rules logic, relevancy and CPC rankings), that processes user query terms and returns query terms.

Revenue Threshold. As defined in Section 5.2.

 

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Search-Based Sponsored Text Links. Means (i) auction-based, (ii) cost-per-click, (iii) text links (which may include an ancillary icon or logo, or other isolated graphical element), (iv) triggered only off of keywords (e.g., input by users in a search query box, through clicks on links consisting of suggested searches or keyword(s) preprogrammed by or for Tl, embedded in a URL link) and factors used by the provider’s automated system to better determine the relevancy of the link to the keyword (e.g., excluding behavioral targeting) and (v) delivered in the context of Site Search results. For the avoidance of doubt. Sponsored Links delivered in the context of Site Search results are “Search-Based Sponsored Text Links”.

Search Results. The search results from the Sponsored Advertising Service.

Search Results Area. With regards to Sponsored Advertising Service, the area of the page where actual Sponsored Links are displayed, which area is above the area of the page where Tl Search Results for the Tl Search Service appear, in each case only to the extent within Tl Sites (as defined herein) (expressly excluding other areas/pages which may be linked to from such page, e.g., via tabs such as “Images,” “Community,” etc.). With regards to the Tl Search Service, the area within a web property that displays search results from the Tl Search Service responsive to Queries performed by an end user who is utilizing such web property’s one most generally available form of search service, and explicitly excluding any search service that is (i) offered through or from any channel or area of such web property other than such property’s home page or specially designated one main generally available search page, or (ii) targeted in a particular subject matter area (e.g., category searches, internal searches (of content and/or products within such web property), etc.).

Search Terms. The applicable word, phrase or category ID (as applicable) being input into a search box, or (as approved by AOL, not to be unreasonably withheld) clicked on, or (as approved by AOL, not to be unreasonably withheld) selected from a pull down menu by Tl Users to conduct a search for matching results using Tl Sites and/or the Sponsored Advertising Service. AOL hereby approves the “browse to search” functionality on the Tl Sites (e.g., getting to a search results page by browsing recipes on MyRecipes.com).

Search-Based Sponsored Text Links. Means (i) auction-based, (ii) cost-per-click, (iii) text links (which may include an ancillary icon or logo, or other isolated graphical element), (iv) triggered only off of keywords (e.g., input by users in a search query box, through clicks on links consisting of suggested searches or keyword(s) preprogrammed by or for Tl, embedded in a URL link) and factors used by the provider’s automated system to better determine the relevancy of the link to the keyword (e.g., excluding behavioral targeting) and (v) delivered in the context of Web Service search and Site Search results. For the avoidance of doubt, Sponsored Links delivered in the context of Web Service search and Site Search results are “Search-Based Sponsored Text Links”

Site Searches. Searches of the Tl Sites (e.g., not Internet searches but searches of the Tl Sites, including text, video and image searches.

Sponsored Advertising Service. The Third Party Provider’s search service which performs searches of the Third Party Provider’s and AOL’s database of Advertisers based on requests over the Internet or requests from Additional Searches and is accessible to Tl and Tl Users to the extent set forth herein, or if the Third Party Provider provides an “Alternate Google Advertising Service” (as defined in the IMA), a Sponsored Links advertising service of the Third Party Provider (including all related inventions, processes, algorithms, intellectual property and other rights forming part of such service), that is functionally equivalent or superior to the Sponsored Advertising Service.

Sponsored Links. The Matched Results and any Content associated with the Matched Results, as appearing within Search Results Areas (e.g., including without limitation the Next Pages) on the pages of Tl Sites where Tl Search Results appear.

Sponsored Link Filter Rules. As defined in Section 2.7(b).

Sponsored Link First Level Failure. As defined in Section 2.7(a).

Sponsored Link First Level Filter. As defined in Section 2.7(a).

Sponsored Link First Level Filter Rules. As defined in Section 2.7(a).

 

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Sponsored Links Required Characteristics. As defined in Section 2.1.1.

Sponsored Link Second Level Failure. As defined in Section 2.7(b).

Sponsored Link Second Level Filter. As defined in Section 2.7(b).

Sponsored Link Second Level Filter Rules. As defined in Section 2.7(b).

Sponsored Link Excess Slippage. As defined in Section 2.8(b).

Sponsored Link Slippage. As defined in Section 2.8(b).

Taxes. As defined in Section 5.4.

Term. As defined in Section 6.1.

Text-Based Algorithmic Internet Search. Means a service which (i) performs general searches of information across the Internet (and which, in addition to searching across the Internet, may also search additional sources of information) (ii) is triggered off of keywords (e.g., input by users in a search query box, or through click(s) on link(s) consisting of suggested search(es) or through keyword(s) preprogrammed by or for TI, embedded in a URL link), and which displays results that (iii) are unpaid, (iv) are automatically generated by use of an algorithm designed to show data primarily from the Internet which is relevant to the search queries submitted, and (v) consist either primarily or solely of text (i.e., which may include an ancillary icon or logo or other isolated graphical element). Text-Based Algorithmic Internet Search expressly excludes (a) with respect to romanette (v) above, any search format other than primarily or solely text as described in romanette (v) above (such as image, video, audio, etc.), (b) with respect to romanette (iii) above, any paid search elements, such as for database inclusion, placement in results, etc., (c) any search services which are ancillary to the services described in the first sentence of this paragraph, that do not themselves consist of Text-Based and Image-Based Algorithmic Internet Search, but rather enhance such services (e.g., clustering of search results, personalization of search results, etc.), and (d) Site Searches and Vertical Searches.

Third Party Provider. Means Google, Inc.

Third Party Provider Advertising Network. The entire distribution network of the Sponsored Advertising Service (or similar service provided by the Third Party Provider to other syndicated advertising partners), including such service(s) on properties owned or operated by the Third Party Provider (e.g. Google.com).

TI Permitted Actions. As defined in Section 7.6.

TI Search Results. The primary text-based Internet search results and Additional Search results generated by Queries on TI Sites.

TI Search Service. With respect to the TI Sites, (i) TI’s primary and most widely available search service for queries from such TI Sites (but expressly excluding the Sponsored Advertising Service) enabling TI Users to conduct searches to locate information on the Internet, or (ii) any Additional Searches that are delivered to AOL or the Third Party Provider for the return of Matched Results and/or Web Offers Links.

TI Sites. Means the U.S domestic versions of CNNMoney.com, Sl.com, People.com, Time.com, InStyle.com, EW.com, Golf.com, CookingLight.com, SouthernLiving.com, CottageLiving.com, Sunset.com, MyRecipes.com, SouthernAccents.com and CoastalLiving.com.

TI Sites Services Launch Dates. The dates set forth on Exhibit G.

TI User. Any user of TI Sites.

 

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Timing Out. As defined in Section 2.4.

Threshold Revenue Share. As defined in Section 5.2.

UA or User Actions. A UA occurs when any TI Sites User clicks on any Sponsored Link and is transferred, directly or indirectly, to the Third Party Provider’s servers, expressly excluding any Excluded UAs. For purposes hereof, “Excluded UAs” shall mean any clicks (a) directly resulting from fraud for which AOL or the Third Party Provider does not receive any compensation as a result of such fraudulent status; (b) directly resulting from testing by TI for which AOL or the Third Party Provider does not receive any compensation as a result of such testing; (c) directly resulting from any other clicks for which AOL or the Third Party Provider does not receive any compensation from an Advertiser due to fraud, malicious clicks, testing, ‘bots’ or automated programs, or (d) which AOL or the Third Party Provider is unable to count as a direct result of TI’s failure to materially comply with the Protocol described in Schedule 2.1 (including the Preamble thereto); provided that any uncompensated clicks which are uncompensated for any other (e.g., commercial) reasons (e.g., customer relations, giveaways or other promotional purposes and similar activity) shall expressly not be deemed Excluded UAs.

Use. Means use, distribute, provide, display or otherwise make available.

Vertical Searches. Means searches targeted to market segments (e.g., travel, shopping, local, news, kids/teens, movies, etc.) regardless of whether such searches search TI Sites, a third party site or sites, a database and/or other source.

Web Offers Landing Page. The page of advertisements served by AOL in response to a TI User clicking on either Result Terms or AOL Hand Mapped Terms.

Web Offers Links. Links served by AOL’s Internet based web offers program for directing Internet search engine users and users of Additional Services to a landing page of Sponsored Links relevant to the users’ search queries through the use of Result Terms or AOL Hand Mapped Terms.

Web Offer Required Characteristics. As defined in Section 2.2.1.

 

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EXHIBIT B-1

QUERY GUARANTEE

TI hereby guarantees total number of Queries for each of the TI Sites, as set forth below, over the Term. The Query Target, by each TI Site, are as follows:

 

 

TI Site

  

 

Total Queries

    

 

CNNMoney.com

   37,200,000     

 

SI.com

   21,600,000     

 

People.com

   43,200,000     

 

Time.com

   138,000,000     

 

InStyle.com

   7,560,000     

 

EW.com

   10,203,000     

 

Golf.com

   1,250,000     

 

Southern Progress Digital*

   420,000,000     

*

 

Includes CookingLight.com, SouthernLiving.com, CottageLiving.com, Sunset.com, MyRecipes.com, SouthernAccents.com and CoastalLiving.com

 

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EXHIBIT B-2

MINIMUM REVENUE GUARANTEE

 

      TI Site Minimum Revenue Guarantee
TI Site    Year 1    Year 2    Year 3    Total over the Term

CNNMoney.com

   $ 1,047,600    $ 1,222,200    $ 1,539,972    $ 3,809,772

SI.com

   $ 216,614    $ 287,280    $ 336,000    $ 839,894

People.com

   $ 360,000    $ 414,600    $ 424,135    $ 1,198,735

Time.com

   $ 556,800    $ 806,400    $ 973,728    $ 2,336,928

InStyle.com

   $ 32,223    $ 47,760    $ 70,207    $ 150,190

EW.com

   $ 45,590    $ 58,212    $ 74,220    $ 178,022

Golf.com

   $ 9,321    $ 11,878    $ 13,807    $ 35,005

Southern Progress Digital*

   $ 2,052,000    $ 2,872,800    $ 3,519,180    $ 8,443,980

 

*

includes CookingLight.com, SouthernLiving.com, CottageLiving.com, Sunset.com, MyRecipes.com, SouthernAccents.com and CoastalLiving.com.

 

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EXHIBIT C

OPERATIONS

 

A.

THE SERVICE

Description of Service

The Sponsored Advertising Service offered on TI Sites shall at all times be the primary and most widely available advertising search service the Third Party Provider makes commercially available to AOL to enable AOL users to search for information from the AOL’s and Third Party Provider’s database of Advertisers, unless otherwise agreed to by the Parties in a written Amendment to this Agreement.

 

B.

RESPONSES AND SUPPORT

1.1 Technical Support. AOL will ensure that its and the Third Party Provider’s Technical Support Personnel are adequately trained to provide technical support to TI. Prior to commercial launch of any material placements (or any material changes thereto), TI will have the right to conduct reasonable performance testing (in person or through remote communications), with such commercial launch not to commence until such time as TI is reasonably satisfied with the results of any such testing, so long as TI conducts such testing within a reasonable time following notice of such contemplated launch from AOL (which written notice may be in the form of email).

1.2. Error Reporting. AOL will ensure that the performance and availability of the Service and Matched Results is monitored on a continuous basis. Errors may be reported on a 24 hours per day, 365 day per year basis via e-mail by any one of the contacts designated as set forth above.

1.3. Support Requests.

For all material problems affecting use by TI Users of the Sponsored Advertising Service and Matched Results. AOL will provide a fix within a commercially reasonable period of time.

TI may contact the following AOL executive escalation personnel in order (such personnel subject to change following prior written notice):

For general support contact: AOL Network Operations Center, tel. (703) 255-4662

Primary contact for highest severity problems: AOL Network Operations Center, tel. (703) 255-4662

Primary contact for other severe problems: AOL Network Operations Center, tel. (703) 255-4662

First Escalation Contact: AOL Network Operations Center, tel. (703) 255-4662

Second Escalation Contact:

Pete Jones

Email: peter.jones@corp.aol.com

Phone: 703-265-4333

Third Escalation Contact:

Kevin Namey

Email: Kevin.namey@corp.aol.com

Phone: 703-265-4167

 

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Execution Version

EXHIBIT D

COMMERCIAL LINKS

1. Display of Additional Matched Results. Pursuant to Section 2.1.3 of this Agreement, in addition to the minimum number of Matched Results required by the Sponsored Links Required Characteristics, TI shall have the right (but no obligation) to request from the Third Party Provider one or more additional Matched Results for display as Sponsored Links in the Sponsored Links Search Results Areas on TI Sites (such Matched Results the “Additional Matched Results”). Unless otherwise mutually agreed to by the Parties in writing, the Additional Matched Results will be served by the Third Party Provider. For the avoidance of doubt: (x) TI will have the right to completely discontinue or suspend all requests for Additional Matched Results at any time by providing AOL with two (2) Business Days advance written notice (which written notice may be in the form of email), or in the event TI wishes only to change the quantity of Additional Matched Results requested (higher or lower). TI may do so at any time by providing AOL with six (6) Business Days advance written notice (which written notice may be in the form of email), subject, however, to TI’s right to completely discontinue or suspend all requests for Additional Matched Results as set forth under this subsection (x); and (y) subject to the other terms of this Exhibit D (e.g., TI’s right to cease requesting Additional Matched Results for any reason). Section 2.1.3 of the main body of this Agreement will govern the general processes regarding the Additional Matched Results.

2. Application of Relevant Terms and Conditions to Additional Matched Results. For the avoidance of doubt, all terms and conditions of the Agreement applicable to the Sponsored Links and Matched Results shall apply to the Additional Matched Results, e.g., including without limitation the Protocol described in Section 2.1 of the main body of this Agreement.

3. Tracking and Reporting of Additional Matched Results. All reports required to be provided by AOL under this Agreement shall be inclusive of data relating to the Additional Matched Results.

 

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Execution Version

EXHIBIT E

STANDARD LEGAL TERMS & CONDITIONS

 

1. Executive Dispute Resolution. In the event of any dispute or disagreement (each a “Dispute”) between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under this Agreement or any document executed pursuant to this Agreement which cannot be resolved by the Parties, then the Dispute shall be submitted to the Executive Contacts (as defined below) for resolution. For ten (10) Business Days after the Dispute was submitted to the Executive Contacts, the Executive Contacts shall meet in person or by phone and attempt in good faith to resolve such Dispute: provided further, that the Executive Contacts shall have the final and exclusive right to resolve Disputes arising from any provision of this Agreement which expressly or implicitly provides for the Parties to reach mutual agreement as to certain terms “Executive Contacts” or “Management Contacts” shall mean John Squires, Executive Vice President for TI and John Kannapeli, Senior Vice-President AOL-Search Business for AOL (together, the “Management Committee”) or their respective designees, and generally overseeing the relationship between the Parties contemplated by this Agreement.

2. License. AOL hereby grants TI a non-exclusive worldwide royalty free license to use, market, store, distribute, communicate, reproduce, display, perform, transmit and promote the Licensed Content (or any portion thereof) through such areas or features of TI Sites as TI deems appropriate in its reasonable discretion. In addition, TI Users will have the right to access each Advertiser Website.

3. Trademark License. In connection with the design and implementation of Promotional Materials (as defined below), and subject to the terms and conditions of this Agreement. (a) TI hereby grants to AOL and the Third Party Provider a nontransferable, nonsublicensable, worldwide, nonexclusive license to use and display trade names, trademarks, and service marks of TI; and (b) AOL hereby grants TI a nontransferable, nonsublicensable, worldwide, nonexclusive license to use and display the trade names, trademarks and service marks of AOL and the Third Party Provider (to the extent such rights are granted to AOL by the Third Party Provider) associated with the Promotional Materials (collectively, together with the TI marks listed above, the “Marks”): provided that each Party (i) does not create a unitary composite mark involving a Mark of the other Party without the prior written approval of such other Party (ii) displays symbols and notices clearly and sufficiently indicating the trademark status and ownership of the other Party’s Marks in accordance with applicable trademark law and practice: (iii) complies with all written guidelines provided to it by the other Party related to use of the other Party’s Marks, and (iv) obtains the other Party’s prior written approval (with e-mail being sufficient) which will not be unreasonably withheld or delayed.

4. Ownership of Trademarks. Each Party acknowledges the ownership right of the other Party in the Marks of the other Party and agrees that all use of the other Party’s Marks will inure to the benefit, and be on behalf, of the other Party. Each Party acknowledges that its utilization of the other Party’s Marks will not create in it, nor will it represent it has, any right, title, or interest in or to such Marks other than the licenses expressly granted herein. Each Party agrees not to do anything contesting or impairing the trademark rights of the other Party.

5. Quality Standards. Each Party agrees that the nature and quality of its products and services supplied in connection with the other Party’s Marks will conform to quality standards communicated in

 

writing by the other Party for use of its trademarks. Each Party agrees to supply the other Party, upon request, with a reasonable number of samples of any Promotional Materials publicly disseminated by such Party which utilize the other Party’s Marks. Each Party will comply with all applicable laws, regulations, and customs and obtain any required government approvals pertaining to use of the other Party’s marks.

6. Infringement Proceedings. Each Party agrees to promptly notify the other Party of any unauthorized use of the other Party’s Marks of which it has actual knowledge. Each Party will have the sole right and discretion to bring proceedings alleging infringement of its Marks or unfair competition related thereto: provided, however, that each Party agrees to provide the other Party with its reasonable cooperation and assistance with respect to any such infringement proceedings.

7. Effort to Inform. TI shall use commercially reasonable efforts to inform AOL of complaints TI receives from TI Users about the Sponsored Advertising Service which could reasonably lead to a claim, demand or liability of or against AOL or the Third Party Provider and/or its Affiliates by a third party. Notwithstanding the foregoing, TI’s failure to provide notice under this Section shall not be deemed a breach of this Agreement.

8. Representations and Warranties. Each Party represents and warrants to the other Party that: (i) such Party has the full corporate right, power and authority to enter into this Agreement and to perform the acts required of it hereunder: (ii) the execution of this Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound: (iii) when executed and delivered by such Party, this Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms: and (iv) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in this Agreement.

9. Confidentiality.

(a) Definition. ‘Confidential Information” means any information disclosed in the course of this Agreement, which is or should be reasonably understood to be confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, technical processes and formulas, source code, product designs, sales, cost and other unpublished financial information, product and business plans, projections and marketing data. ‘Confidential Information” will not include information that (i) was in the recipients possession before receipt from the disclosing Party: (ii) is or becomes a matter of public knowledge through no fault of the recipient; (iii) is rightfully received by the recipient from a third party without a duty of confidentiality; (iv) is independently developed by the recipient; (v) is disclosed pursuant to a legal requirement to disclose (including pursuant to federal or state securities laws), except that the recipient will disclose only such information as is legally required and will use reasonable efforts to obtain confidential treatment for any Confidential Information that is so disclosed; (vi) is disclosed by the recipient with the disclosing Party’s prior written approval; or (vii) is required to be disclosed in order to enforce the recipient’s rights under this Agreement in a court or arbitration proceeding (but in each case only to the extent of such requirement and only after consultation with the disclosing Party, and the recipient will use reasonable efforts to obtain, or assist the disclosing Party in obtaining, an order protecting the information from public disclosure).


 

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(b) Obligation. Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. Each Party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the Term of this Agreement and in perpetuity thereafter (with regard to personally identifiable information and non-published protocols) and for a period of three (3) years following expiration or termination of this Agreement (with regard to all other Confidential Information), to keep confidential and prevent the duplication or disclosure of Confidential Information of the disclosing Party, other than by or to its employees or agents, including accountants and auditors that need access to such Confidential Information and who will each agree to comply with terms and conditions no less restrictive than those set forth in this Section 9; provided that nothing herein shall be deemed to require either Party to retain copies of personally identifiable information.

(c) Government Requirements. Notwithstanding the foregoing provisions of this Section 9, either Party may disclose Confidential information without the consent of the other Party, to the extent such disclosure is required by law, rule, regulation or government or court order, or in connection with the enforcement of this Agreement. In such event, the disclosing Party will provide at least five (5) Business Days prior written notice of such proposed disclosure to the recipient. Further, in the event such disclosure is required of either Party under the laws, rules or regulations of the Securities and Exchange Commission or any other applicable governing body, such Party will (i) redact mutually agreed-upon portions of this Agreement to the fullest extent permitted under applicable laws, rules and regulations, and (ii) submit a request to the SEC or such governing body that such portions of this Agreement receive confidential treatment under the laws, rules and regulations of the Securities and Exchange Commission or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body.

(d) Press Releases. Neither Party shall issue any press release, or make any public statement concerning the existence of this Agreement, the terms hereof or the activities contemplated hereunder (“Press Release”) without the prior written approval of the other Party. In the event a Party desires to issue a Press Release such Party shall submit to the other Party, for its prior written approval, any such Press Release; provided that, subsequent to the initial Press Release, if any, factual references by either Party to the existence of a business relationship between the Parties shall not require approval of the other Party.

(e) Promotional Materials. Each Party will submit to the other Party, for its prior written approval, any marketing, advertising, or other written promotional materials, excluding Press Releases (which are instead governed by Section (d) above) referencing the other Party and/or its trade names, trademarks, and service marks (the “Promotional Materials”); provided, however that following the initial public announcement of the business relationship between the Parties in accordance with the approval and other requirements contained herein, either Party’s subsequent factual reference to the existence of a business relationship between the Parties in Promotional Materials will not require the approval of the other Party. Once expressly pre-approved, the Promotional Materials may be used by a Party and its affiliates and re-used for such purpose until such approval is withdrawn with reasonable prior notice. In the event such approval is withdrawn, existing inventories of Promotional Materials may not be used

10 Limitation of Liability; Disclaimer; Indemnification

10.1 Liability.

NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR

INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY TO USE THE TI SITES, THE SPONSORED ADVERTISING SERVICE, ADVERTISING RESULTS, TI SEARCH SERVICE, THE TI SEARCH RESULTS, OR THE LICENSED CONTENT, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, “DISCLAIMED DAMAGES”); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTIONS 5.5 OR 7.6 OF THE AGREEMENT AND 10.3 OF THIS EXHIBIT. EXCEPT AS PROVIDED IN SECTIONS 5.5, 5.6(i), 7.6 OF THE AGREEMENT, and 10.3 OF THIS EXHIBIT, (I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, (II) THE MAXIMUM LIABILITY OF ONE PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT WILL NOT EXCEED THE TWO TIMES THE TOTAL AGGREGATE VALUE OF CONSIDERATION PAID OR PAYABLE BY AOL TO TI UNDER THIS AGREEMENT; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO THE AGREEMENT. IF THERE IS A BREACH OF THE PROVISIONS REGARDING CONFIDENTIAL INFORMATION, THEN THE BREACHING PARTY MAY BE LIABLE FOR CONSEQUENTIAL DAMAGES, BUT NOT IN EXCESS OF THE CAP SET FORTH HEREIN.

10.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING TI SITES, THE TI SEARCH SERVICE, THE TI SEARCH RESULTS, THE TI SEARCH RESULTS, THE ADVERTISING SERVICE, THE ADVERTISING RESULTS, THE LICENSED CONTENT, OR THIS AGREEMENT INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TI SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF (A) THE SPONSORED LINKS, (B) THE QUERIES, AND (C) THE USER ACTIONS.

10.3 Indemnity. Each Party will defend, indemnify, save and hold harmless the other Party and the officers, directors, agents, Affiliates, distributors, franchisees and employees of the other Party from any and all third party claims, and all liabilities, damages, costs or expenses, including reasonable attorneys’ fees (but excluding those attorneys’ fees that arise from an Indemnified Party’s (as defined below) decision to participate in its own defense at its expense) arising from such third party claims (collectively “Liabilities”), resulting from the indemnifying Party’s material breach or alleged material breach of any obligation, representation or warranty of this Agreement. In addition, AOL will defend indemnify, save and hold harmless TI and its officers, directors, agents, Affiliates, distributors, franchisees and employees, from any Liabilities resulting from (i) displaying any Matched Results that are subject to the First Level Filter or the Second Level Filter, including during any implementation periods with respect to updates thereof, and (ii) Slippage.


 

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10.3.1. AOL IP Indemnity. In addition to the other provisions of this Section 10.3. AOL will defend, indemnify, save and hold harmless TI and its officers, directors, agents, Affiliates, distributors, franchisees and employees from any Liabilities resulting from the infringement of or violation or alleged infringement or violation of, any copyright, trademark U.S. patent or any other third party right, including without limitation, any music performance or other music related rights in connection with the Licensed Content and the Sponsored Advertising Service.

10.3.2. THE FOREGOING PARAGRAPHS 10.3, AND 10.3.1 OF THIS EXHIBIT E AND SECTIONS 5.4 AND 7 IN THE BODY OF THE AGREEMENT STATE EACH PARTY’S ENTIRE LIABILITY (AND EACH PARTY’S SOLE AND EXCLUSIVE REMEDIES) FOR THIRD PARTY CLAIMS ARISING UNDER THIS AGREEMENT, EXCEPT FOR ANY CLAIMS FROM THE THIRD PARTY PROVIDER AGAINST Tl.

10.4 Claims. If a Party entitled to indemnification hereunder (the “Indemnified Party”) becomes aware of any matter it believes is indemnifiable hereunder involving any claim, action, suit, investigation, arbitration, or other proceeding against the Indemnified Party by any third party (each an “Action”), the indemnified Party will give the other Party (the “Indemnifying Party”, prompt written notice of such Action. Such notice will (i) provide the basis on which indemnification is being asserted and (ii) be accompanied by copies of all relevant pleadings, demands, and other papers related to the Action and in the possession of the indemnified Party. The Indemnifying Party will be obligated to defend the Action, at its own expense, and by counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party will cooperate, at the expense of the Indemnifying Party (except for the value of time of the Indemnified Party’s employees), with the indemnifying Party and its counsel in the defense and the indemnified Party will have the right to participate fully, at its own expense in the defense of such Action. Any compromise or settlement of an Action that requires the Indemnified Party to admit liability or to pay any money will require the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld or delayed

11. Acknowledgment. AOL and Tl each acknowledges that the provisions of this Agreement were negotiated to reflect an informed, voluntary allocation between them of all risks (both known and unknown) associated with the transactions contemplated hereunder. The limitations and disclaimers related to warranties and liability contained in this Agreement are intended to limit the circumstances and extent of liability. The Parties agree that any principle of construction or rule of law that provides that an agreement shall be construed against the drafter of the agreement in the event of any inconsistency or ambiguity in such agreement shall not apply to the terms and conditions of this Agreement. The provisions of this Section 11 will be enforceable independent of and severable from any other enforceable or unenforceable provision of this Agreement

12. Excuse. Neither Party will be liable for, or be considered in breach of or default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any causes or conditions which are beyond such Party’s reasonable control and which such Party is unable to overcome by the exercise of reasonable diligence, except that, to the extent expressly stated herein, as between AOL and Tl. AOL shall be responsible for the actions of the Advertisers.

13. Independent Contractors. The Parties to this Agreement are independent contractors Neither Party is an agent, representative or employee of the other Party. Neither Party will have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Party. This

Agreement will not be interpreted or construed to create an association, agency, joint venture or partnership between the Parties or to impose any liability attributable to such a relationship upon either Party

14. Notice.

All notices shall be in English, in writing, and shall be deemed given (i) upon receipt when delivered personally, (ii) upon written verification of receipt from overnight courier, (iii) upon verification of receipt of registered or certified mail, or (iv) upon verification of receipt via facsimile, provided that such notice is also sent simultaneously via U.S. mail. In the case of AOL, such notice will be provided to both the Executive Vice-President of Business Development for AOL (fax: 703-265-0242) and the Deputy General Counsel (fax:703-265-8433) each at 22000 AOL Way. Dulles, VA 20166 or as otherwise provided in writing for such notice purposes In the case of Tl, such notice will be provided to both Monica Ray, Senior VP & General Manager (fax: 212-467-1531) and General Counsel (fax: 212-467-0905), each at 1271 Avenue of the Americas, New York, New York 10020 or as otherwise provided in writing for such notice purposes.

15. No Waiver. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of this Agreement or to exercise any right under this Agreement will not be construed as a waiver or relinquishment to any extent of such Party’s right to assert or rely upon any such provision or right in that or any other instance; rather, the same will be and remain in full force and effect.

16 Return of Information. Upon the expiration or termination of this Agreement, each Party will, upon the written request of the other Party, return or destroy (at the option of the Party receiving the request) all Confidential Information, documents, manuals and other materials specified by the other Party.

17. Survival.

Sections 6.6, 6.7 (Effect of Termination), and 7 (Relationship between AOL and Advertisers) of the body of the Agreement and Exhibit A. Sections 9-29 of this Exhibit E, Exhibit G, any payment obligations accrued prior to or upon termination or expiration, the obligations of AOL with respect to the use and retention of data in the Preamble to Schedule 2.1, and any other terms and provisions of this Agreement needed to interpret or make the foregoing operative (except as set forth in such supplementary paragraph), will survive the completion, expiration, termination or cancellation of this Agreement

18. Entire Agreement. This Agreement sets forth the entire agreement, and is a complete integration, and supersedes any and all prior agreements and statements of intent of the Parties with respect to the transactions set forth herein. Neither Party will be bound by, and each Party specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other Party in any correspondence or other document unless the Party to be bound thereby specifically agrees to such provision in writing.

19. Amendment. No change, amendment or modification of any provision of this Agreement will be valid unless set forth in a written instrument signed by the Party subject to enforcement of such amendment, and in the case of AOL, by an executive of at least Vice President level.

20. Further Assurances. Each Party will take such action (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by any other Party for the implementation or continuing performance of this Agreement.


 

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21. Assignment

Neither Party will assign this Agreement or any right, interest or benefit under this Agreement (including, without limitation, by way of merger or consolidation) without the prior written consent of the other Party (not to be unreasonably withheld). Subject to the foregoing provisions of this Section 21, this Agreement will be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. A Change of Control as defined in Exhibit A will be governed by Section 6.4 and not by this Section 21.

22. Construction; Severability. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties to this Agreement, (i) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect.

23. Remedies. Except where otherwise specified, the rights and remedies granted to a Party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity.

24. Applicable Law.

This Agreement and the rights of the Parties hereto shall be interpreted in accordance with the laws of the State of New York, and all rights and remedies shall be governed by such laws without regard to principles of conflicts of laws. Each of the Parties hereto irrevocably agrees that any legal action or proceeding arising out of this Agreement or any transaction contemplated hereby shall be brought only in the State or United States Federal courts located in the State of New York. Each Party hereto irrevocably consents to the service of process outside the territorial jurisdiction of such courts in any such action or proceeding by the mailing of such documents by registered United States mail, postage prepaid, to the respective address set forth in Section 14.

25. Export Controls. Each Party shall comply with all applicable laws, regulations, and rules relating to the export of commodities, software or technical data, and shall not export or reexport any commodities, software, technical data, any products received from the other Party, or direct product of such commodities, software or technical data to any proscribed country, party, or entity listed in such applicable laws, regulations, and rules, unless properly authorized by the U.S. Government.

26. Headings. The captions and headings used in this Agreement are inserted for convenience only and will not affect the meaning or interpretation of this Agreement.

27. Counterparts; Facsimile. This Agreement may be executed in counterparts, each of which will be deemed an original and all of which together will constitute one and the same document. This Agreement, and written amendments hereto, may be executed by facsimile.

28. Injunctive Relief. Notwithstanding anything to the contrary in this Agreement the Parties agree that any material breach or threatened material breach of the provisions of this Agreement related to exclusivity, intellectual property rights or confidentiality obligations, may cause irreparable harm to the other Party for which money damages might be difficult to determine and an inadequate remedy, and therefore an aggrieved Party may timely seek injunctive relief without the need to prove actual damages to protect its rights under this Agreement, in addition to any and all other remedies available at law or in equity.

29. No Third Party Beneficiaries. The Agreement is not intended to benefit, nor shall it be deemed to give rise to, any rights in any third party (including but not limited to any subsidiary or affiliate of either Party hereto).

30. Third Party Provider. AOL will ensure the performance

of, and be responsible for, all obligations under this Agreement that are to be performed by the Third Party Provider, and AOL shall be liable, to the extent set forth in this Agreement, for all acts, errors and omissions of the Third Party Provider that are in violation of this Agreement.


 

 

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EXHIBIT F

SPONSORED LINKS REQUIRED CHARACTERISTICS MOCK-UPS

SEE ATTACHED IMAGES

 

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Execution Version

EXHIBIT G

TI SITES SERVICES LAUNCH DATES

 

    

TI Sites

       

Launch Dates

    
  

MyRecipes

     

8/27/2007

  
  

Southern Living

     

8/27/2007

  
  

Sunset

     

8/27/2007

  
  

CNNMoney

     

8/27/2007

  
  

SI

     

8/27/2007

  
  

Cooking Light

     

8/28/2007

  
  

Cottage Living

     

8/28/2007

  
  

Coastal Living

     

8/28/2007

  
  

Instyle

     

8/30/2007

  
  

Southern Accents

     

8/29/2007

  
  

Time

     

8/29/2007

  
  

People

     

8/29/2007

  
  

EW

     

8/30/2007

  
  

Golf

     

8/30/2007

  

 

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Execution Version

SCHEDULE 1

PROHIBITED ENTITIES

PROHIBITED ENTITIES LIST

CNNMONEY.COM

www.businessweek.com

www.forbes.com

www.economist.com

www.ft.com

www.marketwatch.com

http://finance.yahoo.com/

www.portfolio.com

www.kiplinger.com

www.smartmoney.com

www.inc.com

www.wired.com

www.fastcompany.com

www.reuters.com

www.morningstar.com

www.wsj.com

www.thestreet.com

www.fool.com

www.cnbc.com

EW.COM

TVGuide

EOnline

CNET Sites - tv.com, metactitic, etc.

RollingStone.com

Fancast

Rottentomatoes

SI.COM

espn.com

sportsline.com

foxsports.com

sports.yahoo.com

sportingnews.com

nbcsports.com

TIME.COM

www.msnbc.com

http://news.yahoo.com/

www.nytimes.com

www.usatoday.com

www.abcnews.com

 

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Execution Version

www.cbsnews.com

www.foxnews.com

www.washingtonpost.com

www.newsweek.com

www.slate.com

www.salon.com

www.economist.com

www.usnews.com

GOLF.COM

pgatour.com

pga.com

golfdigest.com

sports.espn.go.com

yahoosports.com

foxsports.com

sportsline.com

nbcsports.com

thegolfchannel.com

SOUTHERN PROGRESS DIGITAL

www.bhg.com

www.epicurious.com (bonappetit.com and gourmet.com)

www.concierge.com (www.condenasttraveler.com)

www.fitness.com

www.lhj.com

www.marthastewart.com

www.midwestliving.com

www.more.com

www.nationalgeographic.com/traveler/

www.naturalhealthmag.com/

www.oprah.com

www.prevention.com

www.redbookmag.com

www.self.com

www.shape.com

www.texasmonthly.com

www.travelandleisure.com

www.womansday.com

www.womenshealthmag.com/

www.food.yahoo.com

www.recipezaar.com

www.foodnetwork.com

www.allrecipes.com

www.rachelraymag.com

www.about.com/food

www.chow.com

www.cooks.com

www.hgtv.com

www.diynetwork.com

www.eatingwell.com

www.allplans.com

www.architecturaldigest.com

 

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www.archwaypress.com

www.constructionresources.net/abbisoftcard.htm

www.mascord.com/

www.associateddesigns.com/

www.larrybelk.com/

www.boyattgalleryofhomes.net

www.coolhouseplans.com

www.countryhome.com/

www.creativehomedesign.com/

wvw.designbasics.com/home/index.asp

www.designstudioplans.com

www.donhildebrandhomedesigns.com/

www.dongardner.com

www.dreamhomesource.com

www.dreamplans.com

www.elledecor.com/

www.eplans.com

www.familycircle.com/

www.familyhandyman.com

www.familyhomeplans.com

www.garlinghouse.com/

www.globalhouseplans.com

www.goodhousekeeping.com/

www.hanleywood.com/

www.homeplanfinder.com

www.homeplans.hsh.com

www.houseandgarden.com/

www.housebeautiful.com/

www.houseplanguys.com

www.houseplans.com

www.livingconcepts.com

www.methome.com/

www.nelsondesigngroup.com

www.onlinehomeplans.com

www.planshouse.com

www.residentialarchitect.com

www.saterdesign.com/

www.seattleplansource.com/

www.southerndesigner.com

www.thehousedesigners.com

www.theplancollection.com

www.traditionalhome.com/

www.williampooledesigns.com

www.veranda.com

www.countryliving.com/

www.danze-davis.com/

PEOPLE.COM

EOnline.com

TVGuide.com

PerezHilton.com

Sugar Properties (PopSugar.com, FabSugar.com, etc)

USMagazine.com

 

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StarMagazine.com

MSN Entertainment section

Yahoo Entertainment section (including OMG)

iVillage Entertainment section

InTouch.Hollywood.com

X17.com

AccessHollywood.com

ETOnline.com

TheSuperficial.com

Pinkisthenewblog.com

Starpulse.com

Hollywood.com

PopMatters.com

Celebritypro.com

USAToday.com Life section

Defamer.com

JustJared.com

HollywoodRag.com

TheBosh.com

Jossip.com

PopBytes.com

Glitterati.com

CityRag

TheCelebrityBlog.com

Celebrific.com

HollywoodTuna.com

GossipRocks.com

Gossiportruth.com

Gossipaholic.com

AnotherStupidGossipBlog.com

Dlisted.com

Solnfatuated.com

Egostatic.com

HollywoodltGirls.com

IN STYLE

EOnline.com

TVGuide.com

USMagazine.com

InTouch.Hollywood.com

MSN Entertainment

Yahoo Entertainment

iVillage Entertainment

PerezHilton.com

ETonline.com

Glam Media

Glam.com

Style.com

Cosmopolitan Magazine

Allure.com

Elle Group

Elle.com

Marieclaire.com

 

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Glamour.com

VanityFair.com

Luckymag.com

HarpersBazaar.com

The Knot

 

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Prohibited Products/Services for all TI Sites

 

Product/

Service

 

  

Summary

Adoption

  

No advertising for child adoption services including, but not limited to, advertising by agencies and other organizations, attorneys or physicians.

 

Adult Products & Services

  

No advertising for adult products. Partner advertising and commerce merchants may carry some adult products in their inventory, subject to restrictions.

 

Condom & Contraceptive Products

  

No advertising for condoms, non-prescriptive (e.g. spermicides), and prescriptive contraceptive (e.g., birth control pills) products.

 

Contaminating Software or Code

  

Spyware, malware, adware, viruses, worms, Trojan horses, time bombs or similar contaminating software or code, etc.

 

Deceptive, Fraudulent or Misleading Materials

  

Material which is deceptive, fraudulent, misleading, or otherwise non-compliant with the Federal Trade Commission Act or any state consumer protection laws.

 

Dietary Supplements

  

Except if approved in advance by Time, but in all cases the products must adhere to FDA and FTC regulations and guidance requirements.

 

Firearms/Guns, Ammunitions & Fireworks

  

Prohibited except for antique or collectible firearms or ammunition that are not operable and air guns provided they are legal in the states where they are sold and shipped. Fireworks are prohibited.

 

Fundraising

  

n/a

 

Gambling, Online

  

No advertising for online gambling sites. No advertising for online gaming sites that leverage gambling-like behavior.

 

Hate Speech

  

Content that promotes violence, discrimination, harassment or hate speech.

 

“Head Shops” – Drug Related Paraphernalia

  

No advertising for “Head Shops” or other establishments whose activity concentrates on drug-related paraphernalia.

 

Illegal Activities

  

Advertising promoting or endorsing activities or products that are illegal in the United States.

 

Private Detectives/Investigators

  

n/a

 

Public Records Search

  

Defined as search services that provide consumers and businesses with information obtained from official public records and/or publicly available records.

 

Sexual Enhancers

  

No advertising products aimed at increasing sex drive, increasing the size of sexual organs, and/or increasing sexual endurance. Commerce merchants may carry some sexual enhancing products in their inventory, subject to restrictions.

 

Tobacco

  

No advertising for cigarettes, cigars or smokeless tobacco.

 

Non FDA Approved Products

  

i.e.; Hoodia, Trim Spa

 

Pornographic Material

  

Including sexually explicit material with minors or other inappropriate adult content.

 

Alcohol

  

No alcohol-related materials and promotions.

 

Multi-level Marketing Schemes

  

i.e.; marketing plans whose sole purpose is to offer commissions for recruiting new distributors

 

 

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SCHEDULE 2.1

Ads Protocol and Protocol Implementation Process

Preamble

TI will use the protocol interface described in Section 1 below (the data described in Section 1 below referred to as the “Shared Data”), in order to allow the Third Party Provider to (a) provide the Sponsored Advertising Service as required under this Agreement (including providing such information to a Metric Auditor to the extent required by Section 5.5(d) of the Agreement), (b) detect Spam, and (c) use the Shared Data in aggregate form (e.g., combined with data provided by multiple Third Party Provider distribution partners or customers (“Aggregated Data”) and in a manner that prevents (i) individual identification of TI Users, their personal information (if any) or the fact that such end-users are TI Users, or (ii) identification of groups or sets of end-users as users of products or services, as applicable, on TI Sites (other than for Spam detection)) for non-competitive purposes (e.g., determining the most popular search terms) (the “Designated Purposes”). AOL expressly recognizes that, notwithstanding anything to the contrary in this Schedule 2.1:

 

(a)

If TI elects to provide the Shared Data, TI is only obligated to provide the Shared Data if and to the extent not personally identifiable (e.g., such that the portions of the Shared Data (e.g., cip) may be masked with a one-way hash (or otherwise masked) at TI’s option); provided, however that TI shall not be relieved of its obligation under the Agreement to submit Queries or display Sponsored Links, except as otherwise provided in the Agreement. If TI elects to provide the end-user portions of the Shared Data it will do so as a one-way hash (and neither AOL or the Third Party Provider will unmask such Shared Data). The one-way hash contemplated herein will be on a “one-to-one” basis, such that different source IP addresses will be assigned different codes, and the same source IP address will be assigned the same code. Ads cannot be geo-targeted without the provision of relevant zip code. Unless TI elects to provide such relevant zip codes or other geo-targeting related information, AOL shall not be deemed in breach of Section A of Exhibit C of this Agreement. To the extent TI makes available geo-targeting information, AOL will ensure that the Third Party Provider will use this data only for one-time targeting (i.e. only to serve the appropriate geo-targeted Sponsored Links in that one instance).

 

(b)

For the avoidance, of doubt, TI is never required to provide data kept in an end-user cookie (“Cookie Data”), and if TI does provide Cookie Data then TI may encrypt such Cookie Data at its option.

 

(c)

AOL shall ensure that the Third Party Provider shall: (i) use the Shared Data solely for the Designated Purposes; (ii) not disclose the Shared Data to any third party other than (x) the Metric Auditor (to the extent required by Section 5.5(d) of the Agreement) and (y) Third Party Provider’s third-party agents solely for the Designated Purposes, subject to the confidentiality requirements and other restrictions on use set forth in the Agreement, (iii) only keep the Shared Data during the time in which it keeps the logs containing such Shared Data in the ordinary course of its business; (iv) keep the Shared Data under controlled access (i.e., in a manner which ensures that such data is not disclosed to any third party (except as described in this paragraph (c)) or made available to unauthorized personnel); and (v) not attempt to determine any personally identifiable information underlying of forming the basis of the Shared Data. For the avoidance of doubt, to the extent Third Party Provider’s other distribution partners or customers or their auditors are permitted to audit the non-TI related Aggregated Data kept on Third Party Provider’s logs, AOL shall ensure that the Third Party Provider extracts the relevant data (i.e., not the Shared Data) from such logs and provides reports thereof in connection with such audits, but does not provide such third parties access to Shared Data provided by TI.

 

(d)

The “cip” data listed in the fifteenth line of chart 2 in Section 1.1 below are required only to the extent such information is readily available to TI and TI elects to provide the same (e.g., source ip may not be available).

 

(e)

The description of “cip” data listed in the fifteenth line of Chart 2 in Section 1.1 below shall be deemed to expressly exclude those X-Forwarded-For HTTP headers that are in the internal TI path.

 

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(f)

All items labeled as “Notes” are suggestions only, and TI will not be liable for any failure to comply therewith.

 

(g)

Note: Because the Third Party Provider relies on the ip parameter (IP address), AOL hereby advises TI that providing the values of these parameters is necessary to have maximum protection against ad “spamming”.

 

(h)

The Parties have agreed to filtering requirements in Section 2.7 of the main body of this Agreement. In connection with the filtering to be done in connection with such Section, listing a URL will block all sub-pages of the primary domain. For example:

Blocking www.guns.com, will automatically block www.guns.com/buygunshere

 

(i)

TI shall have up to 60 days from the Effective Date to implement the Protocols in this Agreement, subject to any circumstances beyond its sole control.

 

(j)

AOL shall ensure that the Third Party Provider shall, upon each UA, be permitted to use “cookie” or web beacon technology (collectively, “Cookie Technology”) on a non-personally identifiable basis for the sole purposes of leveraging ad effectiveness functionality for an Advertiser relating click through events to conversions on the Advertiser’s Advertiser Web Site(s) (or the site of the relevant Advertiser’s third party agent) and similar return on investment (“ROI”) analysis of such Advertiser with respect to such Advertiser’s Sponsored Links delivered under this Agreement on a per click-through event basis, as well as aggregating such UAs with other UAs and/or other click-throughs across the Third Party Provider Advertising Network and other targeted text link monetization services of the Third Party Provider for conversion and similar ROI analysis (e.g., the Third Party Provider shall not build a profile of a TI User with respect to the type of ad that is effective for such TI User, or such TI User’s buying habits, etc) (collectively, the “Permitted Cookie Uses”), provided that: (i) AOL is in compliance with the Agreement and any reasonable requirements set forth by TI and disclosed to AOL in writing (which may be by email), including but not limited to rich media serving terms, submission requirements, etc., and (ii) the Third Party Provider provides access to Sponsored Links hereunder in accordance with generally recognized industry standards (e.g., click through functionality, description of placement of “cookies” on a browser and how “cookies” are read through hypertext transfer protocol (i.e., “HTTP”) headers). Notwithstanding anything to the contrary, such use of Cookie Technology on TI.com shall not include the following activities:

(a) the collection of TI User Navigational Data, or the aggregation, co-mingling or any other combination of data for or about TI Users with data from other sites for the purpose of building profiles of TI Users (regardless of whether such profiles were created outside of the TI Sites), or for use in online preference marketing to TITI Users;

(b) aggregation, use or disclosure of Navigational Data obtained through the use of such technology;

(c) disclosure of or association by or on behalf of the Third Party Provider with any personally identifiable information of a TI User;

(d) use or conducting of survey-based research without the prior written approval of TI; and

(e) redirection or disclosure of data or information to a third party absent the express prior written approval by TI (other than aggregate, non-personally identifiable data regarding conversions and other similar ROI analysis and/or spam, which may be disclosed to each relevant Advertiser or Advertiser’s Agent or others provided that such aggregate data could not reasonably be used to identify conversions on TI Sites).

For purposes of this Agreement, “Navigational Data” shall mean any data regarding TI Users navigation (e.g., destinations, clickstream, etc.) online, but excluding data which solely relates to whether (and, if so, when) a user who clicked on a Sponsored Link subsequentIy converts on the relevant Advertiser’s Advertiser Web Site(s) (or the site of the relevant Advertiser’s third party agent).

Restrictions on Use of TI Network Information. Neither AOL nor the Third Party Provider shall (i) use any information or data gathered in connection with serving Sponsored Links to or through TI Sites (the “TI Network

 

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information”) in any manner whatsoever except as expressly permitted by the terms of this Agreement, nor (ii) communicate any Tl Network Information (or any portion thereof) to any individual or entity (other than aggregate, non-personally identifiable data regarding conversions and other similar ROI analysis and/or spam, which may be disclosed to each relevant Advertiser or Advertiser’s Agent or others provided that such aggregate data could not reasonably be used to identify conversions on the Tl Sites).

AOL and the Third Party Provider shall maintain complete, clear and accurate records of all uses of Tl Network Information obtained through the use of Cookie Technology, including the collection, recording, organization, storage, adaptation, alteration, retrieval, consultation, alignment or combination, blocking, erasure or destruction of Tl Network Information and Aggregated Client Information, and of any permitted (if any) disclosure or otherwise making available of Tl Network Information (collectively, the “Privacy Records”).

All such Privacy Records shall be maintained for a minimum of three (3) years following termination of this Agreement, except with respect to data or information for which the Third Party Provider has a company-wide policy for periodic purging of such data (which purging shall not occur more frequently than once during any six (6) month period) and information, which policy shall be provided to Tl upon request.

Tl shall have the right to direct a mutually agreeable independent third party privacy auditor, which, auditor must be a nationally recognized auditing firm (a “Privacy Auditor”) to generate a report regarding Third Party Provider’s use of Cookie Technology and the collection and use of Tl Network Information, subject to confidentiality restrictions consistent with those set forth in this Agreement (and any additional confidentiality restrictions as mutually agreed), to conduct reasonable and necessary copying and inspection of Privacy Records. Any such audit may be conducted after twenty one (21) Business Days prior written notice, during normal business hours, no more than once during per Year, and shall be at Tl’s expense; provided, however, that if an inspection reveals any violation of the terms and conditions set forth in this Preamble, (i) AOL shall promptly reimburse Tl for the reasonable fees charged by the Privacy Auditor, and (ii) Tl shall thereafter have the right to conduct more frequent audits during the Term, subject to this Section, provided, however that the total number of audits shall not exceed a total of two (2) per Year.

AOL shall comply with, and shall ensure that the Third Party Provider shall comply with, Tl directions and policies regarding the collection, storage and destruction of IP addresses that AOL and the Third Party Provider encounters in connection with this Agreement. Specifically, AOL shall ensure that: (a) IP addresses remain at all times encrypted when in the possession or storage of the Third Party Provider or its agents; and (b) other than the Permitted Cookie Uses and the Designated Purposes, the Third Party Provider will not use the IP addresses for any other purpose without the prior written consent of Tl, which may be given in Tl’s sole discretion.

Notwithstanding the foregoing or anything contained in this Schedule 2.1, the Designated Purposes and any other uses of data collected pursuant to this Schedule 2.1 shall not include any uses not permitted of Service Data under Section 2.11 of the Agreement, without the prior written consent of Tl, and the Shared Data and all other data collected under this Schedule 2.1 shall be owned as provided for Service Data under Section 2.11 of the Agreement.

*            *            *

Section 1

Note: This document describes protocol features specific only to ad requests and results.

SLM Ad Interface

Overview

SLM (Sponsored Links Manager) serves Sponsored Links and/or Web Offers, both of which are just textual advertisements. This

 

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document describes the API used to obtain query-relevant ads. SLM serves ads from a variety of advertising partners and aggregators, as defined by the particular needs of a given partner or ad consumer. A major partner is The Third Party Provider, and some The Third Party Provider terms are used in this description. A SLM Profile must be configured by AOL in order for a partner to issue these ad calls with an approved ID, and this configuration may specify advertising partners, and default behavior such as locale – language and country.

 

 

There are 2 methods to retrieve sponsored links from SLM - XML and HTML. These methods provide flexibility in how the links may be brought into content pages through backend server functions.

 

 

An Ad Request is an HTTP GET command. Here’s a sample test URL (not intended for any load). http://switcher.dmn.aol.com/swa?sch=dmn&ssch=test_aol_sports&squery=realtors&snum=10

 

 

All parameters must be URL encoded for reliable transmission.

 

 

Channels can set default values for optional parameters.

 

 

For Server to Server requests (XML Response). SLM supports optional IP-based authentication

 

 

The following request parameters are supported by SLM:

 

 

 

Query related ads parameters

 

 

 

Content related ads parameters

 

 

 

Error related ads parameters

 

 

 

Common parameters

Ad Types

SLM supports retrieval of matching ads which are determined to be relevant based on the following kinds of input parameters:

 

 

a)

A specified query term, typically entered by an end-user.

 

 

b)

An input keyword and/or URL typically entered by a channel devoted to specific topic.

 

 

c)

A standard http error code (usually a DNS error).

Section 1.1

Matching Query Terms-Chart 1

For channels that supply a “query” term for which they want relevant ads, in the Third Party Provider terms. “AFS” (AdSense for Search) channels.

 

Name

  

Required

  

Default
Value

  

Channel
can specify
Default

  

Description

Sch

  

Yes

       

Asd

  

Channel id assigned by SLM, passed by the partner on each API invocation

         

Ssch

  

Yes

       

Yes

  

Sub-channel id assigned by SLM passed by the partner

         

squery

  

Yes

       

Yes

  

Search string as typed by user

 

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Other SLM parameters-Chart 2

Other SLM parameters, independent of the kind of ads

 

Name

 

Required

  

Default Value

  

Channel can
specify Default

  

Description

         

snum

      

10

  

Yes

  

Number of ads requested

         

of

      

xml

  

Yes

  

“Ouput Format for the result (response) – xml & html are supported

types”

         

stest

      

off

  

Yes

  

Test mode

         

locale

      

En US

  

Yes

  

Country and language

         

2

                

Zip code for user

         

page

      

0

  

Yes

  

Page number of the ad distribution recipe.

         

nt

                

Value returned from previous request specifying how to get the next set of ads for same query

         

If

      

0

  

Yes

  

Local Ad Filter: 0 - Retrieve both local/national advertisers. 1 – only local. 2- only national

         

css

           

Yes

  

HTML API only - URL to the css to be applied to the unordered list

of results

         

ssafe

      

high

  

Yes

  

Safety mode

         

sh_ie

      

UTF-8

  

Yes

  

Input encoding

         

sh_oe

      

UTF-8

  

Yes

  

Output encoding

         

selient

           

Yes

  

Google Client Id

         

spch

           

Yes

  

Google Channel Id

         

cip

                

IP address of client

         

cru

                

Referrer URL

         

csp

           

Yes

  

Connection Speed

         

cua

                

Browser user agent string

         

scoco

      

usa

  

Yes

  

Country code of user

         

sbrand

      

aol

  

Yes

  

Brand of user

         

sview

      

web

  

Yes

  

Web or aol

         

sit

           

Yes

  

Promotional page/page position tracking

         

city

           

Yes

  

City for user. *

 

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state

           

Yes

  

State for user. It must be in two letter format. For example CA for California, NM for New Mexico. *

         

sl_cat

           

Yes

  

The category under which the query has been classified; used to select Suppliers (“recipe”) to serve ads from; sl_cat=adult is the only category specified as of 08072006: unrecognized sl_cat will lead to the serving of ads from the “default” suppliers for the channel.

 

*

city and state will only be used if zip code is not provided.

Testing with Google Ads

It’s essential when testing with the Third Party Provider to separate queries issued for preliminary testing and validation from queries issued in a production environment. During testing, all queries to SLM must include the parameter adtest. by appending it to the URL, in this format

&adtest=on

This indicates that the query is not to be counted as production traffic. Naturally, this parameter must be removed at the time of launch.

For example, the test URL shown above must be augmented for the Third Party Provider testing as shown here.

http://switcher.dmn.aol.com/sw/a?sch=dmn&ssch=test_aol_sports&squery=realtors&snum=10&adtest=on

Glossary

This glossary contains definitions of acronyms and terms that may be new to some readers.

Geo-Targeting - The Third Party Provider Search Engine contains the technology to determine the origin of a search request based on the user’s IP address or other relevant geographical information. Using this information, the Third Party Provider search requests can be configured to return either search or ad results limited to the user’s country or location.

2. Protocol Implementation Process.

2.1 Changes and Updates.

 

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(1) The Third Party Provider reserves the right to make changes or updates to the Protocol implemented by TI and the Third Party Provider set forth in this Schedule 2.1 or replace such Protocol with a new version, including without limitation, such changes, updates or replacements that enable new features or functionality of the Sponsored Advertising Service (collectively. “Updates”), in each case, subject to the mutual agreement (in writing) of Tl. Tl and AOL will (and AOL shall ensure the Third Party Provider will) work in good faith to reach mutual agreement on each such Update as soon as is reasonably possible, and to the extent that a particular issue concerning any proposed Update arises pursuant to which Tl reasonably withholds its mutual agreement (e.g. Tl User privacy), the Parties will, to the extent commercially practicable, modify and implement such Update to address such issues. For the avoidance of doubt, TI’s reasonable objections to any component of a particular Update (“Specific Objections”) shall not affect the implementation of any mutually agreed components of such Update to the extent that such implementation is commercially practicable in light of the Specific Objections.

(2) Notwithstanding the foregoing, the Third Party Provider shall not be prohibited from making any Updates available to its other partners so long as the Third Party Provider also offers such Updates to Tl in compliance with subpart (1) above. For the avoidance of doubt, even in the event the Parties fail to reach mutual agreement as to any Update as set forth in subpart (1) above. AOL will not be in breach of Section A of Exhibit C of this Agreement as the result of providing such Updates to its partners.

(3) Without limitation of AOL’s rights under subpart (2) above, if TI, AOL and the Third Party Provider are unable to reach mutual agreement with respect to any Updates to the Protocol within 30 days of the Third Party Provider’s request for implementation, then the matter shall be referred to the Management Committee for resolution in accordance with Exhibit E.

2.2. [Intentionally omitted]

2.3. Support Requests. Tl will use commercially reasonable efforts to respond to and provide a fix for errors as reported by AOL and the Third Party Provider.

Contacts unless updated by written notice:

Minor Problems:

Email describing problem should be sent to the following applicable TI Site contact:

 

Site

  

General Manager

  

Email Address

Time.com

  

John Cantarella

  

John_Cantarella@timeinc.com

Instyle.com

  

Amy Keohane

  

Amy_Keohane@timeinc.com

 

Site

  

General Manager

  

Email Address

 

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People.com

  

Fran Hauser

  

Fran_Hausen@timeinc.com

SPC Digital

  

Steve Zales

  

Steve_Zales@timeinc.com

CNNMoney

  

Howard Manus

  

Howard_Manus@timeinc.com

SI.com

  

Jennifer Barber

  

Jennifer.Barber@turner.com

EW.com

  

Michael Wertheim

  

Michael_Wertheim@timeinc.com

Golf.com

  

Ken Fuchs

  

Ken_Fuchs@timeinc.com

Major Problems:

If immediate attention is required call the Time Inc. Network Operations Center (NOC) at 212-522-7777 and ask that the TII Manager On Call be contacted.

If either of these are unavailable, call the Time Inc. Network Operations Center (NOC.) at 212-522-7777 and ask that the TII Manager On Call be contacted (operating 24 x7).

 

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EX-10.78 22 dex1078.htm EXHIBIT 10.78 EXHIBIT 10.78

EXHIBIT 10.78

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FIRST AMENDMENT

TO

SEARCH SERVICES AGREEMENT

This First Amendment to the Search Services Agreement (“First Amendment”) is entered into by and between AOL LLC, (“AOL”) a Delaware limited liability company, with its principal place of business at 770 Broadway, New York, NY 10003, and Time Inc. (“TI”), a Delaware corporation with offices at 1271 Avenue of the Americas, New York, New York 10020, effective as of March 10, 2009 (the “First Amendment Effective Date”).

INTRODUCTION

The Parties hereto wish to amend the Search Services Agreement entered into by and between the AOL and TI on August 23, 2007 (the “Existing Agreement”). Together, the Existing Agreement and the First Amendment shall be referred to collectively as the “Agreement”. Capitalized terms not defined in this First Amendment shall have the meanings set forth in the Existing Agreement.

AGREEMENT

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby amend the Existing Agreement as follows:

 

1. Quarterly Performance Reviews. Section 3.4 (titled, “Quarterly Performance Reviews”) of the Existing Agreement is hereby deleted in its entirety and replaced with the following:

“3.4 Quarterly Performance Reviews. The Parties will meet at least quarterly to discuss financial performance of the Sponsored Links and/or Web Offers Links and ways to optimize performance.”

 

2. Revenue Guarantee; Performance Revenue. Section 5.1 (titled, “Minimum Revenue Guarantee”) and Section 5.2 (titled, “Performance Revenue”) of the Existing Agreement are hereby deleted in their entirety and replaced with the following:

“5.1. Revenue Guarantee. Subject to Section 5.2 below, from the Effective Date through April 15, 2009 (the “Revenue Guarantee Time Period”) AOL will pay TI a revenue guarantee for each of the TI Sites as set forth in Exhibit B-2 (Revised) for each individual TI Site (the “Revenue Guarantee”). The Revenue Guarantee shall be payable by AOL to TI for each TI Site that remains in existence on a monthly basis, in equal installments, based on the guarantee for each TI Site (as set forth in Exhibit B-2 (Revised)) on the first day of each applicable calendar month during the Revenue Guarantee Time Period.

5.2 Performance Revenue. Subject to the Cost Calculation Adjustment Trigger as defined in Section 5.2.2 below, from April 16, 2009 through the end of the Term AOL shall pay TI ninety-five percent (95%) of the Net Revenue (the “TI Revenue Share”). As used herein, “Net Revenue” shall equal both (i) the revenue recognized by AOL that is paid by the Third Party Provider (i.e., currently Google), and (ii) the revenue paid to AOL by Advertisers utilizing the AOL Search Marketplace (i.e., the white-label platform that enables search advertising campaigns to run on the AOL Network, including the TI Sites, created and run by Google on behalf of AOL), or via any other means through which AOL sells paid search ads to Advertisers, if any, less the revenue share payment AOL pays to the Third Party Provider, that is generated from the Advertising Results delivered to TI during the Term. The balance of the Net Revenue (i.e., 5%) shall be

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retained by AOL to cover its operating costs and expenses under this Agreement. AOL shall pay the TI Revenue Share, as described in this Section 5.2, on a monthly basis within thirty (30) days following the end of each applicable calendar month in which such amounts were recognized.

5.2.1 If the Third Party Provider changes during the Term, then AOL shall provide TI at least ninety days (90) prior written notice of such change. If TI is not satisfied with the new Third Party Provider selected by AOL, then TI may terminate the Agreement by providing AOL with thirty (30) days prior written notice. Unless TI exercises its termination right in the preceding sentence within forty-five (45) days from the date of AOL’s notice of the Third Party Provider change, then AOL will assume that TI is satisfied with the new Third Party Provider and wishes the Agreement to continue, and the Parties agree that AOL may deduct from the TI Revenue Share a fee that reflects the actual costs incurred by AOL to switch the TI Sites to the new Third Party Provider, which fee shall not exceed $75,000; provided that AOL shall submit reasonable documentation to TI of the incurred costs.

5.2.2 Cost Calculation Adjustment Trigger. If TI exercises its right to terminate the Agreement with respect to any Key TI Site(s), but does not terminate the entire Agreement, then at AOL’s option, AOL may switch the method of calculating the TI Revenue Share (the “Cost Calculation Adjustment Trigger”) (as described herein this Section 5.2.2) such that instead of the TI Revenue Share being defined as 95% of the Net Revenue, the TI Revenue Share shall equal the Net Revenue less the full amount of the actual costs incurred by AOL to provide the search services under this Agreement (the “AOL Operational Costs”), even if such AOL Operational Costs exceed 5% of the Net Revenue. AOL shall notify TI within thirty (30) days of each Cost Calculation Adjustment Trigger as to whether AOL intends to switch the payment method pursuant to this Section 5.2.2. If AOL chooses such switch, then beginning with the next monthly payment, AOL shall deduct the AOL Operational Costs from any payments to TI. For purposes of this Section 5.2.2, “Key TI Sites” shall mean the following TI Sites: CNNMoney.com, Sl.com, people.com, Time.com, MyRecipies.com, SouthernLiving.com and CookingLight.com.”

 

3. Reports and Auditing. The following phrase from the first sentence of Section 5.5(e) of the Existing Agreement is hereby deleted: “and upon AOL’s payment of the Threshold Revenue Share”.

 

4. Term. Section 6.1 (titled, “Term”) of the Existing Agreement is hereby deleted in its entirety and replaced with the following:

“This Agreement will commence on the Effective Date and shall expire at 11:59 p.m. (EST) on August 31, 2010, unless terminated earlier as provided for in this Agreement (the “Term”).

 

5. Termination Due to Replacement Provider. Section 6.2 of the Existing Agreement is hereby deleted in its entirety and replaced with the following”

“6.2 Termination. At any time after the Effective Date, TI (a) shall have the right to negotiate an alternative agreement to Use Search-Based Sponsored Text Links with a third party provider, and (b) shall have the right to terminate this Agreement at any time during the Term upon thirty (30) days prior written notice to AOL, or as otherwise agreed upon by the Parties. For the sake of clarity, if TI exercises this termination right on or before April 15, 2009, then any applicable Revenue Guarantee for any partial calendar month shall be prorated pursuant to

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Section 6.9 of the Agreement. In addition, TI may also terminate this Agreement with regards to each and any individual TI Site (e.g., TI may terminate the Agreement only as it applies to People.com), while leaving the Agreement in full force and effect with respect to all remaining TI Sites. TI acknowledges and agrees that if the individually terminated TI Site is a Key TI Site (as defined in Section 5.2.2), then AOL may exercise its rights associated with the Cost Calculation Adjustment Trigger.”

 

6. Suspension of Services. Section 6.6 (titled, “Suspension of Services”) is hereby deleted and replaced with the following:

“6.6 Suspension of Services. In the event that the Sponsored Advertising Service is suspended by the Third Party Provider and not generally available to AOL, AOL shall have the right to suspend Tl’s use of such service, until it is again made generally available to AOL. If the Sponsored Advertising Service is suspended by the Third Party Provider and not generally available to AOL beyond twenty (20) days, TI may terminate this Agreement upon written notice to AOL. In addition, (a) if AOL suspends the Sponsored Advertising Service pursuant to this Section, AOL shall continue to pay to TI the Revenue Guarantee or TI Revenue Share (as applicable for each TI Site) during the preceding month (as applicable) for such time period, provided, however, that if TI terminates this Agreement pursuant to this Section 6.6 AOL shall only be obligated to pay TI the Revenue Guarantee or TI Revenue Share paid to TI for each individual TI Site during the preceding month through the effective date of such termination.”

 

7. Termination of IMA. Section 6.7 (titled, “Termination of IMA”) of the Existing Agreement is hereby deleted in its entirety and replaced with the following:

“6.7. Termination of IMA. In the event that during the Term the IMA is terminated (by either AOL or the Third Party Provider), AOL may terminate this Agreement upon thirty (30) days prior written notice, provided that: (a) TI shall be entitled to retain all amounts previously paid and amounts due and owing through the effective date of such termination, and (b) AOL shall only be obligated to pay TI (i) the Revenue Guarantee or (ii) the TI Revenue Share, as applicable for each individual TI Site, or (iii) if there is no revenue for all, or a portion of, this thirty (30) day period because service has been suspended, AOL will pay TI the prorated amount of the Revenue Guarantee or TI Revenue Share, as applicable, paid to TI during the preceding month, as applicable for each individual TI Site, through the effective date of such termination. If, however, AOL is able to offer a replacement search provider, which is acceptable to TI (as determined in Tl’s sole discretion), within thirty (30) days after giving notice to terminate this Agreement pursuant to this Section 6.7, then (i) AOL shall continue to pay TI the Revenue Guarantee or TI Revenue Share, as applicable, for the Term of this Agreement, and (ii) TI will use commercially reasonable efforts to transition into using the applicable search services of the agreed upon replacement search provider.”

 

8. Effect of Termination. Section 6.9 (titled, “Effect of Termination”) of the Existing Agreement is hereby deleted in its entirety and replaced with the following:

“6.9. Effect of Termination. In the event of a termination of the Agreement on any date prior to the expiration of the Term (“Early Termination”), but without limiting the Parties’ other respective rights and remedies under this Agreement or at law, AOL shall pay to TI: (i) within thirty (30) days following the date of such termination, the applicable prorated portion of the Revenue Guarantee for each TI Site for the time period of the Term, through the date of termination, or, as

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applicable (ii) the TI Revenue Share for the applicable TI Sites generated during the Term (and not yet paid) within thirty (30) days following the end of the month in which the applicable TI Revenue Share for the applicable TI Sites were generated.”

 

9. Exhibit A – Definition of “Make Good Term”. The definition of “Make Good Term” set forth in Exhibit A of the Existing Agreement is hereby deleted in its entirety.

 

10. Exhibit A – Definition of “Minimum Revenue Guarantee”. The definition of “Minimum Revenue Guarantee” set forth in Exhibit A of the Existing Agreement is hereby deleted in its entirety.

 

11. Exhibit A – Definition of “Threshold Revenue Share”. The definition of “Threshold Revenue Share” set forth in Exhibit A of the Existing Agreement is hereby deleted in its entirety.

 

12. Exhibit A – Definition of “Query Target”. The definition of “Query Target” set forth in Exhibit A of the Existing Agreement is hereby deleted in its entirety.

 

13. Exhibit B-1 – Query Guarantee. Exhibit B-1 (titled, “Query Guarantee”) of the Existing Agreement is hereby deleted in its entirety.

 

14. Exhibit B-2 (Revised) – Revenue Guarantee. Exhibit B-2 (titled, “Minimum Revenue Guarantee”) of the Existing Agreement is hereby deleted in its entirety and replaced with Exhibit B-2 (Revised), attached hereto

 

15. Payment of Unpaid Amounts. In addition to the changes set forth above, AOL hereby agrees to pay TI $3,697,338.14, (i.e., the applicable unpaid portions of the Revenue Guarantee for the time period starting August 1, 2008 through March 31, 2009), no later than two (2) business days after the First Amendment is fully executed.

 

16. Except as expressly modified by this First Amendment, all terms and conditions, and provisions of the Existing Agreement shall continue in full force and effect.

 

17. Order of Precedence. In the event of conflict between the terms and conditions of the Existing Agreement and the terms and conditions of this First Amendment, the terms and conditions of this First Amendment will control.

 

18. Entire Agreement. The Existing Agreement, together with any exhibits, and schedules attached thereto and referenced therein, all as modified by this First Amendment, constitutes the entire and exclusive agreement between the Parties with respect to the subject matter thereof.

 

19. Counterparts; Facsimile. This First Amendment may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. This First Amendment may be executed by signatures transmitted by facsimile.

 

20. Settlement. Subject to the obligations discussed in this First Amendment and the full payment of the applicable unpaid portions of the Revenue Guarantee (pursuant to Section 15 of this First Amendment), TI and AOL, on behalf of themselves and their former, present and future parent companies, affiliates, divisions, officers, directors, shareholders, employees, agents, representatives, insurers, attorneys, successors and assigns, in consideration of the agreements and covenants contained in this First Amendment hereby release and forever discharge each other and their former, present, and future parent

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     companies, affiliates, divisions, officers, directors, shareholders, employees, agents, representatives, insurers, attorneys, heirs, successors and assigns of and from any and all actions, suits, debts and sums of money, complaints, defenses, claims and demands, whatsoever, in law or in equity, which each of them has ever had, now has, may have or may claim in the future against each other arising out of or related to the Existing Agreement prior to the date of this First Amendment.

IN WITNESS WHEREOF, the Parties have caused this First Amendment to the Search Services Agreement to be signed by their duly authorized representatives and delivered as of the dates set forth below.

 

AOL LLC

    TIME INC.

By:

 

/s/    Steven Quan

    By:  

/s/    Andrew Blan

Name:

  Steven Quan     Name:  

Andrew Blan

Title:

  VP, Business Development     Title:  

SVP-GM Corp. Ad Sales

Date:

 

3/10/09

    Date:  

3/11/09

 

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EXHIBIT B-2 (REVISED)

REVENUE GUARANTEE

 

   

TI Site Revenue Guarantee

TI Site

 

Year 1

 

Initial Seven and a Half Months
of Year 2

 

Total Revenue

Guarantee During

Revenue Guarantee Time
Period

CNNMoney.com

  $1,047,600   $763,875.00   $1,811,475.00

SI.com

  $216,614   $179,550.00   $396,164.00

People.com

  $360,000   $259,125.00   $619,125.00

Time.com

  $556,800   $504,000.00   $1,060,800.00

InStyle.com

  $32,223   $29,850.00   $62,073.00

EW.com

  $45,590   $36,382.50   $81,972.50

Golf.com

  $9,321   $7,423.75   $16,744.75

Southern Progress Digital*

  $2,052,000   $1,795,500.00   $3,847,500.00

*includes CookingLight.com, SouthernLiving.com, CottageLiving.com, Sunset.com, MyRecipes.com, SouthernAccents.com and CoastalLiving.com.

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EX-10.79 23 dex1079.htm EXHIBIT 10.79 EXHIBIT 10.79

EXHIBIT 10.79

CONFIDENTIAL

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (together with Exhibit A, this “MOU”) is made and entered into as of July 25, 2005 (“Effective Date”) between America Online, Inc. (“AOL”), a Delaware corporation with its principal offices at 22000 AOL Way, Dulles, Virginia 20166, and Telepictures Productions Inc. (“TP”), a Delaware corporation, with its principal offices at 4000 Warner Blvd., Burbank, CA 91522 (each a “Party” and collectively the “Parties”) and sets forth the understanding of the Parties regarding the matter addressed herein.

 

1. Binding MOU. This MOU, including the terms set forth on Exhibit A attached hereto (the “Term Sheet”), shall be binding and enforceable against each Party in accordance with the terms hereof until it is terminated or expires pursuant to the terms of this MOU.

 

2. Confidential Information. The Parties recognize that in connection with the negotiation and the performance of the Parties’ obligations and rights under this MOU, each Party may disclose to the other Confidential Information. The Party receiving any Confidential Information agrees to maintain the confidential status of such Confidential Information and not to use any such Confidential Information for any purpose other than the purpose for which it was originally disclosed to the receiving Party, and not to disclose any of such Confidential Information to any person or third party, other than, on a need-to-know basis, to its directors, employees, attorneys, accountants, affiliates and other agents who are under an obligation of confidentiality “Confidential Information” shall mean any information which is, or should be reasonably understood to be, confidential or proprietary to the disclosing Party, including, but not limited to, this MOU (other than its existence and such information contained therein which is reasonably necessary to comply with the parties’ existing contractual obligations), technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections and marketing data. “Confidential Information” shall not include information (a) already lawfully known to or independently developed by the receiving party, (b) disclosed in published materials, (c) generally known to the public, (d) lawfully obtained from any third party, or (e) required or reasonably advised to be disclosed by law.

 

3. Term and Termination; Survial. The term of this MOU shall be as set forth in the Term Sheet. In the event this MOU is terminated or expires, the provisions of Section 2 herein shall survive the termination or cancellation of this MOU.

 

4. Miscellaneous.

 

  4.1. Governing Law. This MOU Shall be interpreted and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws, and with the same force and effect as if fully executed and performed therein.

 

  4.2. Entire Agreement. This MOU represents the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior and/or contemporaneous agreements and understandings, written or oral between the Parties with respect to the subject matter hereof.

 

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  4.3. Press Releases and Public Statements. No Party will issue any press releases or make public statements relating to this MOU or the relationship between the parties without the other Party’s review of and written consent to such press release or public statement. Notwithstanding the foregoing, following the issuance of the first press announcement in connection with this MOU, a Party’s casual text reference to the Parties’ relationship hereunder shall not require the other Party’s consent.

IN WITNESS WHEREOF, this MOU has been duly executed by the Parties hereto effective as of the date first set above.

 

TELEPICTURES PRODUCTIONS INC.     AMERICA ONLINE, INC.
By:  

/s/    Jim Paratore

    By:  

/s/    Jim Barkoff

Name:  

Jim Paratore

    Name:  

Jim Barkoff

Title:  

President, Telepictures

    Title:  

EVP, AOL

Date:  

15 August 05

    Date:  

16 August 05

 

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EXHIBIT A

TELEPICTURES-AOL

ENTERTAINMENT AND ENTERTAINMENT RELATED NEWS SERVICE

TERM SHEET

 

1. Joint Venture.

 

  1.1. Partners: AOL (“AOL”) and Telepictures (“TP”), and collectively, the “Parties”.

 

  1.2. Purpose: To build a new consumer brand focused on entertainment and entertainment related news (the “Brand”). The initial consumer service of the Brand will be the Brand Website (as defined below). If approved in each case by the MC (as defined herein), additional consumer services may include services tailored for IP-connected devices, mobile phones and cable services (each an “Additional Brand Service”), The Brand Website, the Additional Brand Services and all other services and activities related to the Brand engaged by the joint venture are collectively hereinafter referred to as the “Service”.

 

  1.3. Form: Joint contracting parties (no separate corporate entity to be formed). This arrangement is hereinafter referred to as the “JV”.

 

2. Brand Website.

 

  2.1. General:

 

   

Brand Website”: collectively refers to the External Website and the Custom Website.

 

   

External Website”: a robust broadband entertainment and entertainment news related destination website located at the domain described below and may be accessed by the general Internet public.

 

   

Custom Website”: a website located within the AOL.com domain that is substantially the same as the External Website, except that Custom Website will include AOL navigational elements (i.e., AOL header and footer), and will be accessed from the AOL Service, the AIM Service, AOL.com, Netscape, and any other website or service owned or controlled by AOL (collectively, the “AOL Network”). Other than the AOL navigational elements, in all other material respects the experience of consumers who visit the External Website and of consumers who visit the Custom Website will be substantially the same.

 

   

Domains: The External Website will be initially located at a domain selected by the MC that references the Brand. The Custom Website will be initially located within the AOL.com domain and will reference the Brand.

 

   

MediaMetrix Measurements: AOL will request that the MediaMetrix measurements (e.g., unique visitors) for both the External Website and the Custom Website be rolled-up and consolidated into a “Network” in the

 

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MediaMetrix reports as a custom entity, such as in, but not limited to, the reports currently marked as “Media Sets – With Duplication”. AOL will use commercially reasonable efforts to have MediaMetrix provide the measurements as described above.

 

   

Specifications: The specifications and schedules, features, content, elements, look and feel, and branding (the “Specifications”) for the initial Brand Website are specified in Schedule 1. The Specifications for the Brand Website may be revised from time to time by the MC.

 

  2.2. Content:

 

   

TP Provided Content: Entertainment-related audio-visual content owned and provided by TP to the JV for use in the Service, including any such content that is repurposed or otherwise modified specifically for use in the Service, but excluding any such content that constitutes JV Produced Content (as defined below).

 

   

JV Produced Content: Original content produced by the JV, or on behalf of the JV by another party, for use in the Service, including live and animated content (e.g., live webcasts, interviews, shorts, other filmed or animated programs, etc.) and online content (e.g., screensavers, wallpapers, downloads, etc.).

 

   

Third Party Content: Content acquired or licensed from third parties, as selected and approved by the MC, for use in the Service.

 

   

Approvals: The JV, with assistance from TP, shall be responsible for obtaining all necessary approvals, consents and other clearances (collectively, “Approvals”) related to the TP Provided Content, JV Produced Content and Third Party Content (collectively, the “Content”), except for any TP Provided Content for which TP has already obtained Approvals for specific uses prior to such content being provided to the JV for such uses (the “Pre-Cleared TP Provided Content”).

 

   

Pre-Cleared TP Provided Content: TP Provided Content will be Pre-Cleared TP Provided Content only for those specific uses for which TP has obtained Approvals, i.e., such Approvals are use-specific. For all non-approved uses, such TP Provided Content will not be Pre-Cleared TP Provided Content. In determining whether any TP Provided Content is Pre-Cleared TP Provided Content for a specific use, the practices, procedures and policies of TP for Approvals will be followed.

 

   

Costs and Expenses:

 

   

Non-Reimbursable Expenses: TP Provided Content is part of the TP Contribution and will not be a Reimbursable Expense (as defined in Section 7.4), except that the costs and expenses incurred in digitizing any TP Provided Content provided initially to the JV after the start of the JV will be a Reimbursable Expense. If TP uses any TP Provided Content outside of the JV, TP will separately digitize such content and any digitization costs

 

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     incurred in connection with such non-JV uses will be the sole responsibility of TP.

 

   

Reimbursable Expenses: The following are Reimbursable Expenses: (i) costs and expenses related to the production, acquisition or licensing of JV Produced Content or Third Party Content; (ii) costs and expenses incurred in connection with obtaining any necessary Approvals relating to any of the Content (other than the Pre-Cleared TP Provided Content) provided initially to the JV; and (iii) participations and any other related third party payments (e.g., licensing fees, etc.) payable in connection with the use of the Content in the Service.

 

   

Ownership and Licenses: Ownership of the Content and licenses relating thereto are provided for in Section 11.

 

   

Removal of Content: Each of TP and AOL shall have the right to request the removal of, and the JV will so remove as soon as reasonably practicable, any allegedly infringing, defamatory, libelous, slanderous, damaging, obscene, indecent, illegal, or offensive Content from the Brand Website.

 

  2.3. Technology:

 

   

AOL Provided Technology: Content management systems, publishing systems, design templates and associated source files, AIM presence, and any other technology made available by AOL to the JV for use in the Service, but excluding any AOL technology that constitutes JV Developed Technology (as defined below).

 

   

JV Developed Technology: Technology developed by the JV, or on behalf of the JV by another party, for use in the Service, including any technology developed by AOL specifically for use in the Service.

 

   

Third Party Technology: Technology acquired or licensed from third parties, as selected and approved by the MC, for use in the Service.

 

   

Approvals: The JV, with assistance from AOL, shall be responsible for obtaining all necessary Approvals related to the JV Developed Technology and Third Party Technology, and AOL will be responsible for obtaining all necessary Approvals related to the AOL Provided Technology.

 

   

Costs and Expenses:

 

   

Non-Reimbursable Expenses: AOL Provided Technology (including any costs and expenses related to approvals and clearances) is part of the AOL Contribution and will not be a Reimbursable Expense.

 

   

Reimbursable Expenses: The following will be Reimbursable Expenses: (i) costs and expenses related to the production, acquisition or licensing of JV Developed Technology or Third

 

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Party Technology; (ii) costs and expenses incurred in connection with obtaining any necessary Approvals relating to any of the JV Developed Technology and Third Party Technology; and (iii) any third party payments (e.g., licensing fees, etc.) payable in connection with the use of the AOL Provided Technology, the JV Developed Technology or Third Party Technology (collectively, the “Technology”) in the Service.

 

   

Ownership and Licenses: Ownership of the Technology and licenses relating thereto are provided for in Section 11.

 

  2.4. Technology and Advertising Sale Services Provided by AOL.

 

   

Product Development: Design and development of the Brand Website.

 

   

Hosting and Streaming: Procuring and maintaining the production equipment for the Brand Website, purchasing domains, and procuring and maintaining the transmission of Brand Website information to the Internet.

 

   

Advertising Sales and Operations: Selling of all advertising and sponsorships in connection with the Brand Website, and fulfilling and serving all sold advertising and sponsorships, in each case as more fully described in Section 9.

 

   

Reports: To the extent consistent with AOL’s generally-applicable internal policies and normal business practices, providing to the JV monthly reports, presentations, projections, updates and other relevant information relating to (i) the Carriage Plan (as defined herein), (ii) the sales of advertisements and sponsorships handled by AOL for the Branded Website (including revenue information), (iii) traffic information, unique visitors, page views, impressions; and other related or similar information and data, (iv) information related to the performance reviews set forth in Section 10, and (v) any other related materials that the MC may request or require, including any information relating to changes to AOL.com or its strategies or policies that may have a material impact on the Branded Website, the Brand or the Service.

 

   

Costs and Expenses: To the extent that the costs and expenses incurred in connection with Product Development, Hosting and Streaming, and Advertising Sales and Operations are consistent with the Annual Budget and Business Plan, such costs and expenses will be Reimbursable Expenses.

 

3. Brand Certain Agreements for Brand Development.

 

  3.1. Brand: Subject to sections 11.6 and 11.7 below, all matters relating to the Brand, and the use of any AOL, TP or affiliated brands in the Service, will be supervised and managed by the MC.

 

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  3.2. Certain Agreement for Brand Development:

 

   

Brand References within AOL.com: AOL will reference the Brand within AOL.com where technically and aesthetically feasible. Such Brand references may include the use of Brand logos, trademarks or other intellectual property.

 

   

Placement within the Celebrity News Section of AOL.com: Content from the Custom Site will be prominently featured in the Celebrity News main page of AOL.com. Such promotions will rotate through the placements on the Celebrity News main page in accordance with, and will be considered part of, the Carriage Plan. For clarification, AOL is not obligated to provide links to the Celebrity News main page or to have a Celebrity News main page.

 

   

Preferred Relationship. During the first two (2) years after the launch of the Brand Website, AOL and TP will not materially enhance or develop a Celebrity News Website within AOL.com or the AOL Service (including ExtraTV.com in the case of TP or the entertainment news section of AOL.com in the case of AOL) that materially impairs the profitability or competitiveness of the Brand Website. “Celebrity News Website” shall mean any website featuring, as its primary offering and purpose, the distribution of video celebrity news content and shall specifically not include any general, sports, political, music or other news focused websites or services.

 

4. Additional Brand Services.

 

  4.1. Addition of Additional Brand Services: The MC, from time-to-time, will review additional opportunities to add Additional Brand Services to the Service.

 

  4.2. Business Model, Specifications, Economics, Etc. The business model, Specifications, economics (including budgets, capital outlays, costs and expenses, etc.) and other related matters for each future Additional Brand Service (including any revisions to this Term Sheet) will be determined and approved by the MC prior to the addition of any Additional Brand Service to the Service, and the same may be revised from time to time by the MC.

 

5. JV Management.

 

  5.1. Management Committee (“MC”).

 

   

Membership: Five (5) members, of which two (2) are from AOL, two (2) are from TP and the fifth is the GM (as defined below). Initially, the ME (as defined below) will not be a member of the MC, but either Party may later request that the ME be added to the MC, and if such a request is made by a Party, the MC will take the necessary actions to add the ME as a member of the MC.

 

   

Proxies: Each of the two (2) AOL MG members and two (2) TP MC members may delegate and appoint a proxy. AOL or TP, as the case may be, will promptly inform the MC of any such proxy appointment.

 

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Voting: The unanimous vote of the two (2) AOL MC members and two (2) TP MC members is required for the approval of any matters as set forth below or elsewhere in this Term Sheet. The GM and, if later added to the MC, the ME, will be non-voting members of the MC. All matters to be decided or otherwise handled by the MC shall be done so in a timely manner.

 

   

Responsibilities:

 

   

Changing the composition of the MC or the vote required for decisions of the MC.

 

   

Making and approving any modifications to the Specifications set forth in Schedule 1.

 

   

Preparing and approving the Annual Budget and Business Plan, all other reports, presentations and projections, all updates or modifications to the Annual Budget and Business Plan, and any other matters that TP and/or AOL (and/or the MC) may request or require.

 

   

Supervising and managing the programming, Content and Technology of the Service, including the Brand Website.

 

   

Supervising and managing all branding, marketing and promotions for the Service, including the Brand Website (excluding (i) the AOL Promotions (as defined below) and (ii) the sale of advertisements and sponsorships handled by AOL), including developing and implementing related strategies and policies.

 

   

Coordinating with AOL the AOL Promotions, including the make-up of the Carriage Plan (as defined below) and any material changes thereto, and the sale of advertisements and sponsorships handled by AOL for the Brand Website.

 

   

Supervising and managing the day-to-day operations of the JV and the Service.

 

   

Hiring, firing, reviewing and supervising the GM, the ME and the Operations Staff.

 

   

Negotiating, approving and entering into contractual relationships with third parties consistent with the practices, procedures and policies of TP and AOL.

 

   

Handling all other operational and financial matters relating to the JV and the Service.

 

   

Developing and implementing strategies and policies for the JV and the Service, including formation of a separate corporate entity for the JV (and related matters), distribution in other media and platforms, addition of other revenue streams, etc.

 

   

Developing and implementing strategies and policies relating to the usage of any JV Produced Content and any JV Developed Technology outside of the Service and the JV.

 

   

Establishing the terms of service and privacy policies of the Brand Website, which terms of service and privacy policies will be consistent with the requirements of Time Warner Inc. (“TWX”), AOL and/or TP, as applicable.

 

   

Coordinating matters and issues among the JV, AOL and TP.

 

   

Handling all other matters relating to the JV and the Service and such other matters, duties and responsibilities as AOL and TP may mutually agree.

 

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Delegation: The MC may approve the delegation of any or all of its responsibilities to the GM, ME and/or Operations Staff.

 

   

Meetings: The MC will meet at regular intervals (and not less than quarterly) and at such other times as necessary to conduct, supervise and manage the business of the JV and the Service. Meetings of the MC shall be held at such location as determined by the MC. MC members may participate in meetings of the MC by telephone, video conference or other electronic means, as well as in person.

 

   

Quorum: A quorum of at least two (2) TP MC members and two (2) AOL MC members must be present (in person or by their proxies) to conduct business at any MC meeting and no MC meeting shall be held at which a quorum is not present: provided, however, that if any MC meeting is adjourned for lack of a quorum, then such MC meeting will be reconvened (the “Reconvened MC Meeting”) on a date not less than fourteen (14) days and not more than forty-five (45) days after the MC meeting that was adjourned for lack of a quorum (or such shorter period as is reasonably required or available under the circumstances), with notice sent to all MC members advising them of the date and time of such Reconvened MC Meeting.

 

  5.2. MC Impasse:

 

   

Voting or Quorum Impasses: If the MC is at an impasse because:

 

  (i) the MC is unable to resolve any matter in accordance with the voting requirements set forth in Section 5.1, then at a subsequent MC meeting convened not less than fourteen (14) days and not more than forty-five (45) days after the MC meeting at which the matter could not be resolved (or such shorter period as is reasonably required or available under the circumstances), the unresolved matter shall be put to the MC for re-consideration and review again, and if at such subsequent MC meeting the unresolved matter again cannot be resolved by the MC, or

 

  (ii) the MC is unable to resolve any matter because of a lack of a quorum at a Reconvened MC Meeting,

 

       then:

 

   

Senior Executive Discussions: If either of the above occurs, then such unresolved matter may be submitted to the Chairman and CEO of Warner Bros. and the Chairman and CEO of AOL for further discussions. If the unresolved matter cannot be resolved by these senior executives within a reasonable amount of time, then either party may terminate this Term Sheet and the JV.

 

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6. JV Operations.

 

  6.1. General Manager (“GM”).

 

   

Appointment: Appointed and approved by the MC.

 

   

Responsibilities: The duties and responsibilities of the GM will be determined by the MC, and will include the day-to-day management and supervision of the business and operations of the JV and the Service and such other duties and responsibilities as may be granted or be delegated to the GM by the MC. All duties and responsibilities delegated to the GM by the MC will be clearly defined and may be set forth in writing at the MC’s discretion.

 

   

Compensation: The compensation of the GM, including any bonuses, will be determined, and may be changed from time to time, by the MC consistent with the Annual Budget and Business Plan. The compensation of the GM will be a Reimbursable Expense.

 

   

Review by the MC: The MC will review the performance of the GM from time to time and make any modifications to the duties, responsibilities and compensation of the GM as appropriate based on such reviews.

 

   

Termination of the GM: If either AOL or TP requests the GM be terminated, the MC shall so terminate the GM after the Parties consult with each other about such termination.

 

  6.2. Managing Editor (“ME”).

 

   

Appointment: Appointed and approved by the MC.

 

   

Responsibilities: The duties and responsibilities of the ME will be determined by the MC, and will include the day-to-day management and supervision of the business and operations of the Content and the Service and such other duties and responsibilities as may be granted or be delegated to the ME by the MC. All duties and responsibilities delegated to the ME by the MC will be clearly defined and may be set forth in writing at the MC’s discretion.

 

   

Compensation: The compensation of the ME, including any bonuses, will be determined, and may be changed from time to time, by the MC consistent with the Annual Budget and Business Plan. The compensation of the ME will be a Reimbursable Expense.

 

   

Review by the MC: The MC will review the performance of the ME from time to time and make any modifications to the duties, responsibilities and compensation of the ME as appropriate based on such reviews.

 

   

Termination of the ME: If either AOL or TP requests the ME be terminated, the MC shall so terminate the ME after the Parties consult with each other about such termination.

 

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  6.3. Operations Staff.

 

   

Positions: The number, responsibilities, compensation and termination of the Operations Staff to be determined by the MC. The compensation of the Operations Staff will be a Reimbursable Expense.

 

   

Initial Operations Staff: The initial Operations Staff positions are set forth in Schedule 2, which Schedule 2 is subject to review and modification by the MC.

 

   

Review by the MC: The MC will review the performance of the each Operations Staff member from time to time and make any modifications to the duties, responsibilities and compensation of such Operations Staff member as appropriate based on such reviews.

 

7. Financial Matters.

 

  7.1. Annual Budget and Business Plan; Reports; Projections; Updates.

 

   

Initial Budget and Business Plan: The initial 2005 Annual Budget and the initial Business Plan are attached as Schedule 3.

 

   

Annual Budget: The Annual Budget will be prepared and/or revised annually by the GM and Operations Staff, in accordance with the guidelines and parameters set by the MC, and the final or revised Annual Budget will be approved by the MC. The approved Annual Budget for 2005 is included in the attached Schedule 3.

 

   

Business Plan: The Business Plan will be prepared and/or revised annually by the GM and Operations Staff, in accordance with the guidelines and parameters set by the MC, and the final or revised Business Plan will be approved by the MC.

 

   

Deviations from Annual Budget and Business Plan. Deviations of 10% or more to any one category of expenditures in the Annual Budget, or in the aggregate above the overall Annual Budget, and/or material deviations to the Business Plan, must be approved by the MC.

 

   

Reports, Projections, Updates: The MC (or, if delegated by the MC, the GM, ME and/or the Operations Staff) will prepare monthly reports, presentations, projections, updates to the budgets and business plans, and any other related materials that the MC may request or require.

 

  7.2. Contributions.

 

   

AOL Contribution:

 

   

AOL Provided Technology.

 

   

AOL Promotions.

 

   

Product Development, Hosting and Streaming, and Advertising Sales and Operations (but only to the extent any such costs and expenses are not the responsibility of the JV as provided for in Annual Budget and Business Plan).

 

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Costs and expenses related to the AOL Contribution will be the sole responsibility of AOL and will not be a Reimbursable Expense.

 

   

TP Contribution:

 

   

TP Provided Content.

 

   

TP Provided Content digitized prior to the start of the JV (TP Provided Content digitized for use initially in the Service after the start of the JV will be a Reimbursable Expense).

 

   

Costs and expenses related to the TP Contribution will be the sole responsibility of TP and will not be a Reimbursable Expense.

 

  7.3. Revenues.

 

   

Total Revenues: Total Revenues will include (i) all monies actually received from sales of advertisements, sponsorships and/or other similar revenue streams for the Brand Website plus (ii) any monies actually received from any Additional Brand Services approved by the MC plus (iii) any monies actually received from any other activities directly attributed to the Service approved by the MC (e.g., online searches, sale of merchandising, etc,).

 

   

50/50 Share of Total Revenues: Subject to Section 10.2, Total Revenues will be initially collected by either AOL or TP, and, after being first applied against Reimbursable Expenses, any excess Total Revenues after such reimbursement will be shared 50/50 between AOL and TP, in each case on a quarterly basis pursuant to the mechanics set forth in Section 7.5.

 

  7.4. Costs and Expenses: Other Liabilities.

 

   

Reimbursable Expenses: All costs and expenses and all other liabilities directly related to the JV (including any liabilities relating to litigation or other third party claims, but excluding the indemnities in Section 16) will be initially incurred and paid by either AOL or TP, in each case consistent with the Annual Budget and Business Plan, or as otherwise approved by the MC, and such costs, expenses and liabilities will be reimbursed to AOL or TP, as the case may be, on a quarterly basis pursuant to the mechanics set forth in Section 7.5.

 

   

AOL Expenses: AOL’s Reimbursable Expenses will include the costs and expenses of AOL described in Sections 2.2, 2.3, 2.4 and 6, but exclude the costs and expenses related to the AOL Contribution described in Section 7.2 and the AOL indemnity described in Section 16.1.

 

   

TP Expenses: TP’s Reimbursable Expenses will include the costs and expenses of TP described in Section 2.2 and 6, but exclude the costs and expenses related to the TP Contribution as described in Section 7.2 and the TP indemnity described in Section 16.2.

 

   

Reimbursement of Reimbursable Expenses: AOL’s Reimbursable Expenses and TP’s Reimbursable Expenses shall be reimbursed to AOL

 

Telepictures-AOL MOU + Term Sheet (Final Version)   Page 12


     and TP, respectively, from Total Revenues pursuant to the mechanics set forth in Section 7.5.

 

  7.5. Net Cash Payment Mechanics and Other Financial Matters.

 

   

Mechanics:

 

   

General: All revenues and expenses recorded by each of AOL and TP in connection with the JV and the Service will be separately recorded in their respective books and records, and all revenue and expense sharing will be settled in cash as described in this Section 7.5, in each case in accordance with the accounting and financial requirements established by TWX.

 

   

Net Cash payments: All cash payments made pursuant to this Term Sheet in connection with the reimbursement of Reimbursable Expenses from Total Revenues and the sharing of any excess Total Revenues after reimbursement of Reimbursable Expenses will be made quarterly on a net cash basis.

 

   

Schedule 4: The mechanics for reimbursement of Reimbursable Expenses from Total Revenues and the sharing of any excess Total Revenues after reimbursement of Reimbursable Expenses are set forth on Schedule 4 attached hereto.

 

   

Books and Records: Each of AOL and TP will maintain separate books and records accounting for the revenues and expenses associated with the JV, the Brand Website, and the Service. The GM, ME and/or the Operating Staff will maintain appropriate records and financial information consistent with this Term Sheet.

 

8. Marketing and Promotions for the Brand Website.

 

  8.1. AOL Promotions:

 

   

Subject to Sections 8.2 and 10.2, AOL will promote the Content from the Custom Website in AOL.com and the rest of the AOL Network (the “AOL Promotions”) in accordance with the carriage plan attached as Schedule 5, as such carriage plan may be modified or changed from time to time (the “Carriage Plan”).

 

   

The AOL Promotions will rotate through the promotional assets set forth in the Carriage Plan. Subject to Section 8.2, AOL reserves the right to exchange certain promotional assets set forth in the Carriage Plan with other promotional assets of equivalent value.

 

   

Notwithstanding anything herein to the contrary, AOL reserves the right to redesign or modify the organization, structure, “look and feel,” navigation and other elements of the AOL Network at any time. In the event such modifications materially and adversely affect any particular AOL Promotions listed within the Carriage Plan, AOL, subject to Section 8.2, will provide alternative promotional assets of equivalent value.

 

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  8.2. Coordination with JV: AOL will in good faith consult and work with the JV in formulating, modifying and/or updating the Carriage Plan, and promptly notify the JV of any material modifications or changes to the Carriage Plan.

 

  8.3. Brand Website and Marketing and Promotions: Other than the AOL Promotions set forth in the Carriage Plan, all matters relating to marketing and promotions for the Brand Website will be handled by the JV.

 

9. Advertising Sales and Sponsorships for the Brand Website.

 

  9.1. Advertising Sales: Subject to Sections 9.2 and 10.1, AOL will solely handle the selling of all advertising and sponsorships for the Brand Website, and fulfilling and serving all sold advertising and sponsorships.

 

  9.2. Coordination with JV: AOL will work in good faith with the JV in coordinating advertising and sponsorship strategies for the Brand Website. The MC will determine the number, placement and content of all advertisements and sponsorships to be handled by AOL. The JV and the AOL advertising sales group will consult with each other on a regular basis.

 

10. Performance.

 

  10.1. Advertising Sales: If advertising sales performance does not meet certain criteria, then specific remedies are available as described in this Section 10.1. After two (2) years from the start of the JV, advertising sales performance will be reviewed for any given quarter as follows (defined terms at end of section):

 

   

Step 1: Brand Website Performance: The Brand Website must have achieved at least 75% of Projected Unique Visitors and 75% of Projected Page Views for such quarter. If the Brand Website satisfies the requirements of this first step, then this process proceeds to Step 2. If the requirements of this first step are not satisfied, then this process stops.

 

   

Step 2: Ad Sales Revenue Performance: AOL must have achieved at least 75% of Pro-Rated Ad Impression Revenues plus Pro-Rated Video Stream Revenues for such quarter. If the requirements of this second step are not satisfied, then this process proceeds to Step 3.

 

   

Step 3: Ad Sales Make-Good: AOL shall cure and make-good any quarterly revenue shortfall from Step 2 in the next two (2) consecutive quarters. The Actual Ad Impression Revenues plus Actual Video Stream Revenues for such three (3) consecutive quarter period (shortfall quarter plus 2 make-good quarters) shall be equal to or greater than 75% of Pro-Rated Ad Impression Revenues plus Pro-Rated Video Stream Revenues for the same period. If the requirements of this third step are not satisfied, then this process proceeds to Step 4.

 

   

Step 4: Transfer of Ad Sales: TP has the option, but not the obligation, to request that AOL transfer the selling of all advertising and sponsorships for the Brand Website, the fulfilling and serving all sold advertising and sponsorships, and any other related activities, to another entity or group within TWX. If TP elects to exercise such option and make such transfer request, then this process proceeds to Step 5.

 

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Step 5: AOL Option to Repurchase Unsold Inventory:

 

   

AOL has the option, but not the obligation, to repurchase the unsold advertisement and sponsorship inventory (the “Unsold Inventory”) for the year following the quarter being measured (the “Repurchase Year”).

 

   

At the end of the Repurchase Year, if the requirements of Step 3 are not satisfied, then AOL has the option, but not the obligation, to repurchase the Unsold inventory for the following year (the “Second Repurchase Year”).

 

   

AOL may exercise each of the above options only once during the life of the JV in the manner described above.

 

   

All Unsold Inventory shall be repurchased by AOL at the rate of $0.75 to the dollar.

 

   

If AOL later sells the Unsold Inventory for an aggregate amount that would be in excess of the Unsold inventory being priced at $0.75 to the dollar, then AOL shall pay to TP 40% of such excess and retain the remaining 60% of such excess.

 

   

If (i) AOL elects not to repurchase the Unsold Inventory, or (ii) after the Second Repurchase Year the requirements of Step 3 are not satisfied, then the MC will review its options to improve the performance of the advertising sales process and mutually agree to any changes or revisions.

 

   

Examples: See Schedule 6 attached hereto.

 

   

Defined Terms:

 

   

Actual Ad Impression Revenues: the actual ad impression revenues delivered for the period being measured.

 

   

Actual Ad Impressions: the actual ad impressions delivered for the period being measured.

 

   

Actual Video Stream Revenues: the actual video stream revenues delivered for the period being measured.

 

   

Actual Video Streams: the actual video streams delivered for the period being measured.

 

   

Projected Ad Impression Revenues: the projected ad impression revenues for the period being measured as set forth the Business Plan.

 

   

Projected Ad Impressions: the projected ad impressions for the period being measured as set forth in the Business Plan.

 

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Projected Page Views: the projected page views for the period being measured as set forth in the Business Plan.

 

   

Projected Unique Visitors: the projected unique visitors for the period being measured as set forth in the Business Plan.

 

   

Projected Video Stream Revenues: the projected video stream revenues for the period being measured as set forth in the Business Plan.

 

   

Projected Video Streams: the projected video streams for the period being measured as set forth in the Business Plan.

 

   

Pro-Rated Ad Impression Revenues: The product of Projected Ad Impression Revenues multiplied by the lesser of: (i) the result of Actual Ad Impressions divided by Projected Ad Impressions or (ii) one.

 

   

Pro-Rated Video Stream Revenues: The product of Projected Video Stream Revenues multiplied by the lesser of: (i) the result of Actual Video Streams divided by Projected Video Streams or (ii) one.

 

  10.2. Promotions and Content:

 

   

Promotions: If AOL does not deliver the promotions set forth in the Carriage Plan for any given quarter, then AOL shall cure and make-good on such shortfall in the following quarter. If AOL fails to make-good on any shortfall of 25% or more, then AOL’s share of revenues will be reduced in an amount proportionate to such shortfall and TP’s share of revenues will be adjusted upwards accordingly (e.g., if the shortfall is 35%, then AOL’s 50% share of Revenues is reduced by 35%, so that AOL’s share of Revenues will then be 32.5%, and TP’s 50% share of Revenues will increase to 67.5%). If AOL fails to make-good on any shortfall of less than 25%, then AOL shall cure and make-good on such shortfall in subsequent quarters.

 

   

Content: If TP does not provide the JV with sufficient content to produce at least an average of thirty (30) weekly video features for any given quarter, then TP shall cure and make-good on such shortfall in the following quarter. If TP fails to make-good on any shortfall of 25% or more, then TP’s share of revenues will be reduced in an amount proportionate to such shortfall and AOL’s share of revenues will be adjusted upwards accordingly (e.g., if the shortfall is 30%, then TP’s 50% share of Revenues is reduced by 30%, so that TP’s share of Revenues will then be 35%, and AOL’s 50% share of Revenues will increase to 65%). If TP fails to make-good on any shortfall of less than 25%, then TP shall cure and make-good on such shortfall in subsequent quarters.

 

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11. Intellectual Property.

 

  11.1. AOL Owned Content and License to the JV:

 

   

Subject to Section 11.4, all Technology (other than Third Party Technology) will be owned by AOL; provided, however, that after the term of this Term Sheet, AOL may only exploit the JV Developed Technology after entering into a participation agreement or other financial arrangement to be negotiated in good faith between AOL and TP.

 

   

AOL will license the Technology to the JV for the duration of the Term (and any renewals thereof) and a portion of AOL’s share of Total Revenues will be payment of the licensing fee for such license.

 

  11.2. TP Owned Content and License to the JV:

 

   

Subject to Section 11.4, all Content (other than Third Party Content) will be owned by TP; provided, however, that after the term of this Term Sheet, TP may only exploit the JV Produced Content after entering into a participation agreement or other financial arrangement to be negotiated in good faith between AOL and TP.

 

   

TP will license the Content to the JV for the duration of the Term (and any renewals thereof) and a portion of TP’s share of Total Revenues will be payment of the licensing fee for such license.

 

  11.3. Brand and Other JV IP: “JV Property” will be all property created or acquired by either Party, the MC, the GM, the ME and/or the Operations Staff as part of the JV, including, without limitation, the Brand and any other JV trademarks, but excluding the Content or the Technology.

 

  11.4. Ownership of Intellectual Property Upon Transfer or Termination:

 

   

Content and Technology: No Transfer (as defined herein) or termination of this Term Sheet will change the ownership of the Technology or the Content without the written approval of the owner of the Technology or the Content, as the case may be: provided, however, that, notwithstanding the foregoing (except for a Transfer to Newco under Section 11.5 below), after the termination of this Term Sheet and the JV, unless one Party has acquired the rights of the other Party under this Term Sheet pursuant to a Mutually Acceptable Disposition (as defined below), TP may only exploit the JV Produced Content after entering into a participation agreement or other financial arrangement to be negotiated in good faith between AOL and TP, and AOL may only exploit the JV Developed Technology after entering into a participation agreement or other financial arrangement to be negotiated in good faith between AOL and TP.

 

   

JV Property: The Parties agree and acknowledge that neither Party shall have the right to use or exploit any JV Property after the termination of this Term Sheet and the JV, except as permitted pursuant to a mutually acceptable disposition of the JV and its assets and liabilities that will be

 

Telepictures-AOL MOU + Term Sheet (Final Version)   Page 17


     negotiated in good faith by AOL and TP (a “Mutually Acceptable Disposition”).

 

  11.5. Transfer of Certain IP to New Corporate Entity: If a separate corporate entity is approved to be formed for the JV (“Newco”), then upon formation of Newco, AOL agrees to Transfer all JV Developed Technology to Newco and TP agrees to Transfer all JV Produced Content to Newco, and after such Transfers, Newco will be the sole owner of such IP.

 

  11.6. Other AOL IP and AOL Branding: AOL will have final approval over the use of any other AOL Proprietary or licensed intellectual property and all branding and any related activities involving any of AOL’s brands or related intellectual properties (e.g., trademarks, logos, headers and footers, frames, etc.) used in connection with the Service.

 

  11.7. Other TP IP and TP Branding: TP will have final approval over the use of any other TP proprietary or licensed intellectual property and all branding and any related activities involving any of TP’s brands or related intellectual properties (e.g., trademarks, logos, etc.) used in connection with the Service.

 

12. Termination Rights.

 

  12.1. Material Default: Subject to Section 14, if there is a material default by one Party and such material default remains uncured after a reasonable period of time, then the non-defaulting Party may terminate this Term Sheet and the JV.

 

  12.2. Performance Test: Subject to Section 14, after two (2) years from the launch of the JV, if the aggregate revenues of the JV for any given four (4) consecutive quarters are less than 75% of the aggregate revenue projections for the same period, then either AOL or TP may terminate this Term Sheet and the JV.

 

  12.3. Impasse After Senior Executive Discussions: Subject to Section 14, if a MC matter remains unresolved after discussions between the senior executives of Warner Bros. and AOL as provided for in Section 5.2, a Party may terminate this Term Sheet and the JV.

 

  12.4. Expenses Cap: Subject to Section 14, if the costs and expenses of either AOL or TP that have not been reimbursed as provided hereunder exceed $3.0 million at any time, then such Party shall have the right to terminate this Term Sheet and the JV.

 

  12.5. Either Party is No Longer a TWX Affiliate: Subject to Section 14, if one Party is no longer an affiliate of TWX (the “Non-Affiliated Party”), then within sixty (60) days of the time that such Party is no longer an affiliate, either Party shall have the right to terminate this Term Sheet and the JV.

 

  12.6. Effect of Termination:

 

   

Section 12,1 Termination: If a Party desires to terminate this Term Sheet and the JV pursuant to Section 12.1, then the terminating Party shall have the right to acquire and purchase all of the non-terminating Party’s interests pursuant to a Mutually Accepted Disposition.

 

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Section 12.2, 12.3, 12.4 or 12.5 Termination: If a Party desires to terminate this Term Sheet and the JV pursuant to Section 12.2, 12.3, 12.4 or 12.5, then AOL and TP shall negotiate in good faith a Mutually Acceptable Disposition.

 

13. Transfers and Assignments.

 

  13.1. No Transfers or Assignments: Neither AOL nor TP may transfer or assign its interests in the JV, or any of its rights, obligations or liabilities hereunder (a “Transfer”), without the prior written consent of the other party, except that AOL and TP may each assign its interests in the JV, or any of its rights, obligations or liabilities hereunder, to an affiliate.

 

  13.2. First Negotiation/Last Match: If a Party desires to make a Transfer, the non-transferring party shall have a right of first negotiation and a last match right with respect to any such Transfer.

 

  13.3. Transition Period: In the event of a Transfer or the purchase by one Party of the other Party’s interests in the JV pursuant to this Section 13, the Parties will negotiate in good faith for a reasonable transition period (e.g., at least three (3) months) with reasonable terms and conditions.

 

14. Dissolution; Mutually Agreeable Disposition: If (x) the Parties mutually agree to terminate this Term Sheet and the JV, or (y) a Party initiates the termination of this Term Sheet and the JV pursuant to Section 12, then in each case the Parties will in good faith negotiate a Mutually Agreeable Disposition in accordance with the terms set forth herein, and execute and deliver any necessary agreements, instruments and documents in connection with such Mutually Agreeable Disposition, in each case consistent with this Term Sheet to the extent applicable.

 

15. Formation of Newco: If the Parties mutually agree to form Newco, then the Parties will in good faith revise this Term Sheet and/or negotiate, execute and deliver any other necessary agreements, instruments and documents in order to effectuate the formation of Newco, in each case consistent with this Term Sheet to the extent applicable.

 

16. Indemnity.

 

  16.1. AOL Indemnity: AOL will indemnify and defend the JV and TP from and against all third party claims, actions, costs and/or damages arising from or relating to the AOL Provided Technology, so long as such AOL Provided Technology has not been repurposed or otherwise modified in any manner or used in a manner for which it was not approved.

 

  16.2. TP Indemnity: TP will indemnify and defend the JV and AOL from and against all third party claims, actions, costs and/or damages arising from or relating to the Pre-Cleared TP Provided Content, so long as such Pre-Cleared TP Provided Content has not be repurposed or otherwise modified in any manner or used in a manner for which it was not approved.

 

17. Future Events That Affect the JV. If there occurs an event or change that has or may have a material or significant impact on the JV (including the business model, finances or operations), the Parties agree to discuss in good faith any necessary or desirable changes to the JV and this Term Sheet (or successor documents).

 

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SCHEDULE 1

Brand Website Specifications

External Website

Presented below is a preliminary mockup of the External Website. This mockup does not reflect input from advertising sales planning and should not be considered final.

SEE ATTACHED IMAGE

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


Custom Website

Presented below is a preliminary mockup of the Custom Website. This mockup does not reflect input from advertising sales planning and should not be considered final.

SEE ATTACHED IMAGE

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 2

Operations Staff*

 

Management    HC (Yr 1)    HC (Yr 2 +)

General Manager

   1    1

Creative

     

Editor-in-chief

   1    1

Supervising Producer

   2    2

Production Manager

   1    1

Controller/Accountant

   1    1

Senior Designer

   1    1

Production Artist/Multimedia

   1    2

Segment Producers

   9    10

Clip Clearance/Librarian

   1    1

Technology/Software Engineer

   1    1

HTML Publisher

   1    1

Jr. Encoding Producer

   0    1

Quality Control

   1    2

Business Development

     

Director

   0    1

Marketing/Publicity

     

Director

   1    1

Administrative Support

     

Administrative Assistant

   1    1

Office Manager/AA

   0    1
         

Total Positions

   23    29

 

* These initial Operations Staff positions set forth in this Schedule 2 are subject to review and modification by the MC.

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 3

LOGO

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 3

Initial Business Plan

 

($ in 000s)    2005     2006     2007     2008     2009     Total  

Revenue:

            

Streaming Ads

   $ 90      $ 2,248      $ 4,092      $ 6,085      $ 6,821      $ 19,336   

Banner Ads

     322        6,059        9,803        10,933        12,254        39,370   
                                                

Total Revenue

   $ 411      $ 8,307      $ 13,895      $ 17,018      $ 19,074      $ 58,706   
                                                

Expenses:

            

LightningCast Rev Share

   $ 11      $ 270      $ 409      $ 487      $ 546      $ 1,722   

Advertising COGS

     41        831        1,390        1,702        1,907        5,871   
                                                

Total Cost of Revenues

   $ 52      $ 1,101      $ 1,799      $ 2,189      $ 2,453      $ 7,593   

Payroll

   $ 1,414      $ 3,312      $ 3,740      $ 3,927      $ 4,123      $ 16,516   

Equipment

     10        25        25        25        25        110   

Original Productions

     50        150        200        200        200        800   

Wire Services and Feeds

     150        350        400        400        400        1,700   

Other

     375        800        850        850        850        3,725   

G&A

     167        348        357        357        357        1,586   
                                                

Total Production Expenses

     2,167        4,985        5,572        5,759        5,955        24,437   

Network

     69        602        1,106        1,619        1,814        5,211   

Software Development

     250        60        60        60        60        490   

Publicity

     175        —          —          —          —          —     

Marketing

     400        1,000        1,500        2,000        2,500        7,400   
                                                

Total Expenses

   $ 3,113      $ 7,747      $ 10,037      $ 11,626      $ 12,783      $ 45,306   
                                                

OIBDA

   $ (2,702   $ 560      $ 3,858      $ 5,392      $ 6,292      $ 13,401   
                                                

OIBDA Margin

     -657     7     28     32     33  

Less: Dep & Amt

     50        139        158        108        19        475   
                                                

Operating Income/(Loss)

   $ (2,752   $ 421      $ 3,700      $ 5,284      $ 6,272      $ 12,926   
                                                

Taxes

     —          —          548        2,113        2,509        5,170   
                                                

EBIA

   $ (2,752   $ 421      $ 3,152      $ 3,170      $ 3,763      $ 7,755   

Dep & Amt

     50        139        158        108        19        475   

Capital Expenditures

     (305     (100     —          —          —          (475
                                                

Cash Flow

   $ (3,077   $ 460      $ 3,310      $ 3,279      $ 3,783      $ 7,755   

Headcount

     23        29        29        29        29        29   

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 4

Mechanics of Revenue and Costs/Expenses Share*

For any given quarter:

 

Step 1:    Calculate Total Revenues collected by AOL (“ATR”), Total Revenues collected by TP (“TTR”), AOL’s Reimbursable Expenses (“ARE”) and TP’s Reimbursable Expenses (“TRE”).
Step 2:   

Calculate the “Reimbursable Amount” as follows:

 

Reimbursable Amount = 50% multiplied by the sum of (ATR – TTR + TRE – ARE).

Step 3:    If the Reimbursable Amount is greater than zero, then AOL shall pay TP the Reimbursable Amount. If the Reimbursable Amount is less than zero, then TP shall pay AOL the absolute value of the Reimbursable Amount.

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 5

Carriage Plan*

 

* The Carriage Plan is subject to Section 8 of the Term Sheet.

SEE ATTACHED IMAGE

 

Telepictures-AOL MOU + Term Sheet (Final Version)  


SCHEDULE 6

Examples for Section 10.1

SEE ATTACHED IMAGE

 

Telepictures-AOL MOU + Term Sheet (Final Version)  
EX-10.80 24 dex1080.htm EXHIBIT 10.80 EXHIBIT 10.80

Exhibit 10.80

LOGO

September 25, 2009

Mr. Ira Parker

224 Lowell Road

Wellesley, MA 02481

Dear Ira,

This letter is to re-confirm our discussion that the Company will extend the date by which you must initiate your relocation until March 31, 2010.

In addition, you will receive a one-time bonus in the amount of $60,000, less any applicable withholdings, to cover commuting expenses while traveling between Boston, Dulles and New York during the period of October 1, 2009 through March 31, 2010. This bonus will be paid to you on the second pay period following the execution of this agreement. If you voluntarily resign your employment with the Company within 6 months of the date of this letter, you agree that you will reimburse the Company a prorated amount of this bonus, at the rate of $10,000 per month equal to the number of months between your resignation date and March 31, 2010. In addition, you agree that any monies you owe to the Company pursuant to the terms of this letter shall be deducted from your final paycheck or any other payments that you may be entitled to from the Company at the time of your resignation.

If you are in agreement with this arrangement, please sign and date one copy of this letter, and return it to Gillian Pon, VP of Total Rewards.

 

Sincerely,
/s/ Dave Harmon
Dave Harmon
EVP, Human Resources

 

Accepted:  

/s/ Ira Parker

    Date:   9/29/09

770 Broadway    New York, NY     10003    USA

EX-10.81 25 dex1081.htm EXHIBIT 10.81 EXHIBIT 10.81

Exhibit 10.81

AMENDED and RESTATED EMPLOYMENT AGREEMENT made and effective March 7, 2008 (the “Effective Date”), between TIME WARNER INC., a Delaware corporation (“Time Warner”), AOL LLC, a Delaware limited liability company (“AOL” or the “Company”), and RANDAL A. FALCO (“You”).

You are currently employed by the Company pursuant to an Employment Agreement made November 22, 2006, effective as of November 26, 2006 as amended pursuant to Amendments effective as of January 22, 2007, March 7, 2007 and May 7, 2007 respectively (the “Prior Agreement”). The Company wishes to amend and restate the terms of your employment with the Company and to secure your services on a full-time basis for the period to and including December 31, 2010 on and subject to the terms and conditions set forth in this Agreement, and you are willing to provides such services on and subject to the terms and conditions set forth in this Agreement. You and the Company therefore agree as follows:

1.     Term of Employment.     Your “term of employment” as this phrase is used throughout this Agreement shall be for the period beginning on the Effective Date and ending on December 31, 2010 (the “Term Date”), subject, however, to earlier termination as set forth in this Agreement.

2.     Employment.     During the term of employment, you shall serve as Chairman and Chief Executive Officer of AOL and you shall have the authority, functions, duties, powers and responsibilities normally associated with such position and such additional authority, functions, duties, powers and responsibilities as may be assigned to you from time to time by the Board of Directors of Time Warner or the person to whom you report consistent with your senior position with the Company. During the term of employment, (i) your services shall be rendered on a substantially full-time, exclusive basis and you will apply on a full-time basis all of your skill and experience to the performance of your duties, (ii) you shall report to the President and Chief Operating Officer of Time Warner or, if this position no longer exists, you shall report to the President, CEO, or Chairman of Time Warner or to the most senior person to whom any other chief executive office of a division of Time Warner reports; (iii) you shall have no other employment and, without the prior written consent of the President and Chief Operating Officer of Time Warner or other comparable officer of Time Warner, no outside business activities which require the devotion of substantial amounts of your time, and (iv) the place for the performance of your services shall be the


principal executive offices of the Company in Dulles, Virginia and the New York, New York metropolitan areas, subject to such reasonable travel as may be required in the performance of your duties. The foregoing shall be subject to the Company’s written policies, as in effect from time to time, regarding vacations, holidays, illness and the like and shall not prevent you from devoting such time to your personal affairs as shall not interfere with the performance of your duties hereunder.

3.     Compensation.

    3.1       Base Salary.     The Company shall pay you a base salary at the rate of not less than $1,000,000 per annum during the term of employment (“Base Salary”). The Company may increase, but not decrease, your Base Salary during the term of employment. Base Salary shall be paid in accordance with the Company’s customary payroll practices.

    3.2       Bonus.

        3.2.1 Annual Bonus. In addition to Base Salary, the Company typically pays its executives an annual cash bonus (“Bonus”). Although your Bonus is fully discretionary, your target annual Bonus is $3,000,000, but the parties acknowledge that your actual Bonus will vary depending on the actual performance of you and the Company, from a minimum of $0 and up to a maximum Bonus of $4,500,000, as determined by the Compensation and Human Development Committee of the Board of Directors of Time Warner. Each year, your personal performance will be considered in the context of your executive duties and any individual goals set for you. Although as a general matter the Company expects to pay bonuses at the target level in cases of satisfactory individual performance, it does not commit to do so, and your Bonus may be negatively affected by the exercise of the Company’s discretion or by overall Company performance. Your Bonus amount, if any, will be paid to you between January 1 and March 15 of the calendar year immediately following the performance year in respect of which such Bonus is earned. With respect to 2006 you will be eligible for a pro-rated bonus calculated from the Effective Date through December 31, 2006.

In addition, you have advised the Company that your prior employer, NBC Universal, Inc. (“NBCU”), has agreed pursuant to a Separation Agreement (the “Separation Agreement”)

 

2


to pay you $1,365,000 instead of the anticipated $1,468,800, under NBCU’s Incentive Plan and Special Bonus opportunity for 2006 (“Prior Employer Bonus”). The Prior Employer Bonus is scheduled to be paid to you in two installments as follows: $682,500 on or before February 28, 2007 (first NBCU payment) and $682,500 on or before December 31, 2007 (second NBCU payment). The Company will make a cash payment to you of $103,800, representing the difference between the anticipated bonus amount, $1,468,800, and the actual bonus amount, $1,365,000, by March 15, 2007. Additionally, the Company will pay you the shortfall, if any, from the first NBCU payment by March 31, 2007 and the Company will pay you the shortfall, if any, from the second NBCU payment during January 2008.

        3.2.2 Prior Employer Bonus Repayment. If pursuant to the Separation Agreement you are required to repay the Prior Employer Bonus described in Paragraph 3.2.1 above, or any portion thereof, on account of a breach of the non-solicitation provision, (attached as Exhibit A hereto), the Company agrees to pay you an amount equal to said amount repaid subject to a cap of $1,365,000. Any such repayment will be made by March 15, 2008.

    3.3       Stock Options.     So long as the term of employment has not terminated, you will be eligible to receive annual grants of stock options, although the Company does not commit to do so, provided Time Warner continues to maintain a stock option plan and subject to the approval of the Compensation and Human Development Committee of the Board of Directors of Time Warner. Each such stock option grant shall be reflected in a separate Stock Option Agreement in accordance with the Company’s customary practices.

    3.4       Long Term Incentive Compensation.     The Company shall provide you for each year of your term of employment with long term incentive compensation with a target value of approximately $4,500,000 (based on the valuation method used by the Company for its senior executives) through a combination of stock option grants, restricted stock units or other equity-based awards, cash-based long-term plans or other components as may be determined and in such proportions as may be determined by the Compensation and Human Development Committee of the Board of Directors of Time Warner from time to time in its sole discretion. Notwithstanding the forgoing sentence, during 2007 and 2008, you will also be eligible to participate in a 2 year transition plan, (“Transition Plan”) with an annualized target of $2,000,000 per

 

3


year, but the parties acknowledge that your actual long term incentive compensation will vary depending on the actual performance of you and the Company, from a minimum of $0 and up to a maximum of $4,000,000 per year. Unless deferred at your election, the actual long term incentive compensation under the Transition Plan (which is cash-based) will be paid to you in cash by March 15, 2009. The remainder of your long term incentive target for 2007 and 2008, an annualized target of $2,500,000, will be awarded at the Company’s discretion through a mix that may include stock options, restricted stock units, performance units and cash. The Company agrees that with respect to any long term incentive target for 2007, you will receive any stock option grants, restricted stock units or other equity-based award by March 31, 2007.

    3.5       Initial Restricted Stock Unit Grant.     The Company will make you an initial grant of 183,750 restricted stock units (“RSU”) on or before December 31, 2006; provided that the Effective Date is on or before December 31, 2006. This grant shall be reflected in a separate Restricted Stock Units Agreement and will vest in whole on the fourth anniversary of the grant date. In addition, if any of (i) your term of employment is terminated by Time Warner without cause pursuant to Section 4.2 of this Agreement or as a result of your disability pursuant to Section 5 or your death pursuant to Section 6, (ii) Time Warner no longer holds at least 50% of the voting interests in AOL, or (iii) the financial results of AOL are no longer consolidated with those of Time Warner, the RSUs will immediately vest on, as applicable, (i) the effective date of your termination by Time Warner without cause pursuant to Section 4.2, or as a result of your disability pursuant to Section 5 or your death pursuant to Section 6, (ii) such date as Time Warner’s holds less than 50% of the voting interests of AOL or (iii) Time Warner determines that the financial results of AOL no longer can be consolidated with those of Time Warner. To the extent that the events in the previous sentence constitute either (i) a “separation from service” under Section 409A(a)(2)(A)(i) of the Code or (ii) a change in ownership or effective control of the Company, or in the ownership of a substantial portion of the assets, as described under Section 409A(a)(2)(A)(v) of the Code and the regulations thereunder, the net shares of Time Warner stock underlying the RSUs shall be delivered to you as soon as administratively possible after the vesting of the RSUs provided, however, that if the Company reasonably determines that such delivery is subject to Section 409A(a)(2)(B)(i) of the Code then the Company shall not be make such delivery until six months after the date of your “separation from service” (within the meaning of Section 409A of the Code).

 

4


    3.6       Indemnification.     You shall be entitled throughout the term of employment (and after the end of the term of employment, to the extent relating to service during the term of employment) to the benefit of the indemnification provisions contained on the date hereof in the Operating Agreement of the Company (not including any amendments or additions after the date hereof that limit or narrow, but including any that add to or broaden, the protection afforded to you by those provisions). This provision shall not limit your rights to indemnification under any other applicable plan, arrangement or agreement of or with the Company or Time Warner.

    3.7       Travel and Expense Reimbursement.     The Company shall pay or reimburse you in accordance with Company policy for all reasonable business travel and business expenses incurred or paid by you in the course of performing his duties hereunder. As a condition to such payment or reimbursement, however, you shall maintain and provide to the Company reasonable documentation and receipts for such travel and expenses.

4.     Termination.

    4.1       Termination for Cause.     The Company may terminate the term of employment and all of the Company’s obligations under this Agreement, other than its obligations set forth below in this Section 4.1, for “cause”. Termination by the Company for “cause” shall mean termination because of your (a) conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised) other than as a result of a moving violation or a Limited Vicarious Liability (as defined below), (b) willful failure or refusal without proper cause to perform your material duties with the Company, including your obligations under this Agreement (other than any such failure resulting from your incapacity due to physical or mental impairment), (c) willful misappropriation, embezzlement or reckless or willful destruction of Company property, (d) willful and material breach of any statutory or common law duty of loyalty to the Company having a significant adverse financial impact on the Company or on the Company’s reputation; (e) intentional and improper conduct materially prejudicial to the business of the Company or any of its affiliates, or (f) willful or material breach of any of the covenants provided for in Section 8 hereof.

 

5


Such termination shall be effected by written notice thereof delivered by the Company to you and shall be effective as of the date of such notice; provided, however, that if (i) such termination is because of your willful failure or refusal without proper cause to perform any one or more of your obligations under this Agreement, (ii) such notice is the first such notice of termination for any reason delivered by the Company to you under this Section 4.1, and (iii) within 15 days following the date of such notice you shall cease your refusal and shall use your best efforts to perform such obligations, the termination shall not be effective. The term “Limited Vicarious Liability” shall mean any liability which is based on acts of the Company for which you are responsible solely as a result of your office(s) with the Company; provided that (x) you are not directly involved in such acts and either had no prior knowledge of such intended actions or, upon obtaining such knowledge, promptly acted reasonably and in good faith to attempt to prevent the acts causing such liability or (y) after consulting with the Company’s counsel, you reasonably believed that no law was being violated by such acts.

    In the event of termination by the Company for cause, without prejudice to any other rights or remedies that the Company may have at law or in equity, the Company shall have no further obligation to you other than (i) to pay Base Salary through the effective date of termination, (ii) to pay any Bonus for any year prior to the year in which such termination occurs that has been determined but not yet paid as of the date of such termination, and (iii) with respect to any rights you have pursuant to any insurance or other benefit plans or arrangements of the Company. You hereby disclaim any right to receive a pro rata portion of any Bonus with respect to the year in which such termination occurs.

    4.2       Termination by You for Material Breach by the Company and Termination by the Company Without Cause.     Unless previously terminated pursuant to any other provision of this Agreement and unless a Disability Period shall be in effect, you shall have the right, exercisable by written notice to the Company, to terminate the term of employment effective 30 days after the giving of such notice, if, at the time of the giving of such notice, the Company is in material breach of its obligations under this Agreement; provided, however, that, with the exception of clause (i) below, this Agreement shall not so terminate if such notice is the first such notice of termination delivered by you pursuant to this Section 4.2 and within such 30-day period the Company shall have cured all such material breaches; and provided further, that such

 

6


notice is provided to the Company within 90 days after the occurrence of such material breach. A material breach by the Company shall include, but not be limited to, (i) the Company violating Section 2 with respect to authority, reporting lines, authority, functions, duties, powers or place of employment or (ii) the Company failing to cause any successor to all or substantially all of the business and assets of the Company expressly to assume the obligations of the Company under this Agreement.

The Company shall have the right, exercisable by written notice to you delivered before the date which is 60 days prior to the Term Date, to terminate your employment under this Agreement without cause, which notice shall specify the effective date of such termination. If such notice is delivered on or after the date which is 60 days prior to the Term Date, the provisions of Section 4.3 shall apply.

4.2.1     After the effective date of a termination pursuant to this Section 4.2 (a “termination without cause”), you shall receive Base Salary and a pro rata portion of your Average Annual Bonus (as defined below) through the effective date of termination. You will also be entitled to any unpaid Bonus for the year prior to the year which includes the effective date of termination which has been determined pursuant to Section 3.2 (which if not determined, shall be equal to your Average Annual Bonus) and any accrued but unpaid cash-based long-term compensation as provided in Section 3.3. Your Average Annual Bonus shall be equal to the average of the regular annual bonus amounts (excluding the amount of any special or spot bonuses) in respect of the two calendar years during the most recent five calendar years for which the annual bonus received by you from the Company was the greatest; provided, however, if the Company has previously paid you no annual Bonus, then your Average Annual Bonus shall equal your target Bonus and if the Company has previously paid you one annual Bonus, then your Average Annual Bonus shall equal the average of such Bonus and your target Bonus. Your pro rata Average Annual Bonus pursuant to this Section 4.2.1 shall be paid to you at the times set forth in Section 4.6.

4.2.2     After the effective date of a termination without cause, you shall remain an employee of the Company for a period ending on the date (the “Severance Term Date”) which is the later of (i) the Term Date and (ii) the date which is twelve months after the effective date of such termination and during such period you shall be entitled to receive, whether or not you become disabled during such

 

7


period but subject to Section 6, (a) Base Salary (on the Company’s normal payroll payment dates as in effect immediately prior to the effective date of your termination without cause) at an annual rate equal to your Base Salary in effect immediately prior to the notice of termination, and (b) an annual Bonus in respect of each calendar year or portion thereof (in which case a pro rata portion of such Bonus will be payable) during such period equal to your Average Annual Bonus. Except as provided in the succeeding sentence, if you accept other full-time employment during such period or notify the Company in writing of your intention to terminate your status as an employee during such period, you shall cease to be treated as an employee of the Company for purposes of your rights to receive certain post-termination benefits under Section 7.2 effective upon the commencement of such other employment or the effective date of such termination as specified by you in such notice, whichever is applicable (the “Equity Cessation Date”), and you shall receive the remaining payments of Base Salary and Bonus pursuant to this Section 4.2.2 at the times specified in Section 4.6 of the Agreement. Notwithstanding the foregoing, if you accept employment with any not-for-profit entity or governmental entity, then you may continue to be treated as an employee of the Company for purposes of your rights to receive certain post-termination benefits pursuant to Section 7.2 and you will continue to receive the payments as provided in the first sentence of this Section 4.2.2; and if you accept full-time employment with any affiliate of the Company, then the payments provided for in this Section 4.2.2 shall immediately cease and you shall not be entitled to any further payments. For purposes of this Agreement, the term “affiliate” shall mean any entity which, directly or indirectly, controls, is controlled by, or is under common control with, the Company or Time Warner.

4.3     After the Term Date.     If at the Term Date, the term of employment shall not have been previously terminated pursuant to the provisions of this Agreement, no Disability Period is then in effect and the parties shall not have agreed to an extension or renewal of this Agreement or on the terms of a new employment agreement, then the term of employment shall continue on a month-to-month basis and you shall continue to be employed by the Company pursuant to the terms of this Agreement, subject to termination by either party hereto on 60 days written notice delivered to the other party (which notice may be delivered by either party at any time on or after the date which is 60 days prior to the Term Date). If the Company shall terminate the term of employment on or after the Term Date for any reason (other than

 

8


for cause as defined in Section 4.1, in which case Section 4.1 shall apply), which the Company shall have the right to do so long as no Disability Date (as defined in Section 5) has occurred prior to the delivery by the Company of written notice of termination, or you terminate the term of employment as a result of the Company’s material breach of its obligations under this Agreement, then such termination shall be deemed for all purposes of this Agreement to be a “termination without cause” under Section 4.2 and the provisions of Sections 4.2.1 and 4.2.2 shall apply.

4.4     Release.     A condition precedent to the Company’s obligation to make the payments associated with a termination without cause shall be your execution and delivery of a release in the form attached hereto as Annex A. If you shall fail to execute and deliver such release, or if you revoke such release as provided therein, then in lieu of the payments provided for herein, you shall receive a severance payment determined in accordance with the Company’s policies relating to notice and severance.

4.5     Mitigation.     In the event of a termination without cause under this Agreement, you shall not be required to seek other employment in order to mitigate your damages hereunder, unless Section 280G of the Internal Revenue Code would apply to any payments to you by the Company and your failure to mitigate would result in the Company losing tax deductions to which it would otherwise have been entitled. In such an event, you will engage in whatever mitigation is necessary to preserve the Company’s tax deductions. With respect to the preceding sentences, any payments or rights to which you are entitled by reason of the termination of employment without cause shall be considered as damages hereunder. Any obligation to mitigate your damages pursuant to this Section 4.5 shall not be a defense or offset to the Company’s obligation to pay you in full the amounts provided in this Agreement upon the occurrence of a termination without cause, at the time provided herein, or the timely and full performance of any of the Company’s other obligations under this Agreement.

4.6     Payments.     Payments of Base Salary and Bonus required to be made to you shall be made or commence within 60 days after any termination without cause and shall otherwise be made at the same times as such payments would have been paid to you pursuant to Sections 3.1, 3.2 and 4.2 if you had not been terminated, subject to Section 11.17.

 

9


5.     Disability.

    5.1     Disability Payments.     If during the term of employment and prior to the delivery of any notice of termination without cause, you become physically or mentally disabled, whether totally or partially, so that you are prevented from performing your usual duties for a period of six consecutive months, or for shorter periods aggregating six months in any twelve-month period, the Company shall, nevertheless, continue to pay your full compensation through the last day of the sixth consecutive month of disability or the date on which the shorter periods of disability shall have equaled a total of six months in any twelve-month period (such last day or date being referred to herein as the “Disability Date”), subject to Section 11.17. If you have not resumed your usual duties on or prior to the Disability Date, the Company shall pay you a pro rata Bonus (based on your Average Annual Bonus) for the year in which the Disability Date occurs and thereafter shall pay you disability benefits for the period ending on the later of (i) the Term Date or (ii) the date which is twelve months after the Disability Date (in the case of either (i) or (ii), the “Disability Period”), in an annual amount equal to 75% of (a) your Base Salary at the time you become disabled and (b) the Average Annual Bonus, in each case, subject to Section 11.17.

    5.2     Recovery from Disability.     If during the Disability Period you shall fully recover from your disability, the Company shall have the right (exercisable within 60 days after notice from you of such recovery), but not the obligation, to restore you to full-time service at full compensation. If the Company elects to restore you to full-time service, then this Agreement shall continue in full force and effect in all respects and the Term Date shall not be extended by virtue of the occurrence of the Disability Period. If the Company elects not to restore you to full-time service, you shall be entitled to obtain other employment, subject, however, to the following: (i) you shall perform advisory services during any balance of the Disability Period; and (ii) you shall comply with the provisions of Sections 8 and 9 during the Disability Period. The advisory services referred to in clause (i) of the immediately preceding sentence shall consist of rendering advice concerning the business, affairs and management of the Company as requested by the Chief Executive Officer or other more senior officer of the Company but you shall not be required to devote more than five days (up to eight hours per day) each month to such services, which shall be performed

 

10


at a time and place mutually convenient to both parties. Any income from such other employment shall not be applied to reduce the Company’s obligations under this Agreement.

    5.3     Other Disability Provisions.     The Company shall be entitled to deduct from all payments to be made to you during the Disability Period pursuant to this Section 5 an amount equal to all disability payments received by you during the Disability Period from Worker’s Compensation, Social Security and disability insurance policies maintained by the Company; provided, however, that for so long as, and to the extent that, proceeds paid to you from such disability insurance policies are not includible in your income for federal income tax purposes, the Company’s deduction with respect to such payments shall be equal to the product of (i) such payments and (ii) a fraction, the numerator of which is one and the denominator of which is one less the maximum marginal rate of federal income taxes applicable to individuals at the time of receipt of such payments. All payments made under this Section 5 after the Disability Date are intended to be disability payments, regardless of the manner in which they are computed. Except as otherwise provided in this Section 5, the term of employment shall continue during the Disability Period and you shall be entitled to all of the rights and benefits provided for in this Agreement, except that Sections 4.2 and 4.3 shall not apply during the Disability Period, and unless the Company has restored you to full-time service at full compensation prior to the end of the Disability Period, the term of employment shall end and you shall cease to be an employee of the Company at the end of the Disability Period and shall not be entitled to notice and severance or to receive or be paid for any accrued vacation time or unused sabbatical.

6.     Death.     If you die during the term of employment, this Agreement and all obligations of the Company to make any payments hereunder shall terminate except that your estate (or a designated beneficiary) shall be entitled to receive Base Salary to the last day of the month in which your death occurs, any unpaid Bonus award with respect to a year prior to your death (if not previously determined, based on an Average Annual Bonus), any accrued but unpaid long term incentive compensation as provided in Section 3.3, and Bonus compensation (at the time bonuses are normally paid) based on the Average Annual Bonus, but prorated according to the number of whole or partial months you were employed by the Company in such calendar year.

 

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7.     Other Benefits.

    7.1     General Availability.     To the extent that (a) you are eligible under the general provisions thereof (including without limitation, any plan provision providing for participation to be limited to persons who were employees of the Company or certain of its subsidiaries prior to a specific point in time) and (b) the Company maintains such plan or program for the benefit of its senior executives, during the term of your employment and so long as you are an employee of the Company, you shall be eligible to participate in any savings plan, or similar plan or program and in any group life insurance, hospitalization, medical, dental, accident, disability or similar plan or program of the Company now existing or established hereafter. In addition, you shall be entitled during the term of employment and, subject to Section 7.2, as long as you are treated as an employee of the Company, to receive other benefits generally available to senior executives of the Company to the extent you are eligible under the general provisions thereof.

    7.2     Benefits After a Termination or Disability.     After the effective date of a termination of employment pursuant to Section 4.2 and prior to the Severance Term Date or during the Disability Period, you shall continue to be treated as an employee of the Company for purposes of eligibility to participate in the Company’s health and welfare benefit plans other than disability programs and to receive the health and welfare benefits (other than disability programs) required to be provided to you under this Agreement to the extent such health and welfare benefits are maintained in effect by the Company for its executives. After the effective date of a termination of employment pursuant to Section 4 or during a Disability Period, you shall not be entitled to any additional awards or grants under any stock option, restricted stock unit or other stock-based incentive plan and you shall not be entitled to continue elective deferrals in or accrue additional benefits under any qualified or nonqualified retirement programs maintained by the Company. At the Severance Term Date, your rights to benefits and payments under any health and welfare benefit plans or any insurance or other death benefit plans or arrangements of the Company shall be determined in accordance with the terms and provisions of such plans. At the Severance Term Date or, if earlier, the Equity Cessation Date, your rights to benefits and payments under any stock option, restricted stock unit, stock appreciation right, bonus unit, management incentive or other plan of the Company shall be determined in accordance with the terms and provisions of such plans and any

 

12


agreements under which such stock options, restricted stock units or other awards were granted. However, notwithstanding the foregoing or any more restrictive provisions of any such plan or agreement, if your employment with the Company is terminated as a result of a termination pursuant to Section 4.2, then, (i) all stock options to purchase shares of Time Warner Common Stock shall continue to vest, and any such vested stock options shall remain exercisable (but not beyond the term of such options) through the earlier of the Severance Term Date or the Equity Cessation Date; (ii) except if you shall then qualify for retirement under the terms of the applicable stock option agreement and would receive more favorable treatment under the terms of the stock option agreement, (x) then, consistent with the terms of the Prior Employment Agreement, all stock options to purchase shares of Time Warner Common Stock granted to you on or after November 26, 2006 and prior to the Effective Date (the “Term Options”) that would have vested on or before the Severance Term Date (or the comparable date under any employment agreement that amends, replaces or supersedes this Agreement) shall vest and become immediately exercisable upon the earlier of the Severance Term Date or the Equity Cessation Date, (y) all stock options to purchase shares of Time Warner Common Stock granted to you on or after the Effective Date (the “Subsequent Term Options”) shall vest and become immediately exercisable on the earlier of the Severance Term Date or the Equity Cessation Date, and (z) all your vested Term Options and Subsequent Term Options shall remain exercisable for a period of three years after the earlier of the Severance Term Date or the Equity Cessation Date (but not beyond the term of such stock options); and (iii) the Company shall not be permitted to determine that your employment was terminated for “unsatisfactory performance” within the meaning of any stock option agreement between you and Time Warner. With respect to awards of restricted stock units (“RSUs”) granted to you prior to the Effective Date and held at the time of a termination of employment pursuant to Section 4.2, subject to potential further delay in payment pursuant to Section 11.17, and except as otherwise provided under Section 3.5 with respect to your initial grant of RSUs, (i) if you are eligible for retirement treatment at the effective date of the termination, then for all awards of RSUs that contain special accelerated vesting upon retirement, the vesting of the RSUs will accelerate upon, and the shares of Time Warner Common Stock will be paid to you promptly following, the effective date of termination of employment, and (ii) if you are not eligible for retirement treatment at the effective date of the termination of employment, then the treatment of the RSUs will be determined at the earlier of the Severance Term Date or the Benefit Cessation Date in accordance with the terms of the applicable award agreement(s), but the shares of Time Warner Common Stock

 

13


underlying any vested RSUs will not be paid to you until promptly following the next regular vesting date(s) for such award(s) of RSUs. Subject to potential further delay in payment pursuant to Section 11.17, the vesting of any awards of RSUs granted to you on or after the Effective Date and held at the time of a termination of employment pursuant to Section 4.2 will accelerate upon, and the shares of Time Warner Common Stock will be paid to you promptly following, the effective date of a termination of employment pursuant to Section 4.2.

7.3         Life Insurance.         During your employment with the Company, the Company shall (i) provide you with $50,000 of group life insurance and (ii) pay you annually an amount equal to two times the premium you would have to pay to obtain life insurance under the Group Universal Life (“GUL”) insurance program made available by the Company in an amount equal to $4,000,000. The Company shall pay you this amount no later than March 15 of the calendar year following any calendar year in which you are entitled to this amount. You shall be under no obligation to use the payments made by the Company pursuant to the preceding sentence to purchase GUL insurance or to purchase any other life insurance. If the Company discontinues its GUL insurance program, the Company shall nevertheless make the payments required by this Section 7 as if such program were still in effect. The payments made to you hereunder shall not be considered as “salary” or “compensation” or “bonus” in determining the amount of any payment under any pension, retirement, profit-sharing or other benefit plan of the Company or any subsidiary of the Company.

7.4     Payments in Lieu of Other Benefits.     In the event the term of employment and your employment with the Company is terminated pursuant to any section of this Agreement, you shall not be entitled to notice and severance under the Company’s general employee policies or to be paid for any accrued vacation time or unused sabbatical, the payments provided for in such sections being in lieu thereof.

7.5     Deferred Compensation.     The Company will establish a deferred compensation arrangement (the “Deferral Arrangement”) and credit $7,325,000 in the Deferral Arrangement at the Effective Date. The amount credited in the Deferral Arrangement will increase or decrease for gains, losses and earnings based on crediting elections made by you from choices that are consistent with those available for amounts deferred under the Time Warner Inc. Deferred Compensation Plan, as such crediting

 

14


alternatives may change from time to time. No further amounts will be deferred pursuant to or in connection with the Deferral Arrangement, it being the intention of the parties that any future amounts that you may elect to defer from your bonuses will be deferred pursuant to and in accordance with the terms of the Time Warner Inc. Deferred Compensation Plan. If, prior to the Term Date, you voluntarily resign (other than a termination on account of your death or disability or pursuant to Section 4.2) or your employment is terminated for cause pursuant to Section 4.1 of this Agreement, then you will forfeit any and all right to the amounts credited in the Deferral Arrangement. If your employment is terminated prior to the Term Date other than (i) for cause pursuant to Section 4.1 of this Agreement or (ii) as a result of your voluntary resignation (other than a termination on account of your death or disability or pursuant to Section 4.2), then the amounts credited in the Deferral Arrangement will be payable to you in ten annual installment payments (1/10th of the value to be paid in the first installment, 1/9th of the remaining value in the second installment, and so on), beginning on April 1 of the year after you terminate employment with the Company; provided, however, that if your employment is terminated, pursuant to this sentence, on or prior to November 1, 2007, then the amounts credited in the Deferral Arrangement will be payable to you in a lump sum 60 days after you terminate employment with the Company. If your employment is not terminated prior to the Term Date, then the amount credited in the Deferral Arrangement will be payable to you in ten annual installment payments (in the same manner as in the preceding sentence), beginning on April 1 of the year after you terminate employment with the Company. For purposes of the two preceding sentences, “terminate employment” shall mean “separation from service” (within the meaning of Section 409A of the Code). Notwithstanding the foregoing, if the Company determines that the foregoing payment of amounts in the Deferral Arrangement is subject to Section 409A(a)(2)(B)(i) of the Code, such payment shall not be paid until the later of (a) six months after the date of your “separation from service” (within the meaning of Section 409A of the Code) and (b) the payment date specified in this Agreement for such payment. On the earliest date on which such payment can be made or commenced without violating the requirements of Section 409A(a)(2)(B)(i) of the Code, you shall be paid, in a single lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence together with any earnings attributable to such amounts. Time Warner and the Company acknowledge that while the payment obligations related to the Deferral Arrangement are obligations of the Company, if the Company fails to make any required payments to you, Time Warner will make such

 

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required payment(s) and will have a claim for reimbursement from the Company, and you acknowledge that in such instance, Time Warner will have and be able to assert any defenses to payment that the Company may have.

7.6   Housing and Automobile Allowance.    In compliance with the Company’s current practices and policies, the Company will provide you with transition housing in the Dulles, Virginia metropolitan area up to the first year of the Term. The Company will also provide you with a car allowance of $2,000 a month during the Term.

7.7   AOL Transaction.

7.7.1  Except as otherwise provided under Section 3.5, if an AOL Transaction (as defined below) occurs, then with respect to the Time Warner stock options, restricted stock, restricted stock units and other Time Warner equity-based awards held by you on the date the AOL Transaction closes, the treatment of such equity awards will be equivalent to the treatment that would apply pursuant to Section 7.2 if your employment with the Company had been terminated without cause pursuant to Section 4.2 concurrent with the closing of such an AOL Transaction and you had left the payroll of the Company on the same date, regardless of your actual employment status with the Company. Accordingly, in such event, except if you shall otherwise qualify for more favorable terms under the applicable stock option agreement or other award agreement, (i) the Term Options that would have vested on or before the Term Date (or the comparable date under any employment agreement that amends, replaces or supersedes this Agreement) and all Subsequent Term Options shall vest and become immediately exercisable on the closing date of such an AOL Transaction, (ii) all vested options shall remain exercisable for a period of three years after the closing date of such an AOL Transaction (but not beyond the term of such options), (iii) the vesting of RSUs granted to you on or after the Effective Date and held at the time of such an AOL Transaction will accelerate on, and, subject to potential further delay in payment pursuant to Section 11.17, the shares of Time Warner Common Stock will be paid to you promptly following, the closing date of such an AOL Transaction, and (iv) subject to potential further delay in payment pursuant to Section 11.17, any other unvested awards of restricted stock, restricted stock units or other Time Warner equity-based award shall be determined in accordance with the terms and provisions of such plans and any agreements under which such restricted stock, restricted stock units or other awards were granted, based on the assumption that your employment terminated without cause

 

16


on the closing date of such an AOL Transaction. If this Section 7.7 shall become applicable as a result of an AOL Transaction, then the benefits and treatment provided for in this Section 7.7 with respect to stock options, restricted stock, restricted stock units and other equity-based awards shall replace and supersede in all respects the treatment of such equity awards provided in Section 7.2, and you will not receive any additional benefits pursuant to Section 7.2 with respect to Time Warner equity-based awards if your employment with the Company is terminated following or in connection with an AOL Transaction.

7.7.2 In the event of an AOL Transaction, you will remain entitled to receive annual Long Term Incentive Compensation as described in Section 3.4, except that you acknowledge that any stock-based awards made following such an AOL Transaction will not be awards based on or otherwise tied to Time Warner common stock. With respect to your long term incentive target for any calendar year after an AOL Transaction, any stock options, restricted stock units or other equity-based awards for such year shall be awarded to you within the first quarter of such year.

7.7.3  In the event of an AOL Transaction your duties, authority, powers and functions shall be commensurate with the duties, authority, powers and functions you have under this Agreement. All references under this Agreement to Time Warner or to a Time Warner Executive shall be replaced by a reference to the Company’s Board of Managers.

7.7.4  For purposes of this Agreement, an “AOL Transaction” shall mean (a) a transaction the result of which is the Company ceases to be a consolidated subsidiary of Time Warner, whether due to the sale, transfer or distribution of stock, a merger, the contribution of stock to a joint venture or for any other reason, or (b) any sale, transfer or other disposition by Time Warner of all or substantially all of the Company’s business and assets, whether by merger, sale of stock or assets, formation of a joint venture or otherwise, as the case may be, other than any such sales, transfers or dispositions following which the financial results of all or substantially all of the Company’s business continues to be consolidated with the financial results of Time Warner in the periodic reports filed by Time Warner with the Securities and Exchange Commission.

 

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8. Protection of Confidential Information; Non-Compete.

8.1    Confidentiality Covenant.    You acknowledge that your employment by the Company (which, for purposes of this Section 8.1 shall mean Time Warner Inc. and its affiliates) will, throughout the term of employment, bring you into close contact with many confidential affairs of the Company, including information about costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not readily available to the public, and plans for future development. You further acknowledge that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. You further acknowledge that the business of the Company is international in scope, that its products and services are marketed throughout the world, that the Company competes in nearly all of its business activities with other entities that are or could be located in nearly any part of the world and that the nature of your services, position and expertise are such that you are capable of competing with the Company from nearly any location in the world. In recognition of the foregoing, you covenant and agree:

8.1.1    You shall keep secret all confidential matters of the Company and, except in the proper performance of your services hereunder, shall not disclose such matters to anyone outside of the Company, or to anyone inside the Company who does not have a need to know or use such information, and shall not use such information for personal benefit or the benefit of a third party, either during or after the term of employment, except with the Company’s written consent, provided that (i) you shall have no such obligation to the extent such matters are or become publicly known other than as a result of your breach of your obligations hereunder and (ii) you may, after giving prior notice to the Company to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; (Nothing in this provision 8.1.1 will prohibit you form providing information necessary to enforce this Agreement to attorneys, accountants or other professionals who will be bound to maintain the confidentiality of the information);

8.1.2    You shall deliver promptly to the Company on termination of your employment, or at any other time the Company may so request, all

 

18


memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Company’s business, which you obtained while employed by, or otherwise serving or acting on behalf of, the Company and which you may then possess or have under your control; and

8.1.3    If the term of employment is terminated pursuant to Section 4, for a period of one year after such termination, without the prior written consent of the Chief Executive Officer or Chief Operating Officer of Time Warner, you shall not employ, and shall not cause any entity of which you are an affiliate to employ, any person who was a full-time employee of the Company at the date of such hire or within six months prior thereto but such prohibition shall not apply to your secretary or executive assistant or to any other employee eligible to receive overtime pay.

8.2    Non-Compete.    During the term of employment and through the later of (i) the Term Date, (ii) the Severance Term Date, (iii) the Benefit Cessation Date, if applicable, and, (iv) and twelve months after the effective date of any termination of the term of employment pursuant to Section 4, you shall not, directly or indirectly, without the prior written consent of the Chief Executive Officer or Chief Operating Officer of Time Warner, render any services to, or act in any capacity for, any Competitive Entity, or acquire any interest of any type in any Competitive Entity; provided, however, that the foregoing shall not be deemed to prohibit you from acquiring, (a) solely as an investment and through market purchases, securities of any Competitive Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than one percent (1%) of the outstanding voting power of that entity and (b) securities of any Competitive Entity that are not publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than three percent (3%) of the outstanding voting power of that entity. For purposes of the foregoing, the following shall be deemed to be a Competitive Entity: (x) during the period that you are actively employed with the Company, any person or entity that engages in any line of business that is substantially the same as either (i) any line of business which the Company engages in, conducts or, to your knowledge, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company

 

19


as to which, to your knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business, (y) during the period following a termination of your term of employment pursuant to Section 4, any of the following: eBay, Inc., MySpace, Interactive Corp., EarthLink, Inc., Google Inc., Microsoft Corporation, and Yahoo! Inc., and their respective subsidiaries and any successor to the internet service provider, media or entertainment businesses thereof, and (z) any internet access, service or portal company or any other company that directly competes with AOL (Notwithstanding clause (z) above, you may provide services to a non-competitive division or subsidiary of any entity described in clause (z) above).

9.    Ownership of Work Product.    You acknowledge that during the term of employment, you may conceive of, discover, invent or create inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as “Work Product”), and that various business opportunities shall be presented to you by reason of your employment by the Company. You acknowledge that all of the foregoing shall be owned by and belong exclusively to the Company and that you shall have no personal interest therein, provided that they are either related in any manner to the business (commercial or experimental) of the Company, or are, in the case of Work Product, conceived or made on the Company’s time or with the use of the Company’s facilities or materials, or, in the case of business opportunities, are presented to you for the possible interest or participation of the Company. You shall (i) promptly disclose any such Work Product and business opportunities to the Company; (ii) assign to the Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of your inventorship or creation in any appropriate case. You agree that you will not assert any rights to any Work Product or business opportunity as having been made or acquired by you prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by the Company in writing prior to the date hereof or work product that is owned by your previous employer.

10.    Notices.    All notices, requests, consents and other communications required or permitted to be given under this Agreement shall be effective only if given in writing and shall be deemed to have been duly given if delivered personally or sent by a

 

20


nationally recognized overnight delivery service, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):

 

10.1    If to Time Warner:
   Time Warner Inc.
   One Time Warner Center
   New York, New York 10019
   Attention: Senior Vice President - Global
   Compensation and Benefits
   (with a copy, similarly addressed
   but Attention: General Counsel)
   If to the Company:
   AOL LLC
   22000 AOL Way
   Dulles, Virginia 20166
   Attention: General Counsel
   (with a copy to Time Warner to the addressees set forth above).

10.2    If to you, to your residence address set forth on the records of the Company.

 

 

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With a copy to:
Paul M. Ritter, Esq.
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
And
David Nochinson, Esq.

Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffleman & Cook

LLP

1801 Century Park West
Los Angeles, California 90067

11.    General.

11.1    Governing Law.    This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.

11.2    Captions.    The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

11.3    Entire Agreement.    This Agreement, including Annexes A and B, set forth the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties.

11.4    No Other Representations.    No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or be liable for any alleged representation, promise or inducement not so set forth.

 

 

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11.5    Assignability.    This Agreement and your rights and obligations hereunder may not be assigned by you and except as specifically contemplated in this Agreement or in any pension or welfare plan of the Company or Time Warner, neither you, your legal representative nor any beneficiary designated by you shall have any right, without the prior written consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or commute to any person or entity any payment due in the future pursuant to any provision of this Agreement, and any attempt to do so shall be void and shall not be recognized by the Company. The Company shall assign its rights together with its obligations hereunder in connection with any sale, transfer or other disposition of all or substantially all of the Company’s business and assets, whether by merger, purchase of stock or assets or otherwise, as the case may be. Upon any such assignment, the Company shall cause any such successor expressly to assume in writing such obligations, and such rights and obligations shall inure to and be binding upon any such successor.

11.6    Amendments; Waivers.    This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by written instrument executed by all of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect such party’s right at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

11.7    Specific Remedy.    In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if you commit a material breach of any of the provisions of Sections 8.1, 8.2, or 9, the Company shall have the right and remedy to seek to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company.

11.8    Resolution of Disputes.    Except as provided in the preceding Section 11.7, any dispute or controversy arising with respect to this

 

 

23


Agreement and your employment hereunder (whether based on contract or tort or upon any federal, state or local statute, including but not limited to claims asserted under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, any state Fair Employment Practices Act and/or the Americans with Disability Act) shall, at the election of either you or the Company, be submitted to JAMS/ENDISPUTE for resolution in arbitration in accordance with the rules and procedures of JAMS/ENDISPUTE. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 45 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy) and thereupon any such dispute or controversy shall be resolved only in accordance with the provisions of this Section 11.8. Any such proceedings shall take place in New York City before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process, before a non-judicial (rather than a judicial) arbitrator, and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance with the procedures of JAMS/ENDISPUTE shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the jurisdiction of the New York courts for this purpose. Each party shall be responsible for his or its costs of arbitration (including reasonable attorneys fees and the fees of experts). If at the time any dispute or controversy arises with respect to this Agreement, JAMS/ENDISPUTE is not in business or is no longer providing arbitration services, then the American Arbitration Association shall be substituted for JAMS/ENDISPUTE for the purposes of the foregoing provisions of this Section 11.8. If you shall be the prevailing party in such arbitration, the Company shall promptly pay, upon your demand, all legal fees, court costs and other costs and expenses incurred by you in any legal action seeking to enforce the award in any court.

11.9    Beneficiaries.    Whenever this Agreement provides for any payment to your estate, such payment may be made instead to such beneficiary or beneficiaries as you may designate by written notice to the Company. You shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries

 

 

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by written notice to the Company (and to any applicable insurance company) to such effect.

11.10    No Conflict.    You represent and warrant to the Company that this Agreement is legal, valid and binding upon you and the execution of this Agreement and the performance of your obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which you are a party (including, without limitation, any other employment agreement). The Company represents and warrants to you that this Agreement is legal, valid and binding upon the Company and the execution of this Agreement and the performance of the Company’s obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Company is a party.

11.11    Conflict of Interest.    Attached as Annex B and made part of this Agreement is the AOL Standards of Business Conduct. You confirm that you have read, understand and will comply with the terms thereof and any reasonable amendments thereto. In addition, as a condition of your employment under this Agreement, you understand that you may be required periodically to confirm that you have read, understand and will comply with the Standards of Business Conduct as the same may be revised from time to time.

11.12    Withholding Taxes.    Payments made to you pursuant to this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.

11.13    No Offset.    Neither you nor the Company shall have any right to offset any amounts owed by one party hereunder against amounts owed or claimed to be owed to such party, whether pursuant to this Agreement or otherwise, and you and the Company shall make all the payments provided for in this Agreement in a timely manner.

11.14    Severability.    If any provision of this Agreement shall be held invalid, the remainder of this Agreement shall not be affected thereby; provided, however, that the parties shall negotiate in good faith with respect to equitable

 

 

25


modification of the provision or application thereof held to be invalid. To the extent that it may effectively do so under applicable law, each party hereby waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.

11.15    Survival.    Sections 3.6, 7.3 and 8 through 11 shall survive any termination of the term of employment by the Company for cause pursuant to Section 4.1. Sections 3.6, 4.2, 4.3, 4.4, 4.5, 4.6 and 7 through 11 shall survive any termination of the term of employment pursuant to Sections 4.2, 5 or 6. In all other cases, Section 3.6, 7.2 and 7.5 shall survive the termination or expiration of the term of employment.

11.16    Definitions.    The following terms are defined in this Agreement in the places indicated:

affiliate - Section 4.2.2

Average Annual Bonus - Section 4.2.1

Base Salary - Section 3.1

Bonus - Section 3.2.1

Separation Agreement - Section 3.2.1

Prior Employer Bonus - Section 3.2.1

cause - Section 4.1

Code - Section 4.2.2

Company - the first paragraph on page 1 and Section 8.1

Competitive Entity - Section 8.2

Disability Date - Section 5

Disability Period - Section 5

Effective Date - the first paragraph on page 1

Equity Cessation Date - Section 4.2.2

Severance Term Date - Section 4.2.2

Subsequent Term Option - Section 7.2

Term Option - Section 7.2

Term Date - Section 1

term of employment - Section 1

termination without cause - Section 4.2.1

Transition Plan - Section 3.4

Work Product - Section 9

11.17    Compliance with IRC Section 409A.    This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted in a manner intended to comply with

 

 

26


Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if at the time of your termination of employment with the Company you are a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitutes “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this Section 11.17; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect to thereto.

 

 

27


IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

 

TIME WARNER INC.  
By   /s/ Mark A. Wainger

AOL LLC

 
By:   /s/ Mark A. Wainger
/s/ Randel A. Falco   3/7/08
Randel A. Falco  

 

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ANNEX A

RELEASE

Pursuant to the terms of the Employment Agreement made as of                     , between TIME WARNER INC., a Delaware corporation (“Time Warner”), One Time Warner Center, New York, New York 10019, AOL LLC, a Delaware limited liability company (“AOL” or the “Company”), 22000 AOL Way, Dulles, Virginia 20166 and the undersigned (the “Agreement”), and in consideration of the payments made to me and other benefits to be received by me pursuant thereto, I, [Name], being of lawful age, do hereby release and forever discharge the Company and any successors, subsidiaries, affiliates, related entities, predecessors, merged entities and parent entities and their respective officers, directors, shareholders, employees, benefit plan administrators and trustees, agents, attorneys, insurers, representatives, affiliates, successors and assigns from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney’s fees, expenses, or other compensation or damages (collectively, “Claims”), which in any way relate to or arise out of my employment with the Company or any of its subsidiaries or the termination of such employment, which I may now or hereafter have under any federal, state or local law, regulation or order, including without limitation, Claims related to any stock options held by me or granted to me by the Company that are scheduled to vest subsequent to my termination of employment (except for those stock options schedule to vest after the date of my termination under Section 7 of the Agreement) and Claims under the Age Discrimination in Employment Act (with the exception of Claims that may arise after the date I sign this Release), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Fair Labor Standards Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act, each as amended through and including the date of this Release; provided, however, that the execution of this Release shall not prevent the undersigned from bringing a lawsuit against the Company to enforce its obligations under the Agreement; provided further, the execution of this Release does not release any right I might have against the Company or Time Warner for indemnification under the Agreement of any other agreement, plan or arrangement. Nothing in this Release shall be read to limit my ability to defend myself against any action brought against me by the Company or Time Warner.

I acknowledge that I have been given at least 21 days from the day I received a copy of this Release to sign it and that I have been advised to consult an attorney. I understand that I have the right to revoke my consent to this Release for seven days following my signing. This Release shall not become effective or enforceable until the expiration of the seven-day period following the date it is signed by me.

I ALSO ACKNOWLEDGE THAT BY SIGNING THIS RELEASE I MAY BE GIVING UP VALUABLE LEGAL RIGHTS AND THAT I HAVE BEEN ADVISED TO CONSULT A LAWYER BEFORE SIGNING. I further state that I have


read this document and the Agreement referred to herein, that I know the contents of both and that I have executed the same as my own free act.

WITNESS my hand this          day of                     ,         .

 

 


ANNEX B

AOL

STANDARDS OF BUSINESS CONDUCT

EX-10.82 26 dex1082.htm EXHIBIT 10.82 EXHIBIT 10.82

Exhibit 10.82

EMPLOYMENT AGREEMENT made December 21, 2006 effective as of November 27, 2006 (the “Effective Date”), between AOL LLC, a Delaware limited liability company (the “Company”), and RON GRANT (“You”).

You and the Company desire to set forth the terms and conditions of your employment by the Company and agree as follows:

1.    Term of Employment.    Your “term of employment” as this phrase is used throughout this Agreement, shall be for the period beginning on the Effective Date and ending on December 31, 2010 (the “Term Date”), subject, however, to earlier termination as set forth in this Agreement.

2.    Employment.    During the term of employment, you shall serve as President and Chief Operating Officer of the Company or in such other senior position as the Company may determine and you shall have the authority, functions, duties, powers and responsibilities normally associated with such position and such additional authority, functions, duties, powers and responsibilities as may be assigned to you from time to time by the Company consistent with your senior position with the Company. During the term of employment, (i) your services shall be rendered on a substantially full-time, exclusive basis and you will apply on a full-time basis all of your skill and experience to the performance of your duties, (ii) you shall have no other employment and, without the prior written consent of the Chief Executive Officer or other officer of the Company designated by the Chief Executive Officer, no outside business activities which require the devotion of substantial amounts of your time, (iii) and the place for the performance of your services shall be the principal executive offices of the Company in the Dulles, Virginia and New York, New York metropolitan areas, subject to such reasonable travel as may be required in the performance of your duties. The foregoing shall be subject to the Company’s written policies, as in effect from time to time, regarding vacations, holidays, illness and the like.

3.    Compensation.

3.1        Base Salary.    The Company shall pay you a base salary at the rate of not less than $750,000 per annum during the term of employment (“Base Salary”). The Company may increase, but not decrease, your Base Salary during the term


of employment. Base Salary shall be paid in accordance with the Company’s customary payroll practices.

3.2         Bonus.     In addition to Base Salary, the Company typically pays its executives an annual cash bonus (“Bonus”). Although your Bonus is fully discretionary, beginning in January 2007, your target annual Bonus is $1,500,000 but the parties acknowledge that your actual Bonus will vary depending on the actual performance of you and the Company, from a minimum of $0 and up to a maximum Bonus of $2,250,000, as determined by the Company or, if applicable under its then-existing policies, the Compensation and Human Development Committee of the Board of Directors of Time Warner Inc. (“Time Warner”). Each year, beginning in 2007, your personal performance will be considered in the context of your executive duties and any individual goals set for you, and your actual Bonus will be determined. Although as a general matter the Company expects to pay bonuses at the target level in cases of satisfactory individual performance, it does not commit to do so, and your Bonus may be negatively affected by the exercise of the Company’s discretion or by overall Company performance. In 2006, a pro-rated portion of your Bonus, calculated based on the Effective Date of this Agreement, will be based on your $1,5000,000 target described above. Your Bonus amount each year, if any, will be paid to you between January 1 and March 15 of the calendar year immediately following the performance year in respect of which such Bonus is earned.

3.3        Stock Options.    So long as the term of employment has not terminated, you will be eligible to receive annual grants of stock options, although the Company does not commit to do so, provided Time Warner continues to maintain a stock option plan and subject to the approval of the Compensation and Human Development Committee of the Board of Directors of Time Warner. Each such stock option grant shall be reflected in a separate Stock Option Agreement in accordance with Time Warner’s customary practices.

3.4        Indemnification.    You shall be entitled throughout the term of employment (and after the end of the term of employment, to the extent relating to service during the term of employment) to the benefit of the indemnification provisions contained on the date hereof in the Operating Agreement of the Company (not including any amendments or additions after the date hereof that limit or narrow, but including any that add to or broaden, the protection afforded to you by those provisions).

 

 

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3.5        Long Term Incentive Compensation.    The Company shall provide you for each year of your term of employment with long term incentive compensation with a target value of approximately $2,750,000 (based on the valuation method used by the Company for its senior executives) through a combination of stock option grants, restricted stock or other equity-based awards, cash-based long-term plans or other components as may be determined and in such proportions as may be determined by the Compensation and Human Development Committee of Time Warner’s Board of Directors from time to time in its sole discretion. Notwithstanding the forgoing sentence, during 2007 and 2008, you will also be eligible to participate in a 2 year transition plan, (“Transition Plan”) with an annualized target of $1,500,000 per year, but the parties acknowledge that your actual long term incentive compensation will vary depending on the actual performance of you and the Company, from a minimum of $0 and up to a maximum of $3,000,000 per year. The remainder of your long term incentive target for 2007 and 2008, an annualized target of $1,250,000, will be awarded at the Company’s discretion through a mix that may include stock options, restricted stock units, performance units and cash.

4.    Termination.

4.1        Termination for Cause    The Company may terminate the term of employment and all of the Company’s obligations under this Agreement, other than its obligations set forth below in this Section 4.1, for “cause”. Termination by the Company for “cause” shall mean termination because of your (a) conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised) other than as a result of a moving violation or a Limited Vicarious Liability (as defined below), (b) willful failure or refusal without proper cause to perform your material duties with the Company, including your obligations under this Agreement (other than any such failure resulting from your incapacity due to physical or mental impairment), (c) willful misappropriation, embezzlement or reckless or willful destruction of Company property, (d) willful and material breach of any statutory or common law duty of loyalty to the Company having a significant adverse financial impact on the Company or on the Company’s reputation; (e) intentional and improper conduct materially prejudicial to the business of the Company or any of its affiliates, or (f) willful or material breach of any of the covenants provided for in Section 8 hereof. Such termination shall be effected by written notice thereof delivered by the Company to you and shall be effective as of the date of such notice; provided, however, that if (i) such termination is because of

 

 

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your willful failure or refusal without proper cause to perform any one or more of your obligations under this Agreement, (ii) such notice is the first such notice of termination for any reason delivered by the Company to you under this Section 4.1, and (iii) within 15 days following the date of such notice you shall cease your refusal and shall use your best efforts to perform such obligations, the termination shall not be effective. The term “Limited Vicarious Liability” shall mean any liability which is based on acts of the Company for which you are responsible solely as a result of your office(s) with the Company; provided that (x) you are not directly involved in such acts and either had no prior knowledge of such intended actions or, upon obtaining such knowledge, promptly acted reasonably and in good faith to attempt to prevent the acts causing such liability or (y) after consulting with the Company’s counsel, you reasonably believed that no law was being violated by such acts.

In the event of termination by the Company for cause, without prejudice to any other rights or remedies that the Company may have at law or in equity, the Company shall have no further obligation to you other than (i) to pay Base Salary through the effective date of termination, (ii) to pay any Bonus for any year prior to the year in which such termination occurs that has been determined but not yet paid as of the date of such termination, and (iii) with respect to any rights you have pursuant to any insurance or other benefit plans or arrangements of the Company. You hereby disclaim any right to receive a pro rata portion of any Bonus with respect to the year in which such termination occurs.

4.2    Termination by You for Material Breach by the Company and Termination by the Company Without Cause. Unless previously terminated pursuant to any other provision of this Agreement and unless a Disability Period shall be in effect, you shall have the right, exercisable by written notice to the Company, to terminate the term of employment effective 15 days after the giving of such notice, if, at the time of the giving of such notice, the Company is in material breach of its obligations under this Agreement; provided, however, that, with the exception of clause (i) below, this Agreement shall not so terminate if such notice is the first such notice of termination delivered by you pursuant to this Section 4.2 and within such 15-day period the Company shall have cured all such material breaches. A material breach by the Company shall include, but not be limited to, (i) the Company violating Section 2 with respect to your title, duties, or place of employment or (ii) the Company failing to cause any successor to all or substantially all of

 

 

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the business and assets of the Company expressly to assume the obligations of the Company under this Agreement.

The Company shall have the right, exercisable by written notice to you delivered before the date which is 60 days prior to the Term Date, to terminate your employment under this Agreement without cause, which notice shall specify the effective date of such termination. If such notice is delivered on or after the date which is 60 days prior to the Term Date, the provision of Section 4.3 shall apply.

4.2.1    After the effective date of a termination pursuant to this Section 4.2 (a “termination without cause”), you shall receive Base Salary and a pro rata portion of your Average Annual Bonus (as defined below) through the effective date of termination. Your Average Annual Bonus shall be equal to the average of the regular annual bonus amounts (excluding the amount of any special or spot bonuses) in respect of the two calendar years during the most recent five calendar years for which the annual bonus received by you from the Company was the greatest; provided, however, if the Company has previously paid you no annual Bonus, then your Average Annual Bonus shall equal your target Bonus and if the Company has previously paid you one annual Bonus, then your Average Annual Bonus shall equal the average of such Bonus and your target Bonus. Your pro rata Average Annual Bonus pursuant to this Section 4.2.1 shall be paid to you at the times set forth in Section 4.6.

4.2.2    After the effective date of a termination without cause, you shall remain an employee of the Company for a period ending on the date (the “Severance Term Date”) which is the later of (i) the Term Date and (ii) the date which is twelve months after the effective date of such termination, provided that under either (i) or (ii) such period shall not exceed 2 years (unless such termination results from an AOL Transaction as defined in Paragraph 7.6 in which case the 2 year maximum period will not apply), and during such period you shall be entitled to receive, whether or not you become disabled during such period but subject to Section 6, (a) continued payments of your Base Salary (on the Company’s normal payroll payment dates as in effect immediately prior to the effective date of your termination without cause) at an annual rate equal to your Base Salary in effect immediately prior to the notice of termination, and (b) an annual Bonus in respect of each calendar year or portion thereof (in which case a pro rata portion of such Bonus will be payable) during such period equal to your Average Annual Bonus. Except as provided in the succeeding sentence, if you accept other full-time employment during

 

 

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such period or notify the Company in writing of your intention to terminate your status as an employee during such period, you shall cease to be an employee of the Company and shall be removed from the payroll of the Company effective upon the commencement of such other employment or the effective date of such termination as specified by you in such notice, whichever is applicable, and you shall be entitled to receive the remaining payments you would have received pursuant to this Section 4.2.2 had you remained on the Company’s payroll at the times specified in Section 4.6 of the Agreement. Notwithstanding the foregoing, if you accept employment with any not-for-profit entity or governmental entity, then you shall be entitled to remain an employee of the Company and receive the payments as provided in the first sentence of this Section 4.2.2; and if you accept full-time employment with any affiliate of the Company, then the payments provided for in this Section 4.2.2 shall immediately cease and you shall not be entitled to any further payments. For purposes of this Agreement, the term “affiliate” shall mean any entity which, directly or indirectly, controls, is controlled by, or is under common control with, the Company.

4.3    After the Term Date.    If at the Term Date, the term of employment shall not have been previously terminated pursuant to the provisions of this Agreement, no Disability Period is then in effect and the parties shall not have agreed to an extension or renewal of this Agreement or on the terms of a new employment agreement, then the term of employment shall continue on a month-to-month basis and you shall continue to be employed by the Company pursuant to the terms of this Agreement, subject to termination by either party hereto on 60 days written notice delivered to the other party (which notice may be delivered by either party at any time on or after the date which is 60 days prior to the Term Date). If the Company shall terminate the term of employment on or after the Term Date for any reason (other than for cause as defined in Section 4.1, in which case Section 4.1 shall apply), which the Company shall have the right to do so long as no Disability Date (as defined in Section 5) has occurred prior to the delivery by the Company of written notice of termination, then such termination shall be deemed for all purposes of this Agreement to be a “termination without cause” under Section 4.2 and the provisions of Sections 4.2.1 and 4.2.2 shall apply. You will continue to have the rights outlined in Section 4.2 to terminate employment for a material breach by the Company.

4.4    Release.    A condition precedent to the Company’s obligation to make the payments associated with a termination without cause shall be your execution and delivery of a release in the form attached hereto as Annex A. If you shall fail to

 

 

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execute and deliver such release, or if you revoke such release as provided therein, then in lieu of the payments provided for herein, you shall receive a severance payment determined in accordance with the Company’s policies relating to notice and severance.

4.5    Mitigation.    In the event of a termination without cause under this Agreement, you shall not be required to seek other employment in order to mitigate your damages. If, however, following a termination without cause you obtain other employment with any entity, other than a not-for-profit entity or government institution, then you shall pay over to the Company the total cash salary and bonus (of any kind) payable to you in connection with such other employment for services during the period prior to the Severance Term Date (whether paid or deferred), at the time received by you, to the extent of the amounts previously paid to you by the Company following your termination with respect to such period, as damages or severance, in excess of the Company’s standard policy. (The provisions of the foregoing sentence shall not apply to any equity interest, stock option, phantom or restricted stock or similar benefit received in connection with such other employment). Any obligation to mitigate your damages pursuant to this Section 4.5 shall not be a defense or offset to the Company’s obligation to pay you in full the amounts provided in this Agreement upon the occurrence of a termination without cause, at the time provided herein, or the timely and full performance of any of the Company’s other obligations under this Agreement.

4.6    Payments.    Payments of Base Salary and Bonus required to be made to you after a termination without cause shall be made at the same times as such payments otherwise would have been paid to you pursuant to Sections 3.1, 3.2 and 4.2 if you had not been terminated; provided, however, that any payment otherwise required to be made after a termination without cause that the Company reasonably determines is subject to Section 409A(a)(2)(B)(i) of the Code shall not be paid or payment commenced until the later of (a) six months after the date of your “separation from service” (within the meaning of Section 409A of the Code) and (b) the payment date or commencement date specified in this Agreement for such payment(s). On the earliest date on which such payments can be made or commenced without violating the requirements of Section 409A(a)(2)(B)(i) of the Code, you shall be paid, in a single lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence.

 

 

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5.    Disability.

5.1    Disability Payments.    If during the term of employment and prior to the delivery of any notice of termination without cause, you become physically or mentally disabled, whether totally or partially, so that you are prevented from performing your usual duties for a period of six consecutive months, or for shorter periods aggregating six months in any twelve-month period, the Company shall, nevertheless, continue to pay your full compensation through the last day of the sixth consecutive month of disability or the date on which the shorter periods of disability shall have equaled a total of six months in any twelve-month period (such last day or date being referred to herein as the “Disability Date”), subject to Section 4.6. If you have not resumed your usual duties on or prior to the Disability Date, the Company shall pay you a pro rata Bonus (based on your Average Annual Bonus) for the year in which the Disability Date occurs and thereafter shall pay you disability benefits for the period ending on the later of (i) the Term Date or (ii) the date which is twelve months after the Disability Date (in the case of either (i) or (ii), the “Disability Period”), in an annual amount equal to 75% of (a) your Base Salary at the time you become disabled and (b) the Average Annual Bonus, in each case, subject to Section 4.6.

5.2    Recovery from Disability.    If during the Disability Period you shall fully recover from your disability, the Company shall have the right (exercisable within 60 days after notice from you of such recovery), but not the obligation, to restore you to full-time service at full compensation. If the Company elects to restore you to full-time service, then this Agreement shall continue in full force and effect in all respects and the Term Date shall not be extended by virtue of the occurrence of the Disability Period. If the Company elects not to restore you to full-time service, you shall be entitled to obtain other employment, subject, however, to the following: (i) you shall perform advisory services during any balance of the Disability Period; and (ii) you shall comply with the provisions of Sections 8 and 9 during the Disability Period. The advisory services referred to in clause (i) of the immediately preceding sentence shall consist of rendering advice concerning the business, affairs and management of the Company as requested by the Chief Executive Officer or other more senior officer of the Company but you shall not be required to devote more than five days (up to eight hours per day) each month to such services, which shall be performed at a time and place mutually convenient to both paries. Any income from such other employment shall not be applied to reduce the Company’s obligations under this Agreement.

 

 

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5.3    Other Disability Provisions.    The Company shall be entitled to deduct from all payments to be made to you during the Disability Period pursuant to this Section 5 an amount equal to all disability payments received by you during the Disability Period from Worker’s Compensation, Social Security and disability insurance policies maintained by the Company; provided, however, that for so long as, and to the extent that, proceeds paid to you from such disability insurance policies are not includible in your income for federal income tax purposes, the Company’s deduction with respect to such payments shall be equal to the product of (i) such payments and (ii) a fraction, the numerator of which is one and the denominator of which is one less the maximum marginal rate of federal income taxes applicable to individuals at the time of receipt of such payments. All payments made under this Section 5 after the Disability Date are intended to be disability payments, regardless of the manner in which they are computed. Except as otherwise provided in this Section 5, the term of employment shall continue during the Disability Period and you shall be entitled to all of the rights and benefits provided for in this Agreement, except that Sections 4.2 and 4.3 shall not apply during the Disability Period and unless the Company has restored you to full-time service at full compensation prior to the end of the Disability Period, the term of employment shall end and you shall cease to be an employee of the Company at the end of the Disability Period and shall not be entitled to notice and severance or to receive or be paid for any accrued vacation time or unused sabbatical.

6.    Death.    If you die during the term of employment, this Agreement and all obligations of the Company to make any payments hereunder shall terminate except that your estate (or a designated beneficiary) shall be entitled to receive Base Salary to the last day of the month in which your death occurs and Bonus compensation (at the time bonuses are normally paid) based on the Average Annual Bonus, but prorated according to the number of whole or partial months you were employed by the Company in such calendar year.

7.    Other Benefits.

7.1    General Availability.    To the extent that (a) you are eligible under the general provisions thereof (including without limitation, any plan provision providing for participation to be limited to persons who were employees of the Company or certain of its subsidiaries prior to a specific point in time) and (b) the Company

 

 

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maintains such plan or program for the benefit of its executives, during the term of employment and so long as you are an employee of the Company, you shall be eligible to participate in any savings, or similar plan or program and in any group life insurance, hospitalization, medical, dental, accident, disability or similar plan or program of the Company now existing or established hereafter.

7.2    Benefits After a Termination or Disability.    During the period you remain on the payroll of the Company after a termination without cause or during the Disability Period, you shall continue to be an employee of the Company and shall continue to be eligible to participate in the benefit plans and to receive the benefits required to be provided to you under this Agreement to the extent such benefits are maintained in effect by the Company for its executives; provided, however, you shall not be entitled to any additional awards or grants under any stock option, restricted stock or other stock based incentive plan. At the time you leave the payroll of the Company, your rights to benefits and payments under any benefit plans or any insurance or other death benefit plans or arrangements of the Company or under any stock option, restricted stock, stock appreciation right, bonus unit, management incentive or other plan of the Company shall be determined in accordance with the terms and provisions of such plans and any agreements under which such stock options, restricted stock or other awards were granted. However, notwithstanding the foregoing or any more restrictive provisions of any such plan or agreement, if your employment with the Company is terminated as a result of a termination pursuant to Section 4.2, then, except if you shall otherwise qualify for retirement under the terms of the applicable stock option agreement, (i) all stock options granted to you by Time Warner shall continue to vest, and any such vested stock options shall remain exercisable (but not beyond the term of such options) while you are on the payroll of the Company, (ii) all stock options granted to you by Time Warner after the Effective Date that would have vested on or before the Severance Term Date (or the comparable date under any employment agreement that amends, replaces or supersedes this Agreement) shall vest and become immediately exercisable upon the date you leave the payroll of the Company (such vested options, your “Term Options”), (iii) all your Term Options shall remain exercisable for a period of three years after the date you leave the payroll of the Company (but not beyond the term of such options), and (iv) the Company and Time Warner shall not be permitted to determine that your employment was terminated for “unsatisfactory performance” within the meaning of any stock option agreement between you and Time Warner.

 

 

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7.3    Payments in Lieu of Other Benefits.    In the event the term of employment and your employment with the Company is terminated pursuant to any section of this Agreement, you shall not be entitled to notice and severance under the Company’s general employee policies or to be paid for any accrued vacation time or unused sabbatical, the payments provided for in such sections being in lieu thereof.

7.4    Life Insurance.    During your employment with the Company, the Company shall (i) provide you with $50,000 of group life insurance and (ii) pay you annually an amount equal to two times the premium you would have to pay to obtain life insurance under the Group Universal Life (“GUL”) insurance program made available by the Company in an amount equal to $3,000,000. You shall be under no obligation to use the payments made by the Company pursuant to the preceding sentence to purchase GUL insurance or to purchase any other life insurance. If the Company discontinues its GUL insurance program, the Company shall nevertheless make the payments required by this Section 7 as if such program were still in effect. The payments made to you hereunder shall not be considered as “salary” or “compensation” or “bonus” in determining the amount of any payment under any pension, retirement, profit-sharing or other benefit plan of the Company or any subsidiary of the Company.

7.5    Housing and Automobile Allowance.    For up to the first year of the Term, the Company will provide you with transition housing in the Dulles, Virginia metropolitan area and a monthly automobile allowance of $2,000 in compliance with the Company’s current practices and policies.

7.6    AOL Transaction.    If an AOL Transaction (as defined below) occurs, then with respect to the Time Warner stock options, restricted stock, restricted stock units and other Time Warner equity-based awards held by you on the date the AOL Transaction closes, the treatment of such equity awards will be equivalent to the treatment that would apply pursuant to Section 7.2 if your employment with the Company had been terminated without cause pursuant to Section 4.2 concurrent with the closing of such an AOL Transaction and you had left the payroll of the Company on the same date, regardless of your actual employment status with the Company. Accordingly, in such event, except if you shall otherwise qualify for retirement under the terms of the applicable stock option agreement, (i) the options granted on or after the Effective Date (the “Term Options”) that would have vested on or before the Term Date (or the comparable date under any employment agreement that amends, replaces or supersedes this Agreement) shall vest and

 

 

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become immediately exercisable on the closing date of such an AOL Transaction, (ii) all vested Term Options shall remain exercisable for a period of three years after the closing date of such an AOL Transaction (but not beyond the term of such options) and (iii) any other unvested awards of restricted stock, restricted stock units or other Time Warner equity-based award shall be determined in accordance with the terms and provisions of such plans and any agreements under which such restricted stock, restricted stock units or other awards were granted, based on the assumption that your employment terminated without cause on the closing date of such an AOL Transaction, i.e., pro-rated vesting of the next installment of such awards. If this Section 7.6 shall become applicable as a result of an AOL Transaction, then the benefits and treatment provided for in this Section 7.6 with respect to stock options, restricted stock, restricted stock units and other equity-based awards shall replace and supersede in all respects the treatment provided in Section 7.2, and you will not receive any additional benefits pursuant to Section 7.2 with respect to Time Warner equity-based awards if your employment with the Company is terminated following or in connection with an AOL Transaction. An “AOL Transaction” shall mean (a) a transaction the result of which is the Company ceases to be a consolidated subsidiary of Time Warner, whether due to the sale, transfer or distribution of stock, a merger, the contribution of stock to a joint venture or for any other reason, or (b) any sale, transfer or other disposition by Time Warner of all or substantially all of the Company’s business and assets, whether by merger, sale of stock or assets, formation of a joint venture or otherwise, as the case may be, other than any such sales, transfers or dispositions following which the financial results of all or substantially all of the Company’s business continues to be consolidated with the financial results of Time Warner in the periodic reports filed by Time Warner with the Securities and Exchange Commission.

8.    Protection of Confidential Information: Non-Compete.

8.1    Confidentiality Covenant.    You acknowledge that your employment by the Company (which, for purposes of this Section 8 shall mean Time Warner Inc. and its affiliates) will, throughout the term of employment, bring you into close contact with many confidential affairs of the Company, including information about costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not readily available to the public, and plans for future development. You further acknowledge that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. You further acknowledge that

 

 

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the business of the Company is international in scope, that its products and services are marketed throughout the world, that the Company competes in nearly all of its business activities with other entities that are or could be located in nearly any part of the world and that the nature of your services, position and expertise are such that you are capable of competing with the Company from nearly any location in the world. In recognition of the foregoing, you covenant and agree:

8.1.1    You shall keep secret all confidential matters of the Company and shall not disclose such matters to anyone outside of the Company, or to anyone inside the Company who does not have a need to know or use such information, and shall not use such information for personal benefit or the benefit of a third party, either during or after the term of employment, except with the Company’s written consent, provided that (i) you shall have no such obligation to the extent such matters are or become publicly known other than as a result of your breach of your obligations hereunder and (ii) you may, after giving prior notice to the Company to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process;

8.1.2    You shall deliver promptly to the Company on termination of your employment, or at any other time the Company may so request, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Company’s business, which you obtained while employed by, or otherwise serving or acting on behalf of, the Company and which you may then possess or have under your control; and

8.1.3    If the term of employment is terminated pursuant to Section 4, for a period of one year after such termination, without the prior written consent of the Company, you shall not employ, and shall not cause any entity of which you are an affiliate to employ, any person who was a full-time employee of the Company at the date of such termination or within six months prior thereto but such prohibition shall not apply to your secretary or executive assistant or to any other employee eligible to receive overtime pay.

8.2    Non-Compete.    During the term of employment and through either (a) in the event of an AOL Transaction, six months from the close of any AOL Transaction as described in Section 7.6 or (b) the later of (i) the Term Date, (ii) the date

 

 

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you leave the payroll of the Company, and (iii) twelve months after the effective date of any termination of the term of employment pursuant to Section 4, you shall not, directly or indirectly, without the prior written consent of the Chief Executive Officer or Chief Operating Officer of Time Warner, render any services to, or act in any capacity for, any Competitive Entity, or acquire any interest of any type in any Competitive Entity; provided, however, that the foregoing shall not be deemed to prohibit you from acquiring, (a) solely as an investment and through market purchases, securities of any Competitive Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than one percent (1%) of the outstanding voting power of that entity and (b) securities of any Competitive Entity that are not publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than three percent (3%) of the outstanding voting power of that entity. For purposes of the foregoing, the following shall be deemed to be a Competitive Entity: (x) during the period that you are actively employed with the Company, any person or entity that engages in any line of business that is substantially the same as either (i) any line of business which the Company engages in, conducts or, to your knowledge, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company as to which, to your knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business, (y) during the period following a termination of your term of employment pursuant to Section 4, any of the following: eBay Inc., MySpace, Interactive Corp., EarthLink, Inc., Google Inc., Microsoft Corporation, and Yahoo! Inc., and their respective subsidiaries and any successor to the internet service provider and (z) any internet access, service or portal company or any other company that directly competes with AOL (Notwithstanding clause (z) above, You may provide services to a non-competitive division or subsidiary of any entity described in clause (z) above).

9.    Ownership of Work Product.    You acknowledge that during the term of employment, you may conceive of, discover, invent or create inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as “Work Product”), and that various business opportunities shall be presented to you by reason of your employment by the Company. You acknowledge that all of the foregoing shall be owned by and belong exclusively to the Company and that you shall have no personal

 

 

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interest therein, provided that they are either related in any manner to the business (commercial or experimental) of the Company, or are, in the case of Work Product, conceived or made on the Company’s time or with the use of the Company’s facilities or materials, or, in the case of business opportunities, are presented to you for the possible interest or participation of the Company. You shall (i) promptly disclose any such Work Product and business opportunities to the Company; (ii) assign to the Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of your inventorship or creation in any appropriate case. You agree that you will not assert any rights to any Work Product or business opportunity as having been made or acquired by you prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by the Company in writing prior to the date hereof.

10.    Notices.    All notices, requests, consents and other communications required or permitted to be given under this Agreement shall be effective only if given in writing and shall be deemed to have been duly given if delivered personally or sent by a nationally recognized overnight delivery service, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):

10.1    If to the Company:

AOL LLC

22000 AOL Way

Dulles, Virginia 20166

Attention: General Counsel

with a copy to Time Warner to the addressees set forth below:

Time Warner Inc.

One Time Warner Center

New York, New York 10019

Attention: Senior Vice President - Global

Compensation and Benefits

(with a copy, similarly addressed

but Attention: General Counsel)

 

 

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10.2    If to you, to your residence address set forth on the records of the Company.

With a copy to:

Lanny Oppenheim

Loeb & Loeb

345 Park Avenue

New York, NY10154-1895

11.    General.

11.1    Governing Law.    This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.

11.2    Captions.    The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

11.3    Entire Agreement.    This Agreement, including Annexes A and B, set forth the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties.

11.4    No Other Representations.    No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or be liable for any alleged representation, promise or inducement not so set forth.

11.5    Assignability.    This Agreement and your rights and obligations hereunder may not be assigned by you and except as specifically contemplated in this Agreement, neither you, your legal representative nor any beneficiary designated by you shall have any right, without the prior written consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or commute to any person or entity any payment due in the future pursuant to any provision of this Agreement, and any attempt to do so shall be void and shall not be recognized by the Company. The Company shall assign its

 

 

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rights together with its obligations hereunder in connection with any sale, transfer or other disposition of all or substantially all of the Company’s business and assets, whether by merger, purchase of stock or assets or otherwise, as the case may be. Upon any such assignment, the Company shall cause any such successor expressly to assume such obligations, and such rights and obligations shall inure to and be binding upon any such successor.

11.6    Amendments: Waivers.    This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect such party’s right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

11.7    Specific Remedy.    In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if you commit a material breach of any of the provisions of Sections 9.1, 9.2, or 10, the Company shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company.

11.8    Resolution of Disputes.    Except as provided in the preceding Section 11.7, any dispute or controversy arising with respect to this Agreement and your employment hereunder (whether based on contract or tort or upon any federal, state or local statute, including but not limited to claims asserted under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, any state Fair Employment Practices Act and/or the Americans with Disability Act) shall, at the election of either you or the Company, be submitted to JAMS/ENDISPUTE for resolution in arbitration in accordance with the rules and procedures of JAMS/ENDISPUTE. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 45 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy) and thereupon any such dispute or controversy shall be resolved

 

 

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only in accordance with the provisions of this Section 11.8. Any such proceedings shall take place in New York City before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process, before a non-judicial (rather than a judicial) arbitrator, and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance with the procedures of JAMS/ENDISPUTE shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the jurisdiction of the New York courts for this purpose. The prevailing party shall be entitled to recover the costs of arbitration (including reasonable attorneys fees and the fees of experts) from the losing party. If at the time any dispute or controversy arises with respect to this Agreement, JAMS/ENDISPUTE is not in business or is no longer providing arbitration services, then the American Arbitration Association shall be substituted for JAMS/ENDISPUTE for the purposes of the foregoing provisions of this Section 11.8. If you shall be the prevailing party in such arbitration, the Company shall promptly pay, upon your demand, all legal fees, court costs and other costs and expenses incurred by you in any legal action seeking to enforce the award in any court.

11.9    Beneficiaries.    Whenever this Agreement provides for any payment to your estate, such payment may be made instead to such beneficiary or beneficiaries as you may designate by written notice to the Company. You shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company (and to any applicable insurance company) to such effect.

11.10    No Conflict.    You represent and warrant to the Company that this Agreement is legal, valid and binding upon you and the execution of this Agreement and the performance of your obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which you are a party (including, without limitation, any other employment agreement). The Company represents and warrants to you that this Agreement is legal, valid and binding upon the Company and the execution of this Agreement and the performance of the Company’s obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Company is a party.

 

 

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11.11    Conflict of Interest.    Attached as Annex B and made part of this Agreement is the AOL Standards of Business Conduct. You confirm that you have read, understand and will comply with the terms thereof and any reasonable amendments thereto. In addition, as a condition of your employment under this Agreement, you understand that you may be required periodically to confirm that you have read, understand and will comply with the Standards of Business Conduct as the same may be revised from time to time.

11.12    Withholding Taxes.    Payments made to you pursuant to this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.

11.13    No Offset.    Neither you nor the Company shall have any right to offset any amounts owed by one party hereunder against amounts owed or claimed to be owed to such party, whether pursuant to this Agreement or otherwise, and you and the Company shall make all the payments provided for in this Agreement in a timely manner.

11.14    Severability.    If any provision of this Agreement shall be held invalid, the remainder of this Agreement shall not be affected thereby; provided, however, that the parties shall negotiate in good faith with respect to equitable modification of the provision or application thereof held to be invalid. To the extent that it may effectively do so under applicable law, each party hereby waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.

11.15    Survival.    Sections 3.4, 7.3 and 8 through 11 shall survive any termination of the term of employment by the Company for cause pursuant to Section 4.1. Sections 3.4, 4.4, 4.5, 4.6 and 7 through 11 shall survive any termination of the term of employment pursuant to Sections 4.2, 5 or 6.

12.16    Definitions.    The following terms are defined in this Agreement in the places indicated:

affiliate - Section 4.2.2

Average Annual Bonus - Section 4.2.1

Base Salary - Section 3.1

 

 

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Bonus - Section 3.2

cause - Section 4.1

Code - Section 4.2.2

Company - the first paragraph on page 1 and Section 8.1

Competitive Entity - Section 8.2

Disability Date - Section 5

Disability Period - Section 5

Effective Date - the first paragraph on page 1

Severance Term Date - Section 4.2.2

Term Date - Section 1

term of employment - Section 1

termination without cause - Section 4.2.1

Work Product - Section 9

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

 

AOL LLC
By  

/s/ Mark A. Wainger

  Mark A. Wainger
/s/ Ron Grant
  Ron Grant

 

 

 

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ANNEX A

RELEASE

Pursuant to the terms of the Employment Agreement made as of                         , between AOL LLC, a Delaware limited liability company (the “Company”), 22000 AOL Way, Dulles, Virginia 20166, and the undersigned (the “Agreement”), and in consideration of the payments made to me and other benefits to be received by me pursuant thereto, I, [Name], being of lawful age, do hereby release and forever discharge the Company and any parents, successors, subsidiaries, affiliates, related entities, predecessors, merged entities and parent entities and their respective officers, directors, shareholders, employees, benefit plan administrators and trustees, agents, attorneys, insurers, representatives, affiliates, successors and assigns from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney’s fees, expenses, or other compensation or damages (collectively, “Claims”), which in any way relate to or arise out of my employment with the Company or any of its subsidiaries or the termination of such employment, which I may now or hereafter have under any federal, state or local law, regulation or order, including without limitation, Claims related to any stock options held by me or granted to me by the Company that are scheduled to vest subsequent to my termination of employment and Claims under the Age Discrimination in Employment Act (with the exception of Claims that may arise after the date I sign this Release), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Fair Labor Standards Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act, each as amended through and including the date of this Release; provided, however, that the execution of this Release shall not prevent the undersigned from bringing a lawsuit against the Company to enforce its obligations under the Agreement.

I acknowledge that I have been given at least 21 days from the day I received a copy of this Release to sign it and that I have been advised to consult an attorney. I understand that I have the right to revoke my consent to this Release for seven days following my signing. This Release shall not become effective or enforceable until the expiration of the seven-day period following the date it is signed by me.

I ALSO ACKNOWLEDGE THAT BY SIGNING THIS RELEASE I MAY BE GIVING UP VALUABLE LEGAL RIGHTS AND THAT I HAVE BEEN ADVISED TO CONSULT A LAWYER BEFORE SIGNING. I further state that I have read this document and the Agreement referred to herein, that I know the contents of both and that I have executed the same as my own free act.

WITNESS my hand this          day of                         ,         .

       


ANNEX B

AOL

STANDARDS OF BUSINESS CONDUCT

EX-10.83 27 dex1083.htm EXHIBIT 10.83 EXHIBIT 10.83

Exhibit 10.83

LOGO

January 9, 2008

Via Hand Delivery

Nisha Kumar

Time Warner Inc.

One Time Warner Center

New York, New York 10019

Dear Nisha:

This letter (the “Agreement”) contains the key terms and conditions of your continued employment with AOL LLC (together with its subsidiaries, affiliates, and assigns, “AOL” or “the Company”) and supersedes any prior oral or written promises to you on the matters set forth herein and any other prior agreements you may have with Time Warner.

 

1. Term of Employment.    The phrase “Term of Employment,” as used throughout this Agreement, shall mean the period beginning on December 1, 2007 (the “Effective Date”), and ending on November 30, 2010 (the “Term Date”), subject to the provisions for earlier termination and extension set forth in this Agreement.

 

2. Scope of Employment.    Your position with the Company will be Chief Financial Officer (CFO), Executive Vice President, reporting to the Chairman and Chief Executive Officer of the Company, or his or her successor. You will have the duties and authority normally associated with this position and any additional duties and authority that may be assigned to you from time to time by the CEO or his or her or successor.

 

3. Base Salary.    During the Term of Employment, your base compensation (“Base Salary”) will be no less than $22,916.66, semi-monthly, less applicable withholdings, which is $550,000 on an annual basis. Your Base Salary will be reviewed annually during the Term of Employment and may be increased, but not decreased, based on your individual performance or changes in competitive market conditions.

 

4. Signing Bonus.    In addition, you received a one time signing bonus, in the amount of $105,000, less applicable withholdings, used for the cost of furnished housing for nine months and child care costs for twelve months at a location outside of AOL’s child care facility or at AOL’s child care facility when space becomes available, which will be paid the second pay period following your first day of employment.

 

5. Bonus.    In addition to Base Salary, the Company typically pays its executives an annual cash bonus (“Bonus”) pursuant to its Annual Incentive Plan. Although any Bonus (and its amount, if a Bonus is paid) is fully discretionary, your target Bonus as a percentage of your annualized Base Salary is 100% percent. Each year, the Company will review its

22000 AOL Way     Dulles. VA 20166-9323 USA


overall performance and your individual performance, and will determine your Bonus, if any. Although as a general matter the Company expects to pay Bonuses at the target level in cases of satisfactory individual performance, the Company does not commit to paying any Bonus, and your Bonus may be negatively affected by the exercise of the Company’s discretion or by overall Company performance.

 

6. Stock Options and Restricted Stock Units:    You have been granted an option to purchase 65,000 shares of Time Warner Inc. (Time Warner) common stock, subject to Board of Director approval, vesting equally on an annual basis, over a four (4) year period (Stock Option grant). Additionally, you have received a one-time award of 20,000 restricted stock units (RSU’s), subject to Board of Director approval, of which 50% will vest on the third anniversary of the award date and the remaining 50% will vest on the fourth anniversary of the award date. Your Stock Option grant date and your RSU award date will be as soon as possible following your first day of employment, pending Board of Director approval and administrative processing. The exercise price for your Stock Option grant was the Fair Market Value on your grant date which is determined by the average of the high and low sales prices of Time Warner common stock on the NYSE on that day. (Note that AOL and Time Warner may discontinue granting options to purchase shares of Time Warner common stock at any time.) Your Stock Option grant and your award of RSU’s shall be governed in accordance with the terms and conditions of the plans, agreements and notices under which they were issued. In addition the the awards noted above, you will be eligible to receive annual and long-term incentive awards pursuant to the terms of any applicable plans in which you participate.

 

7. Relocation.    You are eligible for relocation assistance, and may initiate your relocation at any time within 12 months of starting employment with AOL. All amounts paid to you or on your behalf for reimbursement of relocation expenses will be appropriately reported on your W-2 as either taxable or non-taxable income. If you resign from the Company within 12 months of initiating relocation, you will be required to repay in full, within 30 days of your resignation, the total amount paid for relocation expenses either to you or on your behalf.

Please do not initiate any relocation activities without first contacting the relocation department. To initiate relocation, please contact Laurie Steinemer, Sr. Relocation Consultant, at LSteinemer@aol.com. Please be advised that Relocation Department’s receipt of your signed Reimbursement Agreement (Appendix A) and Promissory Note (Appendix B) is required prior to payment of any approved relocation expenses

 

8. Benefits.    The Company offers a generous and comprehensive benefits package, including health, disability, and life insurance. While you are an employee of the Company, you will be eligible to participate in any group life insurance, medical, dental, disability or other benefit plan or program of the Company now existing or established hereafter, provided that (a) you are eligible under the general provisions thereof (including without limitation, any plan provision providing for participation to be limited to persons who were employees of the Company or certain of its subsidiaries prior to a specific point in time) and (b) the Company maintains such plan or program for the benefit of its employees. It will be necessary for you to make benefit elections within 30 days of your hire date with the Company. If you do not make an election within the designated timeframe, you will be enrolled into the benefits default plan and you will be responsible for any associated costs. Employee benefits are subject to change at the sole discretion of the Company.

 

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9. Employment Conditions.    While you are an employee of the Company, you shall render your services to the Company on a full-time, exclusive basis, unless otherwise directed by the CEO or his or her designee or successor. The place for performance of your services will be the offices of the Company in Dulles, Virginia, or such other place in the New York City area as the CEO shall designate, subject to such travel as may be required in the performance of your duties.

This offer is contingent on your submission of satisfactory proof of eligibility to work in the United States. This offer also is contingent upon the results of a pre-employment background check, which may include confirmation of your Social Security number, verification of prior employment, verification of education, if applicable, and a criminal records check. If the results of the pre-employment background check are not satisfactory, or if the Company determines that you have falsified or failed to disclose relevant information on your application, the Company reserves the right to withdraw this offer or terminate your employment.

Further, as a condition of your employment, you will be required to electronically sign AOL’s Standards of Business Conduct within the first 30 days of your employment and periodically thereafter during your employment as requested by the Company, as an affirmation of your agreement to the Company’s code of ethical and appropriate workplace conduct.

Nothing in this letter precludes you from performing any charitable or civic duties provided that such duties do not interfere with the performance of your duties as an employee of AOL, do not violate the Standards of Business Conduct or the CNPR Agreement, or cause a conflict of interest. You may sit on the boards of non-AOL entities during your employment only if first approved in writing by AOL’s Compliance Council.

 

10. Confidentiality, Non-Competition and Proprietary Rights.    You agree to execute, contemporaneously with your execution of this Agreement or thereafter if requested by the Company, the Company’s current Confidentiality, Non-Competition and Proprietary Rights Agreement (“CNPR Agreement”), which is incorporated herein by reference. Any reference in the CNPR Agreement to your “at will” employment status is superseded by this Agreement. You shall comply with all the terms of the CNPR Agreement.

 

11. Cooperation.    During and after your employment with the Company, you shall assist the Company in connection with any litigation, investigation, or other legal or regulatory matter involving the Company. You agree that such assistance may include, but is not limited to, meeting with the Company’s legal counsel or other representatives and voluntarily providing testimony in legal proceedings if so requested by the Company. The Company will compensate you in an amount to be mutually agreed upon for reasonable expenses you incur in connection with such assistance to the extent that such assistance occurs after your employment with the Company ends.

 

12. Return of Company Property.    Upon termination of your employment, or at any time the Company so requests, you must return to the Company all the Company property then in your possession, including, but not limited to keys, access cards, computers, SecurIDs, pagers, telephones, credit cards and the original and all copies of any written, recorded, or

 

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computer readable information about Company practices, procedures, employees, trade secrets, finances, customer lists or marketing associated with the Company’s business, and any other information deemed proprietary or confidential in accordance with Company policies and/or the CNPR Agreement.

 

13. Extension.    If at the Term Date, your employment has not been terminated previously, and you and the Company have not agreed to an extension or renewal of this Agreement or to the terms of a new employment agreement, then your Term of Employment shall continue on a month-to-month basis, and you shall continue to be employed by the Company pursuant to the terms of this Agreement, subject to termination by either party hereto on 30 days’ written notice delivered to the other party (which notice may be delivered by either party at any time on or after a date which is 30 days before the Term Date). If the Company elects to give notice of termination under this paragraph and the basis for such termination is not one of the grounds for termination under paragraph 14 herein, then such termination by the Company shall be deemed a termination without cause under paragraph 15 herein. If you elect to give notice of termination under this paragraph (for reasons other than Good Reason, as defined in Section 14[b]), then your termination shall be deemed a resignation under paragraph 14 herein and you shall not be entitled to receive any payments under paragraph 15 herein.

 

14. Termination for Cause or for Death or Disability / Resignation by You.    Notwithstanding anything to the contrary herein, the Company reserves the right to terminate your employment and this Agreement for cause, as this term is defined below, or because of your death or disability (as the term disability is defined in the long-term disability plan of the Company), at any time. Further, notwithstanding anything to the contrary herein, you may resign your employment with the Company at any time, and the terms of this paragraph will apply to any such resignation.

 

  a. For purposes of this Agreement, “cause” means: (i) your conviction of, or nolo contendere or guilty plea to, a felony (whether any right to appeal has been or may be exercised); (ii) your failure or refusal without proper cause to perform your duties with the Company, including your express obligations under this Agreement, if such failure or refusal remains uncured for 15 days after written notice to you; (iii) fraud, embezzlement, misappropriation, or material destruction of Company property by you; (iv) your breach of any statutory or common law duty of loyalty to the Company; (v) your violation of the CNPR Agreement or the Standards of Business Conduct; (vi) your improper conduct substantially prejudicial to the Company’s business; or (vii) your failure to cooperate in any internal or external investigation involving the Company.

 

  b. For purposes of this Agreement, “Good Reason” means: (i) any reduction by the Company of your then current Base Salary; (ii) the relocation of the Company’s offices to a location more than fifty (50) miles from its current location or outside the New York City area; or (iii) the Company’s dimunition in your function with the Company; subject to the following conditions:

 

  1. you must provide written notice of your intent to terminate your employment and this agreement for good reason within thirty (30) days of such dimunition of your function;

 

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  2. such written notice must be delivered to the Chairman and Chief Executive Officer of AOL and to the Executive Vice President of Human Resources; and

 

  3. the Company shall have fifteen (15) days from the date of your written notice to cure the diminishment.

If you terminate this Agreement pursuant to the terms of this paragraph, then paragraph 15 shall apply as though the Company had terminated this Agreement without cause. If you do not provide the written notice within the time period set forth above, then your right to terminate this Agreement for Good Reason shall be deemed to have been waived.

 

  c. If the Company terminates your employment and this Agreement for cause or because of your death or disability, or if you resign your employment other than for Good Reason, the Company shall have no further obligation to you or your heirs other than (i) to pay your Base Salary through the effective date of termination, and (ii) with respect to any rights or benefits you may have pursuant to any insurance, benefit or other applicable plan of the Company.

 

15. Termination Without Cause or For Good Reason.    Notwithstanding anything to the contrary herein, the Company reserves the right to terminate your employment and this Agreement without cause and you reserve the right to terminate your employment with the Company with or without Good Reason. If the Company terminates your employment and this Agreement without cause, or if you terminate your employment with the Company for Good Reason, the following terms shall apply:

 

  a. The Company will pay you an amount equal to eighteen (18) months of your then current Base Salary, less applicable withholdings, payable in a lump sum. This payment will not be eligible for deferrals in the Company’s 401(k) plan.

 

  b. Subject to the terms of paragraph 5, provided the Company pays a Bonus to eligible employees under the Company’s AIP for the fiscal year ending prior to your termination, you will receive a Bonus payment, payable at the same rate that continuing employees receive their Bonus payment, less tax withholdings; provided however, that such Bonus payment has not already been paid to you at the time of the termination of your employment. This payment will be paid in a lump sum at the same time that continuing employees receive their AIP payout for that fiscal year, subject to paragraph 15(e) below. This payment will not be eligible for deferrals in the Company’s 401(k) plan.

 

  c. In addition, you will receive a Bonus payment, pro-rated through the effective date of the termination of your employment, payable at target, less tax withholdings, payable in a lump sum, subject to paragraph 15(e) below. This payment will not be eligible for deferrals in the Company’s 401(k) plan.

 

  d. If you elect to enroll in COBRA benefit continuation, the Company will pay the cost of medical, dental and vision benefit coverage under COBRA for twelve (12) months beginning the first day of the calendar month following the termination of your employment.

 

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  e. The payments made under paragraphs 15(a) and 15(c) will be paid within thirty (30) days of the effective date of the termination of your employment or the effective date of the signed release of claims, whichever is later, but no later than March 15 of the calendar year following the year of the termination of your employment. Payment made under paragraph 15(b) will be paid no later than March 15 of the calendar year of the termination of your employment.

 

  f. You agree not to affirmatively encourage or assist any person or entity in litigation against the Company or its affiliates, officers, employees and agents in any manner. This provision does not prohibit your response to a valid subpoena for documents or testimony or other lawful process; however, you agree to provide the Company with prompt notice of said process.

 

  g. You agree not to make any disparaging or untruthful remarks or statements about the Company or its products, services, officers, directors, or employees. The Company agrees not to cause its officers and senior executives to make any disparaging or untruthful remarks or statements about you. Nothing in this Agreement prevents you from making truthful statements when required by law, court order, subpoena, or the like, to a governmental agency or body.

 

  h. A condition precedent to the Company’s obligation to make the payments in paragraphs 15(a), 15(b) and 15(c) shall be your execution and delivery to the Company of a release in the form attached hereto as Exhibit A upon termination of your employment from the Company.

 

  i. You shall not be entitled to notice and severance under any policy or plan of the Company (the payments set forth in this paragraph being given in lieu thereof).

 

  j. You agree that if you breach any of your obligations, to the material detriment of the Company, under Paragraphs 10, 11, 12 or 15(f), 15(g) of this Agreement, the CNPR Agreement, or the Release referenced above, the Company will be entitled to under paragraph 15(a), 15(b) and 15(c), recover the full payments made to you and to obtain all other remedies provided by law or equity.

 

16. Arbitration.    Except as provided in paragraph 17(e), any dispute or controversy arising under or relating to this Agreement and your employment hereunder (whether based on contract or tort or upon any federal, state or local statute) shall, at the election of either you or the Company, be submitted to JAMS for resolution in arbitration in accordance with the rules and procedures of JAMS for employment-related disputes. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 30 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy), and thereupon any such dispute or controversy shall be resolved only in accordance with the provisions of this Paragraph 16. Any such arbitration proceedings shall take place in Washington D.C. before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance with the procedures of JAMS shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any

 

6 of 10


court having jurisdiction thereof, and the parties consent to the jurisdiction of the courts of Virginia for this purpose. If at the time any dispute or controversy arises with respect to this Agreement JAMS is no longer providing arbitration services, then the American Arbitration Association shall be substituted for JAMS for purposes of this paragraph 16.

 

17. Miscellaneous.

 

  a. Captions.    The section headings of the paragraphs and subparagraphs contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

 

  b. Entire Agreement.    This Agreement, including Exhibit A, sets forth the entire agreement and understanding between you and the Company relating to the terms and conditions of your employment and supersedes all prior agreements, arrangements and understandings, written or oral, between you and the Company concerning your employment status, except as expressly set forth herein.

 

  c. Assignability.    This Agreement and your rights and obligations hereunder may not be assigned, transferred or delegated by you to any person or entity. The Company shall assign its rights together with its obligations hereunder in connection with any sale, transfer or other disposition of all or substantially all of the Company’s business and assets, whether by merger, purchase of stock or assets or otherwise.

 

  d. Amendments and Waivers.    This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by you and the Chairman and Chief Executive Officer of AOL or, in the case of a waiver, by the party waiving compliance. The failure of either party at any time to require performance of any provision hereof shall in no manner affect such party’s right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

 

  e. Specific Remedy.    In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if you commit a material breach of any of the provisions of this Agreement or the CNPR Agreement, the Company shall have the right and remedy to have such provisions specifically enforced by any court having competent jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company.

 

  f. Taxes.    Payments made to you under this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.

 

7 of 10


  g. Severability.    If any provision of this Agreement is held to be invalid, the remainder of this Agreement shall not be affected thereby.

 

  h. Survival.    Paragraphs 10, 11, 12, 15, 16 and 17 shall survive any termination of this Agreement. In addition, you must continue to comply with the Standards of Business Conduct, referenced in paragraph 9, for any period that you remain an employee of the Company after a termination of this Agreement.

 

  i. Governing Law.    This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the Commonwealth of Virginia applicable to agreements made and to be performed entirely in Virginia.

 

  j. Compliance with IRC Section 409A.    This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if at the time of your termination of employment with the Company you are a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(l)(iv). Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this section; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect thereto.

 

8 of 10


Please sign and date one copy of this letter and return it to me. An extra copy is enclosed for your files.

With warm regards,

 

/s/ Randy Falco
Randy Falco
Chief Executive Officer

Agreed and Accepted:

 

/s/ Nisha Kumar     Date: 1/09/08    
Nisha Kumar        

 

 

 

 

9 of 10

EX-10.84 28 dex1084.htm EXHIBIT 10.84 EXHIBIT 10.84

Exhibit 10.84

LOGO

 

TO:    Nisha Kumar (ID 076037)
FROM:    Dave Harmon, EVP AOL Human Resources
CC:    Gillian Pon, VP AOL Human Resources, Total Rewards
DATE:    April 1, 2009
SUBJECT:    Retention Bonus Program

This memo is to notify you that you are eligible to participate in a one-time, discretionary retention bonus program (“Retention Bonus Program”) with AOL LLC (together with its subsidiaries and affiliates, “AOL” or “the Company”). This letter sets forth the key terms and conditions of your participation in the Retention Bonus Program.

 

1. Retention Bonus Program

 

  a. Bonus Period. The Retention Bonus Program shall be effective from April 1, 2009 and shall end on March 31, 2010 (“Bonus Period”).

 

  b. Bonus Payment. Subject to the Bonus Conditions set forth below, the total retention bonus amount for which you may be eligible shall be a one-time payment equal to $220,000, less applicable withholdings (“Bonus Payment”).

 

2. Retention Bonus Conditions

Your eligibility for the Bonus Payment shall be subject to and dependent upon you meeting the following conditions:

 

  a. Employment. You must be a full-time, active employee of the Company throughout the entire Bonus Period, subject to the following conditions:

 

  (i) Prior to the end of the Bonus Period, if AOL terminates your employment without cause, as defined below, in exchange for your execution and delivery of the Company’s standard separation agreement which contains, among other obligations, a valid release of all claims against the Company, you shall be entitled to receive any remaining, unpaid Bonus Payment under the Retention Bonus Program.

 

  (ii) Prior to the end of the Bonus Period, if AOL terminates your employment for cause, as defined below, or if you resign your employment for any reason, you will not be entitled to any Bonus Payment (or any pro rata Bonus Payment) for the Bonus Period. If during the Bonus Period you move to another Time Warner entity, you will not be entitled to any Bonus Payment (or any pro rata Bonus Payment) for the Bonus Period.


  (iii) Prior to the end of the Bonus Period, as a result of an “AOL Change of Control Transaction”, as defined as you no longer having a position with the Company, the Company agrees to terminate your employment and characterize such termination as a termination without cause for purposes of paragraph 2(a)(i) above. For purposes of this Retention Bonus Program, an “AOL Change in Control Transaction” means a transaction that results in (i) a transfer by the Company or any Affiliate of the Company of your employment to a corporation, company or other entity whose financial results are not consolidated with those of the Company or Time Warner, or (ii) a change in the ownership structure of the Company or Affiliate with which you are employed such that the Company’s or Affiliate’s financial results are no longer consolidated with those of Time Warner.

 

  (iv) For purposes of this Paragraph, “cause” means: (i) your conviction of, or nolo contendere or guilty plea to, a felony (whether any right to appeal has been or may be exercised); (ii) your failure, in the sole discretion of the Company, to satisfactorily perform your duties and responsibilities for the Company; (iii) fraud, embezzlement, misappropriation, or material destruction of Company property by you; (iv) your breach of any statutory or common law duty of loyalty to the Company; (v) your violation of the Company’s Confidentiality, Non-competition and Proprietary Rights Agreement (the “CNPR Agreement”) or the Standards of Business Conduct; (vi) your improper conduct substantially prejudicial to the Company’s business; or (vii) your failure to cooperate in any internal or external investigation involving the Company.

 

  b. Eligibility. Eligibility for participation in the Retention Bonus Program shall be determined by the Chairman and Chief Executive Officer and the Executive Vice President of the Human Resources department, at their sole and absolute discretion, and can be revised at any time, with or without notice, for any reason not prohibited by law.

 

  c. Satisfactory Performance. You must perform your position in a satisfactory fashion throughout the entire Bonus Period. Satisfactory performance shall be determined by the Chairman and Chief Executive Officer and the Executive Vice President of the Human Resources department, at their sole and absolute discretion. If you are on a Performance Improvement Plan at the time of payout, you will not be deemed eligible to receive a bonus payment.

 

  d. Leave of Absence. If you are on an approved leave of absence during the Bonus Period, you shall receive a Bonus Payment only upon your return to work. If you do not return from a leave of absence, you will not receive a Bonus Payment,

 

  e. Payment Dates and Withholdings. Any Bonus Payment to which you may be awarded under this Retention Bonus Program shall be paid, less applicable withholdings, on your next regularly scheduled pay date following the end of the Bonus Period, unless local law requires that it be paid sooner. If AOL terminates your employment without cause as referenced in paragraph 2(a)(i) above. AOL will pay any remaining, unpaid Bonus Payment, less applicable withholdings, within four (4) weeks of its receipt of your executed separation agreement.


  f. CNPR Agreement/Non-Disparagement. You agree to comply with the current version of the Company’s Confidentiality, Non-competition and Proprietary Rights Agreement (the “CNPR Agreement”) which is incorporated herein by reference. In addition, you agree not to make any disparaging or untruthful remarks or statements about the Company, its officers, directors, employees or agents, and to comply with the Standards of Business Conduct and all other relevant policies of the Company.

 

  g. Confidentiality. You agree to keep the existence and details of the Retention Bonus Program, including your participation in the Retention Bonus Program, strictly confidential. Any breach of this provision shall result in forfeiture of your eligibility for the Bonus Payment or your return of the Bonus Payment to the Company if previously paid to you.

All other terms and conditions of your employment with the Company remain in full force and effect. Your employment with the Company remains at-will, unless otherwise provided in a separate writing signed by an authorized officer of the Company. Nothing in this letter or the Retention Bonus Program is intended to create a contract for employment or guarantee of continued employment with the Company for any period of time. The Bonus Program is a discretionary incentive provided by the Company. It is not intended to be a payment of wages for services performed and no entitlement to any bonus payment should arise unless all of the stated terms and conditions of this Bonus Program have been satisfied in the Company’s sole and absolute discretion.

Please sign and date a copy of this memo and return it to Gillian Pon, via fax (703-265-7825) or interoffice mail by April 30th , 2009 if you wish to participate in this Retention Bonus Program. If you have any questions, please do not hesitate to contact People Direct (PeopleDirect@corp.aol.com).

 

ACCEPTED:

 

/s/ Nisha Kumar

          DATE:  

04/06/09

  Nisha Kumar            
EX-10.85 29 dex1085.htm EXHIBIT 10.85 EXHIBIT 10.85

Exhibit 10.85

LOGO

 

TO:

   Nisha Kumar

FROM:

   David Harmon, EVP Human Resources
  

DATE:

   May 7, 2008
  

SUBJECT:

   AOL 2008 Retention Program

 

 

This memo is to notify you that you are eligible to participate in a one-time retention bonus program (“Bonus Program”) with AOL LLC (together with its subsidiaries and affiliates, “AOL” or “the Company”). This memo sets forth the key terms and conditions of your participation in the Bonus Program.

 

1. Bonus Program

 

  a. Bonus Period. The Bonus Program shall be effective from May 1, 2008 and shall end on April 30, 2009 (“Bonus Period”).

 

  b. Bonus Payment. The total bonus amount for which you may be eligible shall be a one time payment equal to 100% of your Current Annual Salary, payable on or after April 30, 2009, (an amount equal to $550,000.00), less applicable withholdings, and subject to the Bonus Conditions set forth below (“Bonus Payment”). For purposes of this Bonus Program, your “Current Annual Salary” shall be your annual base pay in effect as of the date of this memo.

 

2. Bonus Conditions

Your eligibility for the Bonus Payments shall be subject to and dependent upon you meeting the following conditions:

 

  a. Employment. You must be a full-time, active employee of the Company throughout the entire Bonus Period, subject to the following conditions:

 

  (i) Prior to the end of the Bonus Period, if AOL terminates your employment without cause, as defined below, in exchange for your execution and delivery of the Company’s standard separation agreement which contains, among other obligations, a valid release of all claims against the Company, you shall be entitled to receive any unpaid Bonus Payment under the Bonus Program.

22110 Pacific Blvd        Dulles, VA         20166         USA


  (ii) Prior to the end of the Bonus Period, as a result of an “AOL Change of Control Transaction”, as defined below, if (a) you no longer have a position with the Company, or (b) your job functions and responsibilities are substantially or materially diminished from what they were immediately prior to an AOL Change of Control Transaction, the Company agrees to terminate your employment and characterize such termination as a termination without cause for purposes of paragraph 2(a)(i) above and for purposes of your Employment Agreement with the Company dated January 9, 2008. For purposes of this Bonus Program, an “AOL Change in Control Transaction” means a transaction that results in (i) a transfer by the Company or any Affiliate of the Company of your employment to a corporation, company or other entity whose financial results are not consolidated with those of the Company or Time Warner, or (ii) a change in the ownership structure of the Company or Affiliate with which you are employed such that the Company’s or Affiliate’s financial results are no longer consolidated with those of Time Warner.

 

  (iii) If during the Bonus Period you move to another Time Warner entity, you will be entitled to a pro rata Bonus Payment effective through your last day of active employment with the Company.

 

  (iv) Prior to the end of the Bonus Period, if AOL terminates your employment for cause, as defined below, you will not be entitled to any Bonus Payment (or any pro rata Bonus Payment).

 

  (v) For purposes of this Paragraph, “cause” means: (i) your conviction of or nolo contendere or guilty plea to, a felony (whether any right to appeal has been or may be exercised); (ii) your failure, in the sole discretion of the Company, to satisfactorily perform your duties and responsibilities for the Company; (iii) fraud, embezzlement, misappropriation, or material destruction of Company property by you; (iv) your breach of any statutory or common law duty of loyalty to the Company; (v) your violation of the CNPR Agreement or the Standards of Business Conduct; (vi) your improper conduct substantially prejudicial to the Company’s business; or (vii) your failure to cooperate in any internal or external investigation involving the Company.

 

  b. Eligibility. Eligibility for participation in the Bonus Program shall be determined by the Chief Executive Officer and the Executive Vice President of the Human Resources department, at their sole discretion, and can be revised at any time for any reason not prohibited by law.

 

  c. Satisfactory Performance. You must perform your job satisfactorily throughout the Bonus Period.

 

  d. Leave of Absence. If you are on an approved leave of absence during the Bonus Period, you shall receive a Bonus Payment only upon your return to work. If you do not return from a leave of absence, you will not receive a Bonus Payment.


  e. Payment Dates and Withholdings. Any Bonus Payment to which you may be entitled under this Bonus Program shall be paid, less applicable withholdings, on your next regularly scheduled pay date following the end of the Bonus Period, unless local law requires that it be paid sooner. If AOL terminates your employment without cause as referenced in paragraph 2(a)(i) above, AOL will pay any unpaid Bonus Payment, less applicable withholdings, within four (4) weeks of its receipt of your executed separation agreement.

 

  f. CNPR Agreement/Non-Disparagement. You agree to comply with the current version of the Company’s Confidentiality, Non-competition and Proprietary Rights Agreement (the “CNPR Agreement”) which is incorporated herein by reference. In addition, you agree not to make any disparaging or untruthful remarks or statements about the Company, its officers, directors, employees or agents, and to comply with the Standards of Business Conduct and all other relevant policies of the Company.

 

  g. Confidentiality. You agree to keep the existence and details of the Bonus Program, including your participation in the Bonus Program, strictly confidential. Any breach of this provision shall result in forfeiture of your eligibility for future Bonus Payment or your return of the Bonus Payment to the Company if previously paid to you.

 

  h. Compliance with IRC Section 409A. This memo is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if at the time of your termination of employment with the Company you are a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(l)(iv). Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code.


    The Company shall consult with you in good faith regarding the implementation of the provisions of this section; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect thereto.

All other terms and conditions of your employment with the Company remain in full force and effect. Your employment with the Company remains governed by the terms of your Employment Agreement, the Standards of Business Conduct and all other Company policies and procedures. Nothing in this memo or the Bonus Program is intended to create a contract for employment or guarantee of continued employment with the Company for any period of time.

If you wish to participate in this Bonus Program, please sign and date a copy of this memo and return it to Michaela Oliver, Senior Vice President, Human Resources, via interoffice mail. If you have any questions, please do not hesitate to contact Michaela Oliver directly.

 

ACCEPTED:

 

/s/ Nisha Kumar

      DATE:  

6/11/08

  Nisha Kumar            
EX-10.86 30 dex1086.htm EXHIBIT 10.86 EXHIBIT 10.86

Exhibit 10.86

 

LOGO

   Mark A.Wainger

Senior Vice President

Global Compensation & Benefits

February 18, 2009

Via Email and Overnight Delivery

Mr. Ron Grant

AOL LLC

770 Broadway

New York, NY 10003

Re:    Equity Grants

Dear Ron:

We are sending you this letter to advise you of changes related to future equity grants you may receive from Time Warner Inc. On Wednesday, February 18, 2009, the Compensation and Human Development Committee of the Board of Directors of Time Warner Inc. approved amending your employment agreement to provide for a modification to the terms of any future equity grants awarded to you by Time Warner Inc. with respect to their treatment in the event that your employment with AOL LLC were terminated without cause.

Specifically, the Compensation and Human Development Committee of the Board of Directors of Time Warner Inc. approved the following: in the event of a termination of your employment with AOL LLC by AOL LLC without cause, all stock options to purchase shares of Time Warner Common Stock granted to you on or after February 18, 2009, shall vest and become immediately exercisable on the earlier of the Severance Term Date or the Equity Cessation Date (as such terms are defined in the Amended and Restated Employment Agreement that was delivered to you in November 2008), and shall remain exercisable for a period of three years after the earlier of the Severance Term Date or the Equity Cessation Date (but not beyond the term of such stock options) and AOL LLC and Time Warner Inc. shall not be permitted to determine that your employment was terminated for “unsatisfactory performance” within the meaning of any stock option agreement between you and Time Warner Inc. In addition, subject to potential further delay in payment resulting from Section 409A of the Internal Revenue Code, the vesting of any awards of RSUs granted to you on or after February 18, 2009, and held at the Effective Termination Date of a termination of your employment without cause will accelerate upon, and the shares of Time Warner Common Stock will be paid to you promptly following, the Effective Termination Date of such a termination of employment.

Time Warner Inc. • One Time Warner Center, 16th Floor • New York, NY 10019-8016

T 212.484.6475 • F 212.484.7181 • mark.wainger@timewarner.com


To apply this modified treatment to the equity grants that are anticipated to be made by Time Warner Inc. to you on February 20, 2009, you will need to sign and return this letter to me by fax (212 484-7181) or in an email with a PDF no later than the close of business on February 19, 2009 acknowledging your agreement to the modifications described herein. AOL LLC will then amend and restate your employment agreement to reflect the changes described in this letter.

Please let me know if you have any questions about the information provided to you in this letter.

Sincerely,

/s/ Mark Wainger

Mark Wainger

Senior Vice President, Global Compensation and Benefits

Time Warner Inc.

Acknowledged and Agreed to:
/s/ Ron Grant
Ron Grant
EX-10.87 31 dex1087.htm EXHIBIT 10.87 EXHIBIT 10.87

Exhibit 10.87

AOL LLC

770 BROADWAY

NEW YORK, NEW YORK 10036

May 13, 2009

Randel A. Falco

770 Broadway

New York, NY 10036

Dear Randy:

Reference is made to your Employment Agreement effective as of March 7, 2008, (the “Employment Agreement”) with Time Warner Inc. (“Time Warner”) and AOL LLC (“AOL” or the “Company”). Capitalized terms used herein but not otherwise defined in this letter agreement (“Letter Agreement”) shall have the meanings given such terms in the Employment Agreement. We have agreed that your employment with the Company will be terminated and the provisions of Section 4.2 of your Employment Agreement are to become applicable, subject to the modifications set forth in this Letter Agreement (which modifications shall be deemed to constitute an amendment to your Employment Agreement). This Letter Agreement sets forth the understandings between the Company and you concerning the termination of your employment and your entitlements under the Employment Agreement.

You and the Company, intending to reflect our mutual understanding regarding the terms of the plan for the separation of your employment from the Company, hereby agree as follows:

1.         Pursuant to Section 4.2 of the Employment Agreement, your active employment with the Company shall terminate effective as of March 13, 2009 (the “Separation from Service Date”) and you shall continue to receive your current Base Salary, and a pro-rata portion of your Average Annual Bonus (which you and the Company agree is $3,250,000) and all other benefits as described in the Employment Agreement through the Separation from Service Date. From the Separation from Service Date through June 1, 2009 (the “Transition Period Date”), you shall provide transition services as described in paragraph 2, and you shall continue to receive your current Base Salary and a pro-rata portion of your Average Annual Bonus and all other benefits as described in Section 7.2 of the Employment Agreement. As of the Separation from Service Date, you shall no longer serve in any officer or director positions with the Company, Time Warner and any affiliates and subsidiaries of the Company or Time Warner and, to the extent action has not been taken to elect a successor to an officer or director position as of such date, you shall be deemed to have resigned from the position.


2

2.         Through the Transition Period Date you agree to cooperate with the Company in providing for an orderly transition, which cooperation shall include giving such assistance as may be reasonably requested by the Company or Time Warner and subject to your reasonable availability. Such cooperation shall extend to additional matters as reasonably requested by the Chairman and Chief Executive Officer of Time Warner from time to time and agreed to by you. The Company shall reimburse you for all reasonable expenses in fulfilling your obligations under this Paragraph 2.

3.         In accordance with Section 4.2 of the Employment Agreement, your termination of employment shall be deemed for all purposes of the Employment Agreement to be a termination without cause under Section 4.2 of the Employment Agreement and you shall be entitled to receive payments of Base Salary and Average Annual Bonus through December 31, 2010 (the “Severance Term Date”) as described in Sections 4.2.1 and 4.2.2 of the Employment Agreement at the times provided in Section 4.6 of the Employment Agreement; provided, however, that the Employment Agreement is hereby amended to provide for the following terms with respect to the timing of your termination payments thereunder:

a.         Subject to Section 14 of this Letter Agreement, (i) your future annual bonus payments that you are entitled to receive under the Employment Agreement (both before and after the Separation from Service Date) shall be paid to you between January 1 and March 15 of the calendar year immediately following the performance year with respect to such bonus and (ii) following the Separation from Service Date, your continued Base Salary payments pursuant to Sections 4.2.1 and 4.2.2 of the Employment Agreement shall be paid to you on the Company’s normal payroll payment dates as in effect immediately prior to the Separation from Service Date.

4.         This confirms that, in accordance with Section 7.2 of the Employment Agreement, the following shall apply with respect to your benefits and equity awards:         After the Separation from Service Date and prior to the Severance Term Date, you shall continue to be treated as an employee of the Company for purposes of eligibility to participate in the Company’s health and welfare benefit plans and to receive the health and welfare benefits required to be provided to you under the Employment Agreement to the extent such health and welfare benefits are maintained in effect by the Company for its executives. At the Severance Termination Date, your rights to benefits and payments under any benefit plans or any insurance or other death benefit plans or arrangements of the Company shall be determined in accordance with the terms and provisions of such plans. After the Separation from Service Date, you shall not be entitled to any additional awards or grants under any stock option, restricted stock or other stock based incentive plan and you shall not be entitled to continue elective deferrals in or accrue additional benefits under any qualified or nonqualified retirement programs maintained by the Company. At the Severance Termination Date or, if earlier, the Equity Cessation Date, your rights to benefits and payments under any stock option, restricted stock unit, stock appreciation right, bonus unit, management incentive or other long-term incentive plan of the Company shall be determined in accordance with the terms and provisions of such plans and any agreements under which such stock options, restricted stock units or other awards were granted. In particular, in accordance with Section 7.2, (i) all stock options to purchase shares of Time Warner Common


3

Stock issued to you shall continue to vest through the earlier of the Severance Term Date and the Equity Cessation Date, (ii) at the earlier of the Severance Term Date and the Equity Cessation Date, (x) all stock options to purchase shares of Time Warner Common Stock granted to you prior to March 7, 2008, (the “Term Options”) that would have vested on or before the Severance Term Date shall vest and any vested Term Options shall remain exercisable for a period of three years after the earlier of the Severance Term Date and the Equity Cessation Date (but not beyond the term of such options) and (y) all stock options to purchase shares of Time Warner Common Stock granted to you on or after March 7, 2008 shall vest and become immediately exercisable and shall remain exercisable for a period of three years after the earlier of the Severance Term Date and the Equity Cessation Date (but not beyond the terms of such options), and (iii) the Company shall not be permitted to determine that your employment was terminated for “unsatisfactory performance” within the meaning of any stock option agreement between you and Time Warner. With respect to restricted stock units (“RSUs”) held at the Separation from Service Date, (i) the RSUs granted to you on November 27, 2006, March 7, 2008 and February 20, 2009 will fully vest on the Separation from Service Date, but will not be paid to you until immediately following six months after the Separation from Service Date and (ii) for all other RSU grants, subject to potential further delay in payment pursuant to Section 14, the pro-rated vesting of the RSU grants will be determined at the earlier of the Severance Term Date or the Equity Cessation Date in accordance with the terms of the applicable award agreement(s), but the shares or Time Warner Common Stock underlying any vested RSUs will not be paid to you until promptly following the next regular vesting date(s) for such award(s) of RSUs. With regard to the target Performance Share Units (“PSUs”) you hold at the Separation from Service Date, following the end of the applicable three-year performance periods, the performance achieved by Time Warner will be determined and the number of shares of Time Warner Common Stock to be delivered to you will be determined in accordance with the terms of the applicable award agreement, with amounts prorated if the earlier of the Severance Term Date and the Equity Cessation Date occurs prior to the end of the performance period for an award of PSUs.

5.         In accordance with Section 4.4 of the Employment Agreement, the obligations of the Company to make or continue any of the payments to you or to take any actions with respect to Paragraphs 1 through 4 above are subject to your execution of the Release attached hereto. If you fail to execute and deliver the Release, or if you revoke the Release as provided therein, then in lieu of the payments and benefits provided herein, you shall receive a severance payment determined in accordance with the Company’s polices relating to notice and severance reduced by the aggregate amount of severance payments paid pursuant to this Letter Agreement, if any, prior to the date of your refusal to deliver, or revocation of, such Release.

5A.     Section 7.5 of the Employment Agreement is hereby amended by inserting the following language to the end of the last sentence thereof: “other than defenses to the payment that the Company may have that are based on or related to the discharge of the Company’s payment obligation as a result of or through a proceeding by the Company under 11 USC et seq., as amended, or under any state insolvency laws, including but not limited to, any assignment by the Company for the benefit of creditors.

6.         Section 8.2 of the Employment Agreement is hereby amended to provide that, during the period ending twelve months after the Separation from Service Date, you shall not, directly or indirectly, without the prior written consent of the Chief Executive Officer or


4

Chief Operating Officer of Time Warner, render any services to, or act in any capacity for, any Competitive Entity, or acquire any interest of any type in any Competitive Entity; provided, however, that the foregoing shall not be deemed to prohibit you from acquiring, (a) solely as an investment and through market purchases, securities of any Competitive Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than one percent (1%) of the outstanding voting power of that entity and (b) securities of any Competitive Entity that are not publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than three percent (3%) of the outstanding voting power of that entity. For purposes of the foregoing, the following shall be deemed to be a Competitive Entity: (y) eBay, Inc., MySpace, Interactive Corp., EarthLink, Inc., Google Inc., Microsoft Corporation, and Yahoo! Inc., and their respective subsidiaries and any successor to the internet service provider and (z) any internet access, service or portal company or any other company that directly competes with AOL. (Notwithstanding clause (z) above, you may provide services to a non-competitive division or subsidiary of any entity described in clause (z) above.)

7.   In accordance with Section 11.15 of the Employment Agreement and except as otherwise provided herein, you shall continue to have rights under and be subject to any obligations under the Employment Agreement that survive your termination under Section 4.2 thereof, including but not limited to Sections 3.6(Indemnification), 4.2(Termination By You For Material Breach By The Company Or Termination By The Company Without Cause), 4.3 (After The Term Date), 4.4(Release), 4.5(Mitigation), 4.6 (Payments) and 7 through 11 thereof (which includes Sections 7.3(Life Insurance), 7.5(Deferred Compensation), 7.6 (Housing and Automobile Allowance) and 11.5 (Assignability)).

7A.         You and the Company agree that the Company is responsible for the payments and benefits set forth in the Employment Agreement, as amended by this Letter Agreement, except as specifically designated otherwise. You and the Company acknowledge and agree that the Company’s obligations with respect to such payments and benefits will continue in the event of an AOL Transaction, subject to its right and obligation to assign its rights and obligations under the Employment Agreement, as amended by this Letter Agreement, pursuant to Section 11.5. In addition, in the event of an AOL Transaction that includes the sale, merger or spin off of substantially all for the Company by Time Warner Inc in two or more parts, if the Company (or its successor(s), as applicable) fails to make any required payment to you, Time Warner will make such required payment(s) and will have a claim for reimbursement from the Company (or its successor(s), as applicable), and you acknowledge that in such instance, Time Warner will have and be able to assert any defenses to payment that the Company may have other than defenses to the payment that are based on or related to the discharge of the Company’s payment obligation as a result of or through a proceeding by the Company under 11 U.S.C. et seq., as amended, or any state insolvency laws, including but not limited to, any assignment by the Company for the benefit of creditors.


5

8.         You will continue to be entitled to be eligible for the same level of financial services reimbursement as similarly situated employees at the Company through the earlier of the Equity Cessation Date or the Severance Term Date.

9.         You agree and acknowledge that you have no further right to receive any compensation, payments or benefits from the Company, other than as set forth in the Employment Agreement, as amended by this Letter Agreement.

10.         Except as provided in Section 11.7 of the Employment Agreement, any claims, controversies or disputes arising out of or related to this Letter Agreement or the Release, the interpretation, validity or enforceability of this Letter Agreement or the Release, or the alleged breach of this Letter Agreement or the Release shall be submitted to resolution in arbitration in accordance with the procedures set forth in Section 11.8 of the Employment Agreement.

11.         This Letter Agreement, taken together with the Release and Employment Agreement, as modified by this Letter Agreement, constitute and contain the entire agreement and understanding concerning your employment, termination from employment and the other subject matters addressed herein between the parties and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. This is an integrated document. Except as expressly amended by this Letter Agreement, the Employment Agreement remains in full force and effect.

12.         This Letter Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

13.         This Letter Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.

14.         This Letter Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and will be interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding anything herein or contained in the Employment Agreement to the contrary, (i) if at the Effective Termination Date you are a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder or under the Employment Agreement (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409 A of the Code) and (ii) if any other payments of money or other benefits due to you hereunder or under the Employment Agreement could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent


6

possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Letter Agreement or under the Employment Agreement constitutes “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(l)(iv). Each payment made under this Agreement or under the Employment Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this Section 14; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect to thereto.

If the foregoing accurately reflects our agreement, please so indicate by signing where indicated below.

 

Very truly yours,
TIME WARNER INC.
By:   /s/ Mark A. Wainger
AOL LLC
By:   /s/ Mark A. Wainger
 

 

Agreed and Accepted:

/s/ Randel A. Falco

Randel A. Falco
Date:   5/15/09
cc:  

Randel Falco (residence address)

Paul M. Ritter, Esq

David Nochinson, Esq.


RELEASE

This Release is made by and among Randel A. Falco (“You” or “Your”), AOL LLC, (the “Company”), 770 Broadway, New York, NY 10036, and TIME WARNER INC. ( “Time Warner”), One Time Warner Center, New York, New York 10019 as of the date set forth below in connection with the Employment Agreement dated and effective as of March 7, 2008, and the letter agreement (the “Letter Agreement” between You and the Company dated as of April 20, 2009 (as so amended, the “Employment Agreement”), and in association with the termination of your employment with the Company.

In consideration of payments made to You and other benefits to be received by You by the Company and other benefits to be received by You pursuant to the Employment Agreement, as further reflected in the Letter Agreement, You, being of lawful age, do hereby release and forever discharge the Company, its successors, related companies, Affiliates, officers, directors, shareholders, subsidiaries, agents, employees, heirs, executors, administrators, assigns, benefit plans (including but not limited to any severance plan of the Company), benefit plan sponsors and benefit plan administrators of and from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney’s fees, expenses, or other compensation or damages (collectively, “Claims”), whether known or unknown, which in any way relate to or arise out of your employment with the Company or the termination of Your employment, which You may now have under any federal, state or local law, regulation or order, including without limitation, Claims related to any stock options held by You or granted to You by Time Warner that are scheduled to vest subsequent to Your termination of employment (except for those stock options scheduled to vest after the date of your termination under section 7 of the Employment Agreement) and Claims under the Age Discrimination in Employment Act (with the exception of Claims that may arise after the date You sign this Release, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, as amended, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, as amended, through and including the date of this Release; provided, however, that the execution of this Release shall not prevent You from bringing a lawsuit against the Company or Time Warner to enforce either of their obligations under the Employment Agreement, the Letter Agreement and this Release; provided further, the execution of this release does not release any right You might have against the Company or Time Warner for indemnification under the Employment Agreement or any other agreement, plan or arrangement. Nothing in this release shall be read to limit your ability to defend Yourself against any action brought against You by the Company or Time Warner.

Notwithstanding anything to the contrary, nothing in this Release shall prohibit or restrict You from (i) making any disclosure of information required by law; (ii) filing a charge with, providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Company’s legal, compliance or human resources officers; (iii) filing, testifying or participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization; or (iv) challenging the validity of my release of claims under the Age Discrimination in Employment Act. Provided, however, You acknowledge that You cannot recover any monetary damages or equitable relief in


8

connection with a charge brought by You or through any action brought by a third party with respect to the Claims released and waived in the Employment Agreement. Further, notwithstanding the above, You are not waiving or releasing: (i) any claims arising after the Effective Date of the Letter Agreement; (iii) any claims for enforcement of this Employment Agreement; (iii) any rights or claims You may have to workers compensation or unemployment benefits; (iv) claims for accrued, vested benefits under any employee benefit plan of the Company or Time Warner in accordance with the terms of such plans and applicable law; and/or (v) any claims or rights which cannot be waived by law.

You further state that You have reviewed this Release, that You know and understand its contents, and that You have executed it voluntarily.

You acknowledge that You have been given 21 days from the date You received a copy of the Release to sign it. You also acknowledge that by signing this Release You may be giving up valuable legal rights and that You have been advised to consult with an attorney. You understand that You have the right to revoke Your consent to the Release for seven days following Your signing of the Release. You further understand that You will not receive any payments or benefits under this Agreement if You do not sign this Release or if You revoke Your consent to the Release within seven days after signing the Release. The Release shall not become effective or enforceable with respect to claims under the Age Discrimination Act until the expiration of the seven-day period following Your signing of this Release. You shall not receive any payments or benefits pursuant to this Agreement until the Release becomes effective. To revoke, You send a written statement of revocation by certified mail, return receipt requested, or by hand delivery. If You do not revoke, the Release shall become effective on the eighth day after You sign it.

 

Accepted and Agreed to:

 

/s/ Randel A. Falco
Randel A. Falco
Dated:   5/15/09
EX-10.88 32 dex1088.htm EXHIBIT 10.88 EXHIBIT 10.88

Exhibit 10.88

AOL LLC

770 BROADWAY

NEW YORK, NEW YORK 10036

May 26, 2009

Mr. Ron Grant

770 Broadway

New York, New York 10036

Dear Ron:

Reference is made to your Employment Agreement dated December 21, 2006 and effective as of November 27, 2006 with AOL LLC (the “Company”), as amended by a letter agreement dated February 18, 2009 (as so amended, the “Employment Agreement”). Capitalized terms used herein but not otherwise defined in this letter agreement (“Letter Agreement”) shall have the meanings given such terms in the Employment Agreement. We have agreed that your employment with the Company will be terminated and the provisions of Section 4.2 of your Employment Agreement are to become applicable, subject to the modifications set forth in this Letter Agreement (which modifications shall be deemed to constitute an amendment to your Employment Agreement). This Letter Agreement sets fort the understandings between the Company and you concerning the termination of your employment and your entitlements under the Employment Agreement.

You and the Company, intending to reflect our mutual understanding regarding the terms of the plan for the separation of your employment from the Company, hereby agree as follows:

1.        Pursuant to Section 4.2 of the Employment Agreement, your active employment with the Company shall terminate effective as of March 13, 2009 (the “Separation from Service Date”) and you shall continue to receive your current Base Salary, and a pro-rata portion of your Average Annual Bonus (which you and the Company agree is $1,662,500) and all other benefits as described in the Employment Agreement through the Separation from Service Date. From the Separation from Service Date through June 1, 2009 (the “Transition Period Date”), you shall provide transition services as described in paragraph 2, and you shall continue to receive your current Base Salary and a pro-rata portion of your Average Annual Bonus and all other benefits as described in Section 7.2 of the Employment Agreement. As of the Separation from Service Date, you shall no longer serve in any officer or director positions


2

with the Company, Time Warner and any affiliates and subsidiaries of the Company or Time Warner and, to the extent action has not been taken to elect a successor to an officer or director position as of such date, you shall be deemed to have resigned from the position.

2.        Though the Transition Period Date you agree to cooperate with the Company in providing for an orderly transition, which cooperation shall include giving such assistance as may be reasonably requested by the Company. Such cooperation shall extend to additional matters as reasonably requested by the Chairman and Chief Executive Officer of the Company and/or the Chairman and Chief Executive Officer of Time Warner Inc. from time to time and agreed to by you. The Company agrees to pay you $200,000, less applicable withholdings and deductions for your transition services (“Transition Payment”). The Transition Payment will be paid to you on or before June 1, 2009. The Company shall reimburse you for all reasonable expenses in fulfilling your obligations under this Paragraph 2.

3.        In accordance with Section 4.2 of the Employment Agreement, your termination of employment shall be deemed for all purposes of the Employment Agreement to be a termination without cause under Section 4.2 of the Employment Agreement and you shall be entitled to receive payments of Base Salary and annual bonus from the Transition Period Date through December 31, 2010 (the “Severance Term Date”) as described in Sections 4.2.1 and 4.2.2 of the Employment Agreement at the times provided in Section 4.6 of the Employment Agreement; provided, however, that the Employment Agreement is hereby amended to provide for the following term with respect to the timing of your termination payments thereunder:

a.        Subject to Section 12 of this Letter Agreement, (i) your future annual bonus payments that you are entitled to receive under the Employment Agreement (both before and after the Separation from Service Date) shall be paid to you between January 1 and March 15 of the calendar year immediately following the performance year with respect to such bonus and (ii) following the Separation from Service Date, your continued Base Salary payments pursuant to Sections 4.2.1 and 4.2.2 of the Employment Agreement shall be paid to you on the Company’s normal payroll payment dates as in effect immediately prior to the Separation from Service Date.

b.        The second sentence of Section 4.2.2 of the Employment Agreement is hereby amended to provide that if you accept full-time employment with any other Entity (other than a not-for-profit Entity as described in the last sentence of Section 4.2.2 of the Employment Agreement) during the period following the Separation from Service Date and ending on the Severance Term Date or if you notify the Company in writing of your intention to terminate your status of being treated as an employee during that period, then you shall cease to be treated as an employee of the Company for purposes of your rights to receive certain post-termination benefits under Section 7.2 of the Employment Agreement effective upon the commencement of such employment or the effective date of such termination as specified by you in such notice, whichever is applicable (the “Equity Cessation Date”); provided, however, that the timing of your termination payments under the Employment Agreement shall not be accelerated or otherwise changed following such cessation of employee status treatment (i.e., you shall continue to receive the remaining payments you would have received pursuant to


3

the Employment Agreement as if you remained on the Company’s payroll at the times specified in Section 4.6 of the Employment Agreement).

3A. The Company shall reimburse you for up to $50,000 in career counseling and outplacement services. Career counseling and outplacement services must be used and reimbursement claims submitted by March 15, 2010. You will be reimbursed within 30 days following your submission of the relevant claims.

4.        Section 7.2 of the Employment Agreement is hereby amended to provide that, after the Separation from Service Date and prior to the Severance Term Date, you shall continue to be treated as an employee of the Company for purposes of eligibility to participate in the Company’s health and welfare benefit plans and to receive the health and welfare benefits required to be provided to you under the Employment Agreement to the extent such health and welfare benefits are maintained in effect by the Company for its executives. After the Separation from Service Date, you shall not be entitled to any additional awards or grants under any stock option, restricted stock or other stock based incentive plan and you shall not be entitled to continue elective deferrals in or accrue additional benefits under any qualified or nonqualified retirement programs maintained by the Company. At the Severance Termination Date, your rights to benefits and payments under any benefit plans or any insurance or other death benefit plans or arrangements of the Company shall be determined in accordance with the term and provisions of such plans. At the Severance Termination Date or, if earlier, the Equity Cessation Date, your rights to benefits and payment under any stock option, restricted stock unit, stock appreciation right, bonus unit, management incentive or other plan of the Company shall be determined in accordance with the terms and provisions of such plans and any agreements under which such stock options, restricted stock or other awards were granted. However, notwithstanding the foregoing or any more restrictive provisions of any such plan or agreement, (i) all stock options to purchase shares of Time Warner Common Stock granted to you shall continue to vest though the earlier of the Severance Term Date and the Equity Cessation Date, (ii) at the earlier of the Severance Term Date and the Equity Cessation Date, (x) all stock options to purchase shares of Time Warner Common Stock granted to you after November 27, 2006 and prior to February 18, 2009 (the “Term Options”) that would have vested on or before the Severance Term Date shall vest and become exercisable, and any vested Term Options shall remain exercisable (but not beyond the term of such options) for a period of three years following the earlier of the Severance Term Date or the Equity Cessation Date, and (y) all stock options to purchase shares of Time Warner Common Stock granted to you on or after February 18, 2009 shall vest and become immediately exercisable and shall remain exercisable for a period of three years after the earlier of the Severance Term Date or the Equity Cessation Date (but not beyond the terms of such options), and (iii) the Company and Time Warner shall not be permitted to determine that your employment was terminated for “unsatisfactory performance” within the meaning of any stock option agreement between you and Time Warner. With respect to restricted stock units (“RSUs”) held at the time of the Separation from Service Date, subject to potential further delay in payment pursuant to Section 12, (i) the RSUs granted to you on February 20, 2009 will fully vest on the Separation from Service Date, and will be paid to you immediately following the Separation from Service Date, and (ii) for all other RSU grants, the pro-rated vesting of the RSUs will be determined at the earlier of the Severance Term Date or the Benefit Cessation Date in accordance with the terms of the applicable award agreement(s), but the shares or Time Warner Common Stock underlying any vested RSUs will not be paid to you


4

until promptly following the next regular vesting date(s) for such award(s) of RSUs. With regard to the target Performance Share Units (“PSUs”) you hold at the Separation from Service Date, following the end of the applicable three-year performance periods, the performance achieved by Time Warner will be determined and the number of shares of Time Warner Common Stock to be delivered to you will be determined in accordance with the terms of the applicable award agreement, with amounts prorated if the earlier of the Severance Term Date and the Equity Cessation Date occurs prior to the end of the performance period for an award of PSUs.

5.        In accordance with Section 4.4 of the Employment Agreement, the obligations of the Company to make or continue any of the payments to you or to take any actions with respect to Paragraphs 1 through 4 above are subject to your execution of the Release attached hereto. If you fail to execute and deliver the Release, or if you revoke the Release as provided therein, then in lieu of the payments and benefits provided herein, you shall receive a severance payment determined in accordance with the Company’s polices relating to notice and severance reduced by the aggregate amount of severance payments paid pursuant to this Letter Agreement, if any, prior to the date of your refusal to deliver, or revocation of, such Release.

5A.      Section 4.5 of the Employment Agreement is hereby deleted and replace with the following:

In the event of a termination without cause under this Agreement, you shall not be required to take actions, including but not limited to finding other employment or being required to pay over compensation received or payable to you in connection with other employment, in order to mitigate your damages hereunder, unless Section 280G of the Internal Revenue Code would apply to any payments to you by the Company and your failure to mitigate would result in the Company losing tax deductions to which it would otherwise have been entitled. In such an event, you will engage in whatever mitigation is necessary to preserve the Company’s tax deductions. With respect to the preceding sentences, any payments or rights to which you are entitled by reason of the termination of employment without cause shall be considered as damages hereunder. Any obligation to mitigate your damages pursuant to this Section 4.5 shall not be a defense or offset to the Company’s obligation to pay you in full the amounts provided in this Agreement upon the occurrence of a termination without cause, at the time provided herein, or the timely and full performance of any of the Company’s other obligations under this Agreement.

5B.      The last sentence of Section 8.2 of the Employment Agreement is hereby deleted and replaced with the following sentence:

            For purposes of the foregoing, the following shall be deemed to be a Competitive Entity: (x) during the period that you are actively employed with the Company, any person or entity that engages in any line of business that is substantially the same as either (i) any line of business which the Company engages in, conducts or, to


5

your knowledge, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company as to which, to your knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business, and (y) during the period following a termination of your term of employment pursuant to Section 4, any of the following: MySpace, Interactive Corp., Earthlink, Inc., Facebook, Google Inc., Microsoft Corporation,. and Yahoo! Inc., and their respective subsidiaries and any successor to the aforesaid internet service provider; provided however, you may provide services to the parent (as long as the services are unrelated to the internet service provider) or, any other division or subsidiary of the successor.

6.        In accordance with Section 11.14 of the Employment Agreement, you shall continue to be subject to any obligations under the Employment Agreement that survive your termination under Section 4.2 thereof, including but not limited to Sections 3.4, 4.4, 4.5, 4.6, and 7 through 11 thereof.

7.        You agree and acknowledge that you have no further right to receive any compensation, payments or benefits from the Company, other than as set forth in the Employment Agreement, as amended by this Letter Agreement.

7A.      You and the Company agree that the Company is responsible for the payments and benefits set fort in the Employment Agreement, as amended by this Letter Agreement, except as specifically designated otherwise. You and the Company acknowledge and agree that the Company’s obligations with respect to such payments and benefits will continue in the event of an AOL Transaction, subject to its right and obligation to assign its rights and obligations under the Employment Agreement, as amended by this Letter Agreement, pursuant to Section 11.5. In addition, in the event of an AOL Transaction that includes the sale, merger or spin off of substantially all for the Company by Time Warner Inc in two or more parts, if the Company (or its successor(s), as applicable) fails to make any required payment to you, Time Warner will make such required payment(s) and will have a claim for reimbursement from the Company (or its successor(s), as applicable), and you acknowledge that in such instance, Time Warner will have and be able to assert any defenses to payment that the Company may have other than defenses to the payment that are based on or related to the discharge of the Company’s payment obligation as a result of or through a proceeding by the Company under 11 U.S.C. et seq., as amended, or any state insolvency laws, including but not limited to, any assignment by the Company for the benefit of creditors.

8.        Except as provided in Section 11.7 of the Employment Agreement, any claims, controversies or disputes arising out of or related to this Letter Agreement or the Release, the interpretation, validity or enforceability of this Letter Agreement or the Release, or the alleged breach of this Letter Agreement or the Release shall be submitted to resolution in arbitration in accordance with the procedures set forth in Section 11.8 of the Employment Agreement.

9.        This Letter Agreement, taken together with the Release and Employment Agreement, as modified by this Letter Agreement, constitute and contain the entire agreement and understanding concerning your employment, termination from employment and the other subject matters addressed herein between the parties and supersedes and replaces all prior


6

negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. This is an integrated document. Except as expressly amended by this Letter Agreement, the Employment Agreement remains in full force and effect.

10.        This Letter Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

11.        This Letter Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.

12.        This Letter Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and will be interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding anything herein or contained in the Employment Agreement to the contrary, (i) if at the Effective Termination Date you are a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder or under the Employment Agreement (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to you hereunder or under the Employment Agreement could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Letter Agreement or under the Employment Agreement constitutes “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Agreement or under the Employment Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this Section 12; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect to thereto.

If the foregoing accurately reflects our agreement, please so indicate by signing and dating where indicated below.

 

Very truly yours,

AOL LLC


7

 

By:

 

/s/ Mark A. Wainger

 

Name:

 

Mark A. Wainger

  Title:  

Vice President

Agreed and Accepted:

/s/ Ron Grant

Ron Grant

 

Date: 6/5/09

 

cc:

  Ron Grant (residence address)

 

  Lanny Oppenheim, Esq.


RELEASE

This Release is made by and among Ron Grant (“You” or “Your”) and AOL LLC (the “Company”), 770 Broadway, New York, New York 10036, as of the date set forth below in connection with the Employment Agreement effective as of November 27, 2006, as amended by a letter agreement dated February 18, 2009, and the letter agreement (the “Letter Agreement” between you and the Company dated as of April [    ], 2009 (as so amended, the “Employment Agreement”), and in association with the termination of your employment with the Company.

In consideration of payments made to You and other benefits to be received by You by the Company and other benefits to be received by You pursuant to the Employment Agreement, as further reflected in the Letter Agreement, You, being of lawful age, do hereby release and forever discharge the Company, its successors, related companies, affiliates, officers, directors, shareholders, subsidiaries, agents, employees, heirs, executors, administrators, assigns, benefit plans (including but not limited to any severance plan of the Company), benefit plan sponsors and benefit plan administrators of and from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney’s fees, expenses, or other compensation or damages (collectively, “Claims”), whether known or unknown, which in any way relate to or arise out of your employment with the Company or the termination of Your employment, which You may now have under any federal, state or local law, regulation or order, including without limitation, Claims related to any stock options held by You or granted to You by Time Warner that are scheduled to vest subsequent to Your termination of employment and Claims under the Age Discrimination in Employment Act (with the exception of Claims that may arise after the date I sign this Release), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, as amended, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, as amended, through and including the date of this Release; provided, however, that the execution of this Release shall not prevent You from bringing a lawsuit against the Company to enforce its obligations under the Employment Agreement and this Release, including any rights you may have to indemnification by the Company.

Notwithstanding anything to the contrary, nothing in this Release shall prohibit or restrict You from (i) making any disclosure of information required by law; (ii) filing a charge with, providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Company’s legal, compliance or human resources officers (iii) filing, testifying or participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization; or (iv) challenging the validity of my release of claims under the Age Discrimination in Employment Act. Provided, however, You acknowledge that You cannot recover any monetary damages or equitable relief in connection with a charge brought by You or through any action brought by a third party with respect to the Claims released and waived in the Agreement. Further, notwithstanding the above, You am not waiving or releasing: (i) any claims arising after the Effective Date of this Agreement; (iii) any claims for enforcement of this Agreement; (iii) any rights or claims You may have to workers compensation or unemployment benefits; (iv) claims for accrued, vested


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benefits under any employee benefit plan of the Company in accordance with the terms of such plans and applicable law; and/or (v) any claims or rights which cannot be waived by law.

You further state that You have reviewed this Release, that You know and understand its contents, and that You have executed it voluntarily.

You acknowledge that You have been given 21 days from the date You received a copy of the Release to sign it. You also acknowledge that by signing this Release You may be giving up valuable legal rights and that You have been advised to consult with an attorney. You understand that You have the right to revoke my consent to the Release for seven days following my signing of the Release. You further understand that You will not receive any payments or benefits under this Agreement if You do not sign this Release or if You revoke Your consent to the Release within seven days after signing the Release. The Release shall not become effective or enforceable with respect to claims under the Age Discrimination Act until the expiration of the seven-day period following Your signing of this Release. You shall not receive any payments or benefits pursuant to this Agreement until the Release becomes effective. To revoke, You send a written statement of revocation by certified mail, return receipt requested, or by hand delivery. If You do not revoke, the Release shall become effective on the eighth day after You sign it.

Accepted and Agreed to:

 

/s/ Ron Grant

Ron Grant

Dated: 6/5/09

EX-10.89 33 dex1089.htm EXHIBIT 10.89 EXHIBIT 10.89

Exhibit 10.89

AOL LLC

770 BROADWAY

NEW YORK, NEW YORK 10003

Via Hand Delivery

June 30, 2009

Ms. Nisha Kumar

770 Broadway

New York, New York 10003

Separation Agreement and Release of Claims

Dear Nisha:

Reference is made to your Employment Agreement dated January 9, 2008 and effective as of December 1, 2007 (the “Employment Agreement”) with AOL LLC (“AOL” or the “Company”). Capitalized terms used herein but not otherwise defined in this separation agreement and release of claims (“Separation Agreement”) shall have the meanings given such terms in the Employment Agreement. We have agreed that your employment with the Company will be terminated and the provisions of Section 15 of your Employment Agreement are to become applicable, subject to the modifications set forth in this Separation Agreement (which modifications shall be deemed to constitute an amendment to your Employment Agreement). This Separation Agreement sets forth the understandings between the Company and you concerning the termination of your employment and your entitlements under the Employment Agreement. The Employment Agreement and this Separation Agreement, upon your signature, will constitute the complete agreement between you and the Company regarding the terms of your separation from employment.

You and the Company, intending to reflect our mutual understanding regarding the terms of the separation of your employment from the Company, hereby agree as follows:

1.         Your employment with the Company is being terminated without cause at the close of business on July 1, 2009 (your “Separation Date”). Until such time, you will remain an employee of the Company for all purposes (including without limitation, under the Company’s policies and benefits plans and for purposes of continued vesting of your outstanding equity awards). Your rights under any qualified and nonqualified pension plans in which you participate (specifically the Time Warner Pension Plan, the Time Warner Excess Benefit Pension Plan, and the Time Warner Savings Plan) shall be determined in accordance with the terms and provisions of the applicable plan document. You are 100% vested in your benefits under the Time Warner Pension Plan, the Time Warner Excess Benefit Pension Plan and the Time Warner

 

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Savings Plan. Your rights under any stock option, restricted stock unit, and performance stock unit awards shall be determined in accordance with the terms and provisions of the equity plans and agreements under which any grants of stock options or awards of restricted stock units and performance stock units were granted, based on a July 1, 2009 separation date. If you obtain other employment with AOL or with any Time Warner company within thirty days of your Separation Date, you will not be eligible to receive any of the benefits set forth in this Separation Agreement, unless specified herein, and this Separation Agreement shall become null and void.

2.         On the next regularly scheduled pay date following your Separation Date, or sooner if local law requires, you will receive a check for all unpaid wages and any accrued, unused vacation or paid time off from January 1, 2009, or longer if required by state law, due through your Separation Date, less applicable deductions and withholdings. You and the Company agree that your accrued, unused vacation or time off as of your Separation Date, which will be paid to you in accordance with this paragraph, will be 16.5 days. You will also be reimbursed, in accordance with Company policy, for any outstanding reasonable business expenses that you incur through the Separation Date.

3.         Your medical, dental and vision benefits will continue through the end of the month in which your Separation Date occurs (i.e., through July 31, 2009). With respect to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), your COBRA period will begin on the first day of the month following your Separation Date (i.e., on August 1, 2009). You will receive separate information regarding your option to continue health benefits after your Separation Date. Your Company-paid life insurance will continue through the end of the month in which your Separation Date occurs (i.e., through July 31, 2009). All other benefits will terminate on your Separation Date.

4.         Prior to your departure on your Separation Date, unless otherwise instructed by an authorized Company representative, you must:

a.         resign from any and all positions you hold as an officer and/or director of AOL LLC and from each of its direct and indirect subsidiaries and/or affiliates (using the four attached resignation letters, which contain a true and accurate list of all of the entities for which you serve as a director, managing director, chairman, representative, authorized person, officer, or other appointment on behalf of the Company, any of its group companies, or any of its direct or indirect subsidiaries, and which letters, where notice of your resignation is required to be filed with the applicable authorities, the Company agrees to cause to be timely filed with such applicable authorities); and

b.         return to the head of Human Resources, Dave Harmon, all the Company property in your possession, including, but not limited to, your identification badge and SecurID, keys, computers, corporate credit cards, pagers, telephones, parking permits and the original and all copies of any written, recorded, or computer readable information about Company practices, procedures, trade secrets, customer lists or product marketing associated with the Company’s business and any other information deemed proprietary or confidential in accordance with Company policies. By signing this Separation Agreement, you represent that you will return all Company confidential or proprietary information in your possession and that you will take all reasonable steps to protect the

 

2


confidentiality of such Company information during your employment. Notwithstanding the foregoing or anything else in this Separation Agreement to the contrary, you will be permitted to keep your Company-provided Blackberry once it has been reviewed and all appropriate Company data removed from the device (provided that your “contacts list” will not be removed). You agree that you are bound by all the terms of the Standards of Business Conduct through your Separation Date.

5.         Pursuant to paragraph 15 of your Employment Agreement and under the terms and conditions as detailed below, the Company will provide you additional payments and benefits, which you acknowledge are payments and benefits to which you are otherwise not entitled, if you sign this Separation Agreement. If you do not sign this Separation Agreement, you will not receive the following additional payments and benefits:

a.         Paragraph 15(a) of your Employment Agreement is hereby deleted in its entirety and replaced with the following: The Company will pay you $2.2 million, less applicable tax withholdings and deductions, in a lump sum subject to paragraph 5(f) below. This payment will not be eligible for deferrals to the Company’s 401(k) plan.

b.         Paragraph 15(b) is hereby deleted in its entirety.

c.         Paragraph 15(c) of your Employment Agreement is hereby deleted in its entirety and replaced with the following: You will receive a payout under the 2009 Global Bonus Plan and you and the Company agree that such payout will be $275,000, which is the portion of your target annual bonus amount, $550,000, pro-rated through the Separation Date, less applicable withholdings and deductions. This payment will be made at the same time as the lump sum payment discussed in paragraph 5(a) above, subject to paragraph 5(f) below. This payment will not be eligible for deferrals to the Company’s 401(k) plan.

d.         The following is hereby added as Paragraph 15(k) of your Employment Agreement: You are currently participating in a 2009 Company Retention Bonus Program, as outlined in a memo to you dated April 1, 2009, and pursuant to this program you are entitled to receive an amount equal to $220,000, less applicable tax withholdings and deductions, payable in a lump sum subject to paragraph 5(f) below. This payment will not be eligible for deferrals to the Company’s 401(k) plan.

e.         Paragraph 15(d) of your Employment Agreement is hereby deleted in its entirety and replaced with the following: If you elect to enroll in COBRA benefit continuation, the Company will pay for the full cost of continued medical, dental and vision benefit coverage under COBRA for you and your qualified beneficiaries for eighteen (18) months beginning the first day of the calendar month following the termination of your employment (i.e., August 2009).

f.         Paragraph 15(e) of your Employment Agreement is hereby deleted in its entirety and replaced with the following: The payments made under paragraphs 5(a), 5(c) and 5(d) above will be paid within thirty (30) days of the Separation Date or the “effective

 

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date” of the signed Separation Agreement, as set forth in paragraph 16 below, whichever is later, but no later than sixty (60) days after the Separation Date.

g.         You shall not be entitled to notice and severance under any policy or plan of the Company (the payments set forth in this paragraph being given in lieu thereof).

h.         The payments under paragraphs 5(a) – 5(d) shall be made without regard to any duty to mitigate damages and shall not be reduced by any compensation received by you from any subsequent employment.

i.         You are not currently included on the Company’s “specified employee” list as defined in Section 409A of the Internal Revenue Code and the Company does not believe that you are a “specified employee” under Section 409A as of the Separation Date.

6.         The payments and other benefits set forth in Paragraph 5 are being offered solely in consideration for your execution of this Separation Agreement, including a release of all claims against the Company as set forth in Paragraph 7 below. The payments are not an admission of any wrongdoing by the Company.

7.         In exchange for the Company’s agreement as stated above and below, you agree to release and discharge unconditionally the Company and any successors, subsidiaries, affiliates, related entities, predecessors, merged entities and parent entities, and their respective officers, directors, stockholders, employees, benefit plan administrators and trustees, agents, attorneys, insurers, representatives, affiliates, successors and assigns, from any and all claims, actions, causes of action, demands, obligations or damages of any kind arising from your employment with the Company and the separation of that employment or otherwise, including the notice of your termination, whether known or unknown to you, which you ever had or now have upon or by reason of any matter, cause or thing, up to and including the day on which you sign this Separation Agreement. The claims you are waiving include, but are not limited to, all claims arising out of or related to any stock options held by you or granted to you by the Company which are not vested as of the Separation Date and which are scheduled to vest subsequent to your Separation Date; all claims under Title VII of the Civil Rights Act of 1964, as amended; all claims under the Worker Adjustment and Retraining Notification Act (WARN) or similar state statutes; all claims under the Americans with Disabilities Act; all claims under the Age Discrimination in Employment Act; all claims under the National Labor Relations Act; all claims under the Older Workers Benefit Protection Act (“OWBPA”); all claims under the Family and Medical Leave Act, to the extent permitted by law, all claims under the Employee Retirement Income Security Act; all claims under 42 U.S.C. § 1981; all claims under the Sarbanes-Oxley Act of 2002; all claims under state anti-discrimination laws; all claims for unreimbursed business expenses that are not within the scope of the Company’s policies, including the Company’s guidelines for timely submission of business expenses; all claims under any principle of common law; all claims concerning any right to reinstatement; and all claims for any type of relief from the Company, whether federal, state or local, whether statutory, regulatory or common law, and whether tort, contract or otherwise, to the fullest extent permitted by law. This release of claims does not affect any claim for workers’ compensation benefits, unemployment benefits or other non-waivable administrative claims; your vested rights, if any, in the Company’s (or Time Warner’s) 401(k) plan, pension plan and excess pension plan; your rights to

 

4


exercise any and all Company stock options held by you that are exercisable as of your Separation Date during the applicable period of exercise and in accordance with all other terms of those options and the stock options plans, agreements, and notices under which such options were granted; your right to receive payment for any portion of your restricted stock units and performance stock units that are vested as of or as a result of your separation from employment on the Separation Date, determined in accordance with all the terms of those stock units and the applicable plans, agreements, and notices under which such stock units were granted; or your right to enforce the terms of this Separation Agreement. This release of claims does not affect the Company’s agreement to indemnify and hold you harmless against any claims brought against you for your acts and omissions committed or alleged to be committed while serving as an officer, director, employee, or agent of the Company to the maximum extent permitted under the Limited Liability Company Agreement of AOL, which, in certain circumstances, may be subject to approval by AOL’s Board of Managers.

8.        You agree to assist the Company in connection with any litigation, investigation or other legal or regulatory matter involving your tenure as an employee, officer, or director of the Company, including, but not limited to, meetings with Company representatives and counsel and giving testimony in any legal proceeding involving the Company. This provision does not prohibit your response to a valid subpoena for documents or testimony or other lawful process; however, you agree to provide the Company with prompt notice of said process. The Company shall use its best efforts to minimize any inconvenience to you and to avoid interference with any then-existing obligations that you may have and shall reimburse you for your travel and/or other reasonable costs, including, without limitation, air fare and hotel accommodations if you are required to travel out of town overnight.

9.        You understand and agree that the terms of this Separation Agreement are confidential, and you agree not to disclose to others the terms of this Separation Agreement, except as otherwise permitted by law or with the written consent of the Company, provided however, that this Paragraph 9 does not preclude disclosure to your immediate family or for purposes of securing professional financial, tax or legal services, provided further that, prior to making any such disclosure, you will inform any such persons that this confidentiality clause is in effect and that they are also bound by it.

10.        You agree not to affirmatively encourage or assist any person or entity in litigation against the Company or its parent, affiliates, officers, employees and agents in any manner. This provision does not prohibit your response to a valid subpoena for documents or testimony or other lawful process; however, you agree to provide the Company with prompt notice of any such subpoena or process. You agree that this Separation Agreement is not admissible in any proceeding except one to enforce the terms of this Separation Agreement.

11.        You agree not to make any disparaging or untruthful remarks or statements about the Company, its officers, directors, or employees. The Company (for purposes of this sentence, the “Company” is defined to include AOL LLC and its subsidiaries, affiliates, and assigns) agrees not to cause its officers and senior executives to make any disparaging or untruthful remarks or statements about your employment with the Company. Nothing in this Separation Agreement prevents you or the Company from making truthful statements when required by law, court order, subpoena, or the like, to a governmental agency or body. In addition, subject to your

 

5


compliance with the provisions of this Separation Agreement, the Company will not endorse public statements that characterize your termination of employment with the Company as an involuntary termination, and will take reasonable efforts so that internal communications to employees of the Company (except those Company employees who have a business need to know otherwise) characterize your termination of employment as a voluntary resignation and that external communications to the public either do not characterize your termination of employment or do not characterize it as an involuntary termination. Notwithstanding anything in this paragraph, the Company shall not be limited in its right to maintain accurate information in its personnel records, to provide accurate information to any governmental agency or in any government or legal proceeding or to provide its benefits vendors with accurate information.

12.            Notwithstanding any prior agreement between you and the Company (including, without limitation, any Confidentiality, Non-Competition and Property Rights Agreement), after the Separation Date, you shall not be prevented from owning, controlling, managing, or working for any business except only that, for the six-month period immediately following the Separation Date (the “Restricted Period”), you will not, anywhere in the United States or any country in which the Company is now operating, directly or indirectly participate in the ownership, control or management of, or be employed by, Yahoo!, Inc., Google Inc., Microsoft Corporation, IAC/InterActive Corp., News Corp., Viacom Inc. or Disney, or any of their respective subsidiaries, affiliates or successors (each a “Restricted Entity”); provided that this restriction does not prevent you from (i) working in a capacity that does not compete with the specific business of the Company in which you were engaged or had material knowledge during the last two years of your employment with the Company, or (ii) owning as a passive investor not more than 1% of the outstanding stock of any class of a competitor entity that is publicly traded. In the event that you wish to work for a Restricted Entity during the Restricted Period, you may send written notice of that request to the Company, at which time the Company may elect to waive the application of this Paragraph 12 and to allow you to work for that Restricted Entity during the Restricted Period.

13.        You agree that in the event you breach any of your obligations under Paragraphs 4, 7, 8, 9, 10, or 11 above, or any obligation that survives the termination of the Employment Agreement, and in either case such breach is to the material detriment of the Company, the Company will be entitled to recover the full amount paid under Paragraph 5 above and to obtain all other remedies provided by law or equity.

14.        Following the Separation Date, your right to be indemnified and held harmless against any claims brought against you for your acts and omissions committed or alleged to be committed while you were serving as an officer, director, employee or agent of the Company will continue to the maximum extent permitted under the Limited Liability Company Agreement of AOL. In certain circumstances such indemnification may be subject to approval by AOL’s Board of Managers.

15.        If any term or clause of this Separation Agreement should ever be determined to be unenforceable, you and the Company agree that this will not affect the enforceability of any other term or clause of this Separation Agreement. In the event of a conflict between the terms of this Separation Agreement on the one hand, and the terms of the Employment Agreement, any

 

 

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Confidentiality, Non-Competition and Proprietary Rights Agreement, or any other agreement signed by you on the other hand, the terms of this Separation Agreement shall control.

16.        You should consider consulting an attorney before executing this Separation Agreement. You have seven (7) days from your Separation Date in which to sign and return the Separation Agreement, although you may, at your discretion, sign and return the Separation Agreement at any earlier time. The day you return the executed Separation Agreement is the “effective date” of this Separation Agreement. If you have not returned the executed Separation Agreement within the time permitted, then the Company’s offer will expire by its own terms at such time.

17.        Paragraph 17(i) of your Employment Agreement is deleted in its entirety and replaced with the following: This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of New York applicable to agreements made and to be performed in New York. In addition, Paragraph 16 of the Employment Agreement is amended by (i) replacing the reference to “Washington, D.C.” as the site of the arbitration with a reference to “New York, New York,” and (ii) replacing the reference to “the courts of Virginia” as having jurisdiction with a reference to “the courts of the State of New York.”

18.        This Separation Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement.

To accept the Separation Agreement, you must sign below and return one entire copy to AOL LLC, Attn: Mark Wainger, One Time Warner Center, New York New York 10019.

 

Sincerely,

Timothy Armstrong

AOL LLC

 

 

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By signing this Separation Agreement, I acknowledge that: I have had the opportunity to review this Separation Agreement carefully with legal or other personal advisors of my own choice; I understand that by signing this Separation Agreement I am releasing the Company of all claims against it; I have read this Separation Agreement and understand its terms; I have been given a reasonable period of time to consider its terms and effect and to ask any questions I may have; I voluntarily agree to the terms of this Separation Agreement.

AGREED AND ACCEPTED:

 

               

Nisha Kumar

   

Date

   

 

 

 

 

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EX-10.90 34 dex1090.htm EXHIBIT 10.90 EXHIBIT 10.90

Exhibit 10.90

AOL INC.

ANNUAL INCENTIVE PLAN FOR EXECUTIVE OFFICERS

 

1. Purpose.

The purpose of the AOL Inc. Annual Incentive Plan for Executive Officers (hereinafter the “Plan”) is to provide for the payment of annual bonuses to certain executive officers of the Company that qualify as performance-based compensation under Section 162(m) of the Code and would be deductible by the Company.

 

2. Definitions.

The following terms (whether used in the singular or plural) have the meanings indicated when used in the Plan:

2.1 “Adjusted Net Income” shall mean income (loss) from continuing operations as defined by GAAP, excluding the following: (a) noncash impairments of goodwill, intangible and fixed assets and investments, (b) gains and losses on sales of operating assets and investments, (c) external expensed costs related to mergers, acquisitions, investments or dispositions, as well as contingent consideration related to such transactions, (d) amounts related to securities litigation and government investigations, (e) restructuring charges or reductions in restructuring charges greater than $3 million, (f) reserves larger than $3 million established in connection with litigation, tax audits and similar governmental proceedings, (g) recoveries greater than $3 million in litigation and similar proceedings, (h) gains or losses recognized from the forgiveness of debt, (i) the impact of current year changes to accounting standards and tax laws, and (j) the impact of taxes on the items described in (a) through (i).

2.2 “Awards” means the incentive awards made annually pursuant to the Plan, which may be made in the form of a cash payment, a grant of RSUs, a grant of restricted shares or a combination of any of the foregoing, as determined by the Committee in its sole discretion. Unless otherwise provided by the Committee, any Award payable hereunder shall be paid in cash.

2.3 “Board” means the Board of Directors of the Company.

2.4 “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Code section shall include any successor section.

2.5 “Committee” means the Compensation Committee of the Board, and any successor thereto.

2.6 “Company” means AOL Inc., a Delaware corporation, and any successor thereto.


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2.7 “Distribution” means the distribution, on a pro rata basis, by Time Warner Inc. to the record holders of Time Warner Inc. common stock as of the applicable record date of all the outstanding shares of Company common stock owned by Time Warner Inc. on the date of such distribution.

2.8 “GAAP” means generally accepted accounting principles applicable to the Company as in effect from time to time.

2.9 “Maximum Award Amount” means the maximum amount payable to any Participant under the Plan as an Award for a year, which is the lesser of 4.0% of Adjusted Net Income or $4 million.

2.10 “Participant” means those employees of the Company and its affiliates as the Committee shall designate to participate in the Plan.

2.11 “Performance-Based Exception” means the performance-based exception from the tax deductibility limitation imposed by Code Section 162(m), as set forth in Code Section 162(m)(4)(C).

2.12 “Plan” has the meaning ascribed thereto in Section 1.

2.13 “Regulations” means the rules and regulations under Section 162(m) of the Code.

2.14 “Restricted Stock” means a share of common stock of the Company, par value, $0.01 per share (the “Company Common Stock”), granted under an equity plan of the Company, in settlement of an Award payable hereunder, and which may be subject to conditions under which the Restricted Stock may be forfeited by the Participant. Following payment pursuant to the Plan, shares of Restricted Stock will have a vesting schedule that is established pursuant to the applicable equity plan and award agreement. The value of a share of Restricted Stock shall be equal to the closing price of the Company Common Stock, as reported on the New York Stock Exchange (the “NYSE”) Composite Tape (or the closing price on the composite tape for the primary exchange for the Company Common Stock if the Company Common Stock is not listed on the NYSE), on the date of grant.

2.15 “RSUs” means restricted stock units approved and designated by the Committee for crediting to a Participant’s account under an equity plan of the Company, in settlement of an Award payable hereunder. Each RSU represents the contingent right to receive a share of the Company Common Stock. Following payment pursuant to the Plan, RSUs will have a vesting schedule that is established pursuant to the applicable equity plan and award agreement. The value of an RSU shall be equal to the closing price of the Company Common Stock, as reported on the NYSE Composite Tape (or the closing price on the composite tape for the primary exchange for the Company Common Stock if the Company Common Stock is not listed on the NYSE), on the date of grant.


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3. Awards.

3.1 For any calendar year, (i) prior to the beginning of each such calendar year, or (ii) at such later time as may be permitted by the Code and the Regulations for the Awards hereunder to qualify for the Performance-Based Exception, the Committee shall (x) select the executive officers of the Company and its affiliates who are eligible to receive an Award for such year and (y) establish the amount of the Award opportunity for each selected executive that is payable if the performance goals specified in Section 3.2 hereof are achieved. Unless a lesser Award opportunity amount is specified by the Committee for a Participant for a year, a Participant’s Award opportunity for a year shall be the Maximum Award Amount. Notwithstanding anything in the Plan to the contrary, the actual Award payable to a Participant for a year may be downward adjusted by the

Committee from the Award amount established for a Participant under this Section 3.1 in the Committee’s complete discretion (including a downward adjustment to zero), as provided in Section 3.4 hereof.

3.2 The Committee may pay an Award to a Participant under the Plan for a year if the Company has positive Adjusted Net Income for such year. If positive Adjusted Net Income is not achieved for the year, no Award shall be payable to any Participant under the Plan for such year.

3.3 Following the close of the year for which the Committee has authorized Awards, the Committee shall determine whether the requirements under the Plan for payment of Awards for such year have been satisfied. Prior to paying any Award under the Plan, the Company’s independent auditors shall review and verify the calculation of the Company’s Adjusted Net Income for the applicable year. The Committee shall then certify, in writing, whether the performance goal was met within the meaning of the Code and the Regulations and determine the amount of the Awards that shall be paid to Participants in accordance with the Award opportunity established for each Participant pursuant to Section 3.1 and subject to the Committee’s discretion to downward adjust Awards, as provided in Section 3.4.

3.4 Each Participant’s actual Award amount shall then be determined by the Committee based upon (i) the Award opportunity previously established for the Participant pursuant to Section 3.1, and (ii) any downward adjustment that the Committee determines to make, such downward adjustment to be in the sole discretion of the Committee. In determining the amount of any downward adjustment, the Committee may give consideration to the contribution made by the Participant to achievement of the Company’s established objectives and such other matters as it shall deem relevant in exercising such discretion. In no event may a Participant’s Award exceed the lesser of (i) the amount of the Award opportunity previously established for the Participant (if the Award opportunity so established for such Participant pursuant to Section 3.1 for such year is less than the Maximum Award Amount), or (ii) the Maximum Award Amount.

3.5 Subject to Section 6 of the Plan, payments of an Award, if any, under the Plan with respect to any year, shall be made between January 1 and March 15 of the calendar year following the applicable performance year, and as soon as practicable after


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the Committee certifies that the performance goals have been met and determines the actual Award amount for each Participant.

3.6 If the Committee has previously determined that payment of all or a portion of an Award shall be made in the form of RSUs or Restricted Stock, the Committee shall calculate the number of RSUs or shares of Restricted Stock, as applicable, that shall be credited to the Participant in payment of the Award based upon (i) the cash amount that would be payable to the Participant if the Award or the portion thereof to be made in the form of RSUs or Restricted Stock, as applicable, were instead paid in cash, and (ii) the value of an RSU or a share of Restricted Stock, as applicable, on the date of grant specified by the Committee.

 

4. Administration

The Plan shall be administered by the Committee or a subcommittee thereof. Subject to the express provisions of the Plan and the requirements of Section 162(m) of the Code, the Committee shall have plenary authority to interpret the Plan, to prescribe, amend and rescind the rules and regulations relating to it and to make, in its discretion, all other determinations deemed necessary or advisable for the administration of the Plan. The determinations of the Committee on the matters referred to in this Section 4 shall be conclusive.

Each member of the Committee (or a subcommittee thereof, consisting of at least two individuals, established to administer the Plan) shall be an “outside director” within the meaning of Section 162(m) of the Code and the Regulations.

 

5. Eligibility

Payments of Awards with respect to any year may be made under the Plan only to a person who was a Participant during all or part of such year.

 

6. Deferral of Award

Each Participant may elect by written notice delivered to the Company at the time and in the form required by the Company to defer payment of all or any portion of a cash Award the Participant might earn with respect to a year, all in accordance with the Code and the Regulations and on such terms and conditions as the Committee may establish from time to time or as may be provided in any employment agreement between the Company and the Participant or in any deferred compensation plan maintained by the Company.

 

7. Effectiveness of the Plan

The Plan shall become effective upon the later of (i) approval by the Board and (ii) approval by Time Warner Inc. and TW AOL Holdings Inc., as the sole stockholders of the Company. The Plan shall remain in effect until such time as it is terminated by the Committee. The Plan shall apply to the annual bonuses payable to each Participant in respect of 2010 and thereafter; provided that any Awards paid under the Plan on or following the first regularly scheduled meeting of the stockholders of the Company that occurs more than 12 months after the


5

 

Distribution shall be subject to the approval of the Plan by the then-existing stockholders of the Company.

 

8. Termination and Amendment

The Plan shall continue in effect until terminated by the Committee. The Committee may at any time modify or amend the Plan in such respects as it shall deem advisable; provided, however, that any such modification or amendment shall comply with all applicable laws and applicable requirements for exemption (to the extent necessary) under Section 162(m) of the Code and the Regulations (taking into consideration the exception provided by Section 1.162-27(f)(4)(iii) of the Regulations).

 

9. Withholding

The obligations of the Company to make payments under the Plan shall be subject to applicable federal, state and local tax withholding requirements.

 

10. Separability

If any of the terms or provisions of the Plan conflict with the requirements of Section 162(m) of the Code, the Regulations or applicable law, then such terms or provisions shall be deemed inoperative to the extent necessary to avoid the conflict with the requirements of Section 162(m) of the Code, the Regulations or applicable law without invalidating the remaining provisions hereof. With respect to Section 162(m), if the Plan does not contain any provision required to be included herein under Section 162(m) of the Code or the Regulations, such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out at length herein.

 

11. Non-Exclusivity of the Plan

Neither the adoption of the Plan by the Committee or the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Committee or the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options, RSUs, or other stock-based awards, the payment of cash in an annual or long-term incentive arrangement or otherwise, or the payment or providing of other benefits outside of the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. The payment or provision of certain of such incentive arrangements and benefits may or may not be deductible by the Company. None of the provisions of the Plan shall be deemed to be an amendment to or incorporated in any employment agreement between the Company and any Participant.

 

12. Beneficiaries

Each Participant may designate a beneficiary or beneficiaries to receive, in the event of such Participant’s death, any payments of cash Awards remaining to be made to the Participant under the Plan. Each Participant shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company to such effect. If any


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Participant dies without naming a beneficiary or if all of the beneficiaries named by a Participant predecease the Participant, then any amounts of cash Awards shall be paid to the Participant’s estate.

 

13. Governing Law

The Plan shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws.

 

14. No Right to Employment or Participation

The Plan shall not interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, and the Plan shall not confer upon any Participant the right to continue in the employ of the Company. No person shall have the right to be selected to receive an Award or, having been so selected, to be selected to receive a future Award.

 

15. No Fractional RSUs or shares of Restricted Stock

Whenever the Committee determines that all or a portion of an annual bonus shall be settled by an award of RSUs or shares of Restricted Stock, no fractional RSUs or shares of Restricted Stock will be awarded, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of RSUs, or shares of Restricted Stock, as applicable, will be rounded downward to the next whole RSU or share of Restricted Stock, as applicable.

 

16. Compliance with IRC Section 409A

The Plan is intended to comply with Section 409A of the Code and will be interpreted in a manner intended to comply with Section 409A of the Code. In furtherance thereof, no payments may be accelerated under the Plan other than to the extent permitted under Section 409A of the Code. To the extent that any provision of the Plan violates Section 409A of the Code such that amounts would be taxable to a Participant prior to payment or would otherwise subject a Participant to a penalty tax under Section 409A of the Code, such provision shall be automatically reformed or stricken to preserve the intent hereof. Notwithstanding anything herein to the contrary, (i) if at the time of a Participant’s termination of employment the Participant is a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company shall defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) until the date that is six months following the Participant’s termination of employment (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments due to a Participant hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment compliant under Section 409A of the Code, or otherwise such payment shall be restructured, to the extent possible, in a manner, determined by the Committee, that does not cause such an accelerated or additional tax. The Committee


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shall implement the provisions of this section in good faith; provided that neither the Company, nor the Committee, nor any of Company’s or its subsidiaries’ employees or representatives, shall have any liability to Participants with respect to this section.

EX-10.91 35 dex1091.htm EXHIBIT 10.91 EXHIBIT 10.91

Exhibit 10.91

AOL INC.

2010 STOCK INCENTIVE PLAN

 

1. Purpose of the Plan

The purpose of the Plan is to aid the Company and its Affiliates in recruiting and retaining employees, directors and advisors and to motivate such employees, directors and advisors to exert their best efforts on behalf of the Company and its Affiliates by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such employees, directors and advisors will have in the welfare of the Company as a result of their proprietary interest in the Company’s success.

 

2. Definitions

The following capitalized terms used in the Plan have the respective meanings set forth in this Section:

(a)        “Act” means The Securities Exchange Act of 1934, as amended, or any successor thereto.

(b)        “Affiliate” means any entity that is consolidated with the Company for financial reporting purposes or any other entity designated by the Board in which the Company or an Affiliate has a direct or indirect equity interest of at least twenty percent (20%), measured by reference to vote or value.

(c)        “Award” means an Option, Stock Appreciation Right, award of Restricted Stock, Other Stock-Based Award or Converted Award granted pursuant to the Plan.

(d)        “Board” means the Board of Directors of the Company.

(e)        “Change in Control” means the occurrence of any of the following events:

(i)        any “Person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (other than the Company or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the “Beneficial Owner” within the meaning of Rule 13d-3 promulgated under the Act of 30% or more of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors; excluding, however, any circumstance in which such beneficial ownership resulted from any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or by any corporation controlling, controlled by, or under common control with, the Company;

(ii)        a change in the composition of the Board since the Effective Date, such that the individuals who, as of such date, constituted the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any person or Entity other than the Board shall not be deemed a member of the Incumbent Board;

(iii)        a reorganization, recapitalization, merger or consolidation (a “Corporate Transaction”) involving the Company, unless securities representing 60% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from such Corporate Transaction (or the parent of such corporation) are held subsequent to such transaction by the person or persons who were the beneficial holders of the outstanding voting securities entitled to vote generally in the election of directors of the Company immediately prior to such


Corporate Transaction, in substantially the same proportions as their ownership immediately prior to such Corporate Transaction; or

(iv)        the sale, transfer or other disposition of all or substantially all of the assets of the Company.

(f)        “Code” means The Internal Revenue Code of 1986, as amended, or any successor thereto.

(g)        “Committee” means the Compensation Committee of the Board or its successor, or such other committee of the Board to which the Board has delegated power to act under or pursuant to the provisions of the Plan or a subcommittee of the Compensation Committee (or such other committee) established by the Compensation Committee (or such other committee).

(h)        “Company” means AOL Inc., a Delaware corporation.

(i)        “Converted Awards” means an option or a restricted stock unit granted under the Plan pursuant to Appendix A.

(j)        “Effective Date” means the later of (i) the date the Board approves the Plan and (ii) the date the Plan is approved by Time Warner Inc. and TW AOL Holdings Inc., as the sole stockholders of the Company.

(k)        “Employment” means (i) a Participant’s employment if the Participant is an employee of the Company or any of its Affiliates, (ii) a Participant’s services as a non-employee director, if the Participant is a non-employee member of the Board or the board of directors of an Affiliate or (iii) a Participant’s services as an advisor, if the Participant is an advisor to the Company or any of its Affiliates; provided, however that unless otherwise determined by the Committee, a change in a Participant’s status from employee to non-employee (other than a director of the Company or an Affiliate) shall constitute a termination of employment hereunder.

(l)        “Fair Market Value” means, on a given date, (i) if there should be a public market for the Shares on such date, the closing sale price of the Shares on the New York Stock Exchange (“NYSE”) Composite Tape, or, if the Shares are not listed or admitted on any national securities exchange, the average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted) (the “NASDAQ”), or, if no sale of Shares shall have been reported on the NYSE Composite Tape or quoted on the NASDAQ on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used, and (ii) if there should not be a public market for the Shares on such date, the Fair Market Value shall be the value established by the Committee in good faith.

(m)        “ISO” means an Option that is also an incentive stock option granted pursuant to Section 6(d).

(n)        “OIBDA” has the meaning set forth in Section 9(b).

(o)        “Option” means a stock option granted pursuant to Section 6.

(p)        “Option Price” means the price for which a Share can be purchased upon exercise of an Option, as determined pursuant to Section 6(a).

(q)        “Other Stock-Based Awards” means awards granted pursuant to Section 9.

(r)        “Participant” means an employee, prospective employee, director or advisor of the Company or an Affiliate who is selected by the Committee to participate in the Plan.

(s)        “Performance-Based Awards” means certain Other Stock-Based Awards granted pursuant to Section 9(b).

(t)        “Plan” means the AOL Inc. 2010 Stock Incentive Plan, as amended from time to time.

(u)        “Restricted Stock” means any Share granted under Section 8.


(v)        “Section 409A” means Section 409A of the Code and the Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date

(w)        “Share Authorization” has the meaning set forth in Section 3.

(x)        “Shares” means shares of common stock of the Company, $.01 par value per share.

(y)        “Stock Appreciation Right” means a stock appreciation right granted pursuant to Section 7.

(z)        “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto), of the Company.

(aa)        “Substitute Award” means an Award granted under Section 10(b); provided, however, that in no event shall the term “Substitute Award” be construed to refer to or permit an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.

 

3. Shares Subject to the Plan

Subject to adjustment as provided in Section 10, the number of Shares available for issuance under the Plan (the “Share Authorization”), including with respect to Incentive Stock Options, shall be equal to the sum of (i) [10,000,000], of which no more than [60]% may be issued in the form of Restricted Stock or Other Stock-Based Awards payable in Shares; plus (ii) the aggregate number of Shares subject to the Converted Awards. The maximum number of Shares with respect to which Awards (other than Converted Awards) may be granted during a calendar year to any Participant shall be [2,600,000]; provided that the maximum number of Shares that may be awarded in the form of Restricted Stock or Other Stock-Based Awards payable in Shares (other than Converted Awards) during any calendar year to any Participant shall be [300,000]. The grant limits under the preceding sentence shall apply to an Award other than an Option or Stock Appreciation Right only if the Award is intended to be “performance-based” as that term is used in Section 162(m) of the Code. The number of Shares available for issuance under the Plan shall be reduced by the full number of Shares covered by Awards granted under the Plan (including, without limitation, the full number of Shares covered by any Stock Appreciation Right, regardless of whether any such Stock Appreciation Right or other Award covering Shares under the Plan is ultimately settled in cash or by delivery of Shares); provided, however, that the number of Shares covered by Awards (or portions thereof) that are forfeited or that otherwise terminate or lapse without the payment of consideration in respect thereof shall again become available for issuance under the Plan; and provided further that any Shares that are forfeited after the actual issuance of such Shares to a Participant under the Plan shall not become available for re-issuance under the Plan.

 

4. Administration

(a)        The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are intended to qualify as “independent directors” within the meaning of the NYSE listed company rules, “non-employee directors” within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and, to the extent required by Section 162(m) of the Code (or any successor section thereto), “outside directors” within the meaning thereof. In addition, the Committee may delegate the authority to grant Awards under the Plan to any employee or group of employees of the Company or an Affiliate; provided that such grants are consistent with guidelines established by the Committee from time to time.

(b)        The Committee shall have the full power and authority to make, and establish the terms and conditions of, any Award to any person eligible to be a Participant, consistent with the provisions of the Plan, and to waive any such terms and conditions at any time (including, without limitation, accelerating or waiving any vesting conditions).

(c)        The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan, and may delegate such authority, as it deems appropriate. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee


deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors).

(d)        The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the exercise, grant or vesting of an Award. Unless the Committee specifies otherwise, the Participant may elect to pay a portion or all of such withholding taxes by (a) delivery of Shares or (b) having Shares withheld by the Company with a Fair Market Value equal to the minimum statutory withholding rate from any Shares that would have otherwise been received by the Participant.

 

5. Limitations

(a)        No Award may be granted under the Plan after the fifth anniversary of the first regularly scheduled meeting of the stockholders of the Company that occurs more than 12 months after the Distribution (as defined in Appendix A) but Awards granted prior to such fifth anniversary may extend beyond that date.

(b)        Notwithstanding any provision herein to the contrary, the repricing of an Option or Stock Appreciation Right, once granted hereunder, is prohibited without prior approval of the Company’s stockholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Option or Stock Appreciation Right to lower its exercise price; (ii) any other action that is treated as a “repricing” under generally accepted accounting principles; and (iii) repurchasing for cash or canceling an Option or Stock Appreciation Right at a time when its exercise price is greater than the Fair Market Value of the underlying Shares in exchange for another Award, unless the cancellation and exchange occurs in connection with a change in capitalization or similar change permitted under Section 10(a) below. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

(c)        With respect to any Awards granted to a Participant who is a non-employee member of the Board at the time of grant, such Awards shall be made pursuant to formulas established by the Board in advance of such grant. Any such Awards shall be made at the time such a Participant first becomes a member of the Board and, thereafter, on an annual basis at or following the annual meeting of stockholders. Such formulas may include any one or more of the following: (i) a fixed number of Options or Stock Appreciation Rights, (ii) a fixed number of Shares of Restricted Stock or a number of Shares of Restricted Stock determined by reference to a fixed dollar amount (calculated based on the Fair Market Value of a Share on the date of grant), and (iii) Other Stock-Based Awards determined either by reference to a fixed number of Shares or to a fixed dollar amount (calculated based on the Fair Market Value of a Share on the date of grant).

 

6. Terms and Conditions of Options

Options granted under the Plan shall be, as determined by the Committee, nonqualified or incentive stock options for federal income tax purposes, as evidenced by the related Award agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine, and as evidenced by the related Award agreement:

(a)        Option Price. The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of a Share on the date an Option is granted.

(b)        Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted, except as may be provided pursuant to Section 15.

(c)        Exercise of Options. Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of this Section 6, the exercise date of an Option shall be the date a notice of exercise is received by the Company, together with provision for payment of the full purchase price in accordance with this Section 6(c). The purchase price for the Shares as to which an Option is exercised shall be paid to the Company, as designated by the Committee, pursuant to


one or more of the following methods: (i) in cash or its equivalent (e.g., by check); (ii) in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee; (iii) partly in cash and partly in such Shares or (iv) if there is a public market for the Shares at such time, through the delivery of irrevocable instructions to a broker to sell Shares obtained upon the exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Option Price for the Shares being purchased. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Shares are issued to the Participant.

(d)        ISOs. The Committee may grant Options under the Plan that are intended to be ISOs. Such ISOs shall comply with the requirements of Section 422 of the Code (or any successor section thereto). No ISO may be granted to any Participant who, at the time of such grant, owns more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the Fair Market Value of a Share on the date the ISO is granted and (ii) the date on which such ISO terminates is a date not later than the day preceding the fifth anniversary of the date on which the ISO is granted. Any Participant who disposes of Shares acquired upon the exercise of an ISO either (i) within two years after the date of grant of such ISO or (ii) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. All Options granted under the Plan are intended to be nonqualified stock options, unless the applicable Award agreement expressly states that the Option is intended to be an ISO. If an Option is intended to be an ISO, and if for any reason such Option (or portion thereof) shall not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a nonqualified stock option granted under the Plan; provided that such Option (or portion thereof) otherwise complies with the Plan’s requirements relating to nonqualified stock options. In no event shall any member of the Committee, the Company or any of its Affiliates (or their respective employees, officers or directors) have any liability to any Participant (or any other person) due to the failure of an Option to qualify for any reason as an ISO.

(e)        Attestation. Wherever in the Plan or any agreement evidencing an Award a Participant is permitted to pay the exercise price of an Option or taxes relating to the exercise of an Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of beneficial ownership of such Shares, in which case the Company shall treat the Option as exercised without further payment and/or shall withhold such number of Shares from the Shares acquired by the exercise of the Option, as appropriate.

 

7. Terms and Conditions of Stock Appreciation Rights

(a)        Grants. The Committee may grant (i) a Stock Appreciation Right independent of an Option or (ii) a Stock Appreciation Right in connection with an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to clause (ii) of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option, (B) shall cover the same number of Shares covered by the Option (or such lesser number of Shares as the Committee may determine) and (C) shall be subject to the same terms and conditions as such Option except for such additional limitations as are contemplated by this Section 7 (or such additional limitations as may be included in an Award agreement).

(b)        Terms. The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the Fair Market Value of a Share on the date the Stock Appreciation Right is granted; provided, however, that notwithstanding the foregoing in the case of a Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, the exercise price may not be less than the Option Price of the related Option. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant upon exercise to an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares covered by the Stock Appreciation Right. Each Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, shall entitle a Participant to surrender to the Company the unexercised Option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price per Share, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash (any such Shares valued at such Fair Market Value), all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares with respect to which the Stock Appreciation Right is being exercised. The date a notice of exercise is received by the Company shall


be the exercise date. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares covered by Stock Appreciation Rights until the Shares are issued to the Participant.

(c)        Limitations. The Committee may impose, in its discretion, such conditions upon the exercisability of Stock Appreciation Rights as it may deem fit, but in no event shall a Stock Appreciation Right be exercisable more than ten years after the date it is granted, except as may be provided pursuant to Section 15.

 

8. Restricted Stock

(a)        Grant. Subject to the provisions of the Plan, the Committee shall determine the number of Shares of Restricted Stock to be granted to each Participant, the duration of the period during which, and the conditions, if any, under which, the Restricted Stock may be forfeited to the Company, and the other terms and conditions of such Awards. Notwithstanding any other provision, with respect to (i) Shares of Restricted Stock that are subject to time-based vesting, but not performance-based vesting, not less than 95% of such Shares of Restricted Stock shall remain subject to forfeiture for at least three years after the date of grant, subject to earlier termination of such potential for forfeiture in whole or in part in the event of a Change in Control or the death, disability or other termination of the Participant’s employment, and (ii) Shares of Restricted Stock that are subject to vesting upon the attainment of performance objectives, the minimum performance period shall be one year.

(b)        Transfer Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as provided in the Plan or the applicable Award agreement. Shares of Restricted Stock may be evidenced in such manner as the Committee shall determine in its sole discretion. If certificates representing Shares of Restricted Stock are registered in the name of the applicable Participant, the Company may, at its discretion, retain physical possession of such certificates until such time as all applicable restrictions lapse.

(c)        Dividends. Dividends paid on any Shares of Restricted Stock may be paid directly to the Participant, withheld by the Company subject to vesting of the Restricted Shares pursuant to the terms of the applicable Award agreement, or may be reinvested in additional Shares of Restricted Stock, as determined by the Committee in its sole discretion.

(d)        Performance-Based Grants. Notwithstanding anything to the contrary herein, certain Shares of Restricted Stock granted under this Section 8 may, at the discretion of the Committee, be granted in a manner which is intended to be deductible by the Company under Section 162(m) of the Code (or any successor section thereto). The restrictions applicable to such Restricted Stock shall lapse based wholly or partially on the attainment of written performance goals approved by the Committee for a performance period of not less than one year established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25 percent of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the criteria set forth in Section 9(b) below. The criteria may relate to the Company, one or more of its Affiliates or one or more of its or their divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, shall so certify prior to the release of the restrictions on the Shares. No such restrictions shall lapse for such performance period until such certification is made by the Committee.


9. Other Stock-Based Awards

(a)        Generally. The Committee, in its sole discretion, may grant or sell Awards of Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares, including, but not limited to, Shares awarded purely as a bonus and not subject to any restrictions or conditions, Shares in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, performance units, dividend equivalent units, stock equivalent units, restricted stock units and deferred stock units. Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive, or vest with respect to, one or more Shares (or the equivalent cash value of such Shares) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine the number of Shares to be awarded to a Participant under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof and provisions ensuring that all Shares so awarded and issued shall be fully paid and non-assessable). Notwithstanding any other provision, with respect to (i) Other Stock-Based Awards settled in Shares that are subject to time-based vesting, but not performance-based vesting (other than any Converted Awards and Other Stock-Based Awards that are granted pursuant to an obligation set forth in an employment agreement with an executive officer of the Company that was entered into prior to October 1, 2009), not less than 95% of such Other Stock-Based Awards payable in Shares shall vest and become payable at least three years after the date of grant, subject to earlier vesting in whole or in part in the event of a Change in Control or the death, disability or other termination of the Participant’s employment, and (ii) Other Stock-Based Awards settled in Shares that are subject to vesting upon the attainment of performance objectives, the minimum performance period shall be one year.

(b)        Performance-Based Awards. Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 9 may be granted in a manner which is intended to be deductible by the Company under Section 162(m) of the Code (or any successor section thereto). A Participant’s Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period of not less than one year established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25% of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) operating income before depreciation and amortization (“OIBDA”), including adjusted OIBDA; (ii) operating income; (iii) earnings per share; (iv) return on stockholders’ equity; (v) revenues or sales; (vi) free cash flow; (vii) return on invested capital, (viii) total stockholder return, (ix) net sales or revenue growth, (x) return on assets, (xi) return on capital, (xii) return on sales, (xiii) return on revenue, (xiv) operating cash flow, (xv) cash flow return on equity, (xvi) cash flow return on investment, (xvii) earnings before or after taxes, interest, depreciation, and/or amortization, (xviii) gross or operating margins, (xix) productivity ratios, (xx) expense targets, (xxi) margins, (xxii) operating efficiency, (xxiii) market share, (xxiv) working capital targets and change in working capital, and/or (xxv) economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital). The foregoing criteria may relate to the Company, one or more of its Affiliates or one or more of its or their divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, shall so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code and Section 19 below, elect to defer payment of a Performance-Based Award.


10. Adjustments Upon Certain Events

(a)        Adjustments Upon Certain Events. Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:

(i)        Generally. In the event of any change in the outstanding Shares (including, without limitation, the value thereof) after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, or any transaction similar to the foregoing, the Committee in its sole discretion and without liability to any person shall make such substitution or adjustment, if any, as it deems to be equitable (subject to Section 19), as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the maximum number of Shares for which Awards (including limits established for Restricted Stock or Other Stock-Based Awards) may be granted during a calendar year to any Participant, (iii) the Option Price or exercise price of any Stock Appreciation Right and/or (iv) any other affected terms of such Awards.

(ii)        Change in Control. In the event of a Change in Control after the Effective Date, the Committee may (subject to Section 19), but shall not be obligated to, (A) accelerate, vest or cause the restrictions to lapse with respect to, all or any portion of an Award, (B) cancel Awards for fair value (as determined in the sole discretion of the Committee) which, in the case of Options and Stock Appreciation Rights, may equal the excess, if any, of value of the consideration to be paid in the Change in Control transaction to holders of the same number of Shares subject to such Options or Stock Appreciation Rights (or, if no consideration is paid in any such transaction, the Fair Market Value of the Shares subject to such Options or Stock Appreciation Rights) over the aggregate exercise price of such Options or Stock Appreciation Rights, (C) provide for the issuance of substitute Awards that will substantially preserve the otherwise applicable terms of any affected Awards previously granted hereunder as determined by the Committee in its sole discretion or (D) provide that for a period of at least 30 days prior to the Change in Control, such Options shall be exercisable as to all Shares subject thereto and that upon the occurrence of the Change in Control, such Options shall terminate and be of no further force and effect.

(b)        Substitute Awards. The Company, from time to time, also may substitute or assume any outstanding award granted by the Company, any of its Affiliates or another company, whether in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock or otherwise, by either: (A) granting an Award under the Plan in substitution of such award or (B) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the granting company had applied the rules of the Plan to such grant. In the event the Company assumes an award pursuant to this Section 10(b), the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code and Section 409A). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Option Price. The number of Shares underlying Substitute Awards shall be counted against the aggregate number of Shares available for Awards under the Plan.

 

11. No Right to Employment or Awards

The granting of an Award under the Plan shall impose no obligation on the Company or any Affiliate to continue the Employment of a Participant and shall not lessen or affect the Company’s or Subsidiary’s right to terminate the Employment of such Participant. No Participant or other person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants, or holders of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated).


12. Successors and Assigns

The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s creditors.

 

13. Nontransferability of Awards

Unless otherwise determined by the Committee (and subject to the limitation that in no circumstances may an Award may be transferred by the Participant for consideration or value), an Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant.

 

14. Amendments or Termination

The Board or the Committee may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made, (a) without the approval of the stockholders of the Company (i) if such action would (except as is provided in Section 10 of the Plan) increase the total number of Shares reserved for the purposes of the Plan or increase the maximum number of Shares of Restricted Stock or Other Stock-Based Awards that may be awarded hereunder, or the maximum number of Shares for which Awards may be granted to any Participant, or (ii) if stockholder approval for such action is otherwise required by any applicable law or regulation or the rules of the NYSE or any successor exchange or quotation system on which the Shares may be then listed or quoted or Section 162(m) of the Code (taking into consideration the exception provided by Treas. Reg. § 1.162-27(f)(iii)(4)), (b) without the consent of a Participant, if such action would diminish any of the rights of the Participant under any Award theretofore granted to such Participant under the Plan or (c) subject to Section 5(b), relating to repricing of Options or Stock Appreciation Rights, to permit such repricing; provided, however, that the Committee may amend the Plan in such manner as it deems necessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws. Without limiting the generality of the foregoing, to the extent applicable, notwithstanding anything herein to the contrary, the Plan and Awards issued hereunder shall be interpreted in accordance with Section 409A. Notwithstanding any provision of the Plan to the contrary, in the event that the Committee determines that any amounts payable hereunder will be taxable to a Participant under Section 409A, prior to payment to such Participant of such amount, the Company may (a) adopt such amendments to the Plan and Awards and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Awards hereunder and/or (b) take such other actions as the Committee determines necessary or appropriate to avoid the imposition of an additional tax under Section 409A.

 

15. International Participants

With respect to Participants who reside or work outside the United States of America and who are not (and who are not expected to be) “covered employees” within the meaning of Section 162(m) of the Code, the Committee may, in its sole discretion, amend the terms of the Plan or Awards in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or an Affiliate.

 

16. Other Benefit Plans

All Awards shall constitute a special incentive payment to the Participant and shall not be taken into account in computing the amount of salary or compensation of the Participant for the purpose of determining any benefits under any pension, retirement, profit sharing, bonus, life insurance or other benefit plan of the Company or under any agreement between the Company and the Participant, unless such plan or agreement specifically provides otherwise.


17. Choice of Law

The Plan shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws, and except as otherwise provided in the pertinent Award agreement, any and all disputes between a Participant and the Company or any Affiliate relating to an Award shall be brought only in a state or federal court of competent jurisdiction sitting in Manhattan, New York.

 

18. Effectiveness of the Plan

The Plan shall be effective as of the Effective Date; provided that any Awards granted under the Plan on or following the first regularly scheduled meeting of the stockholders of the Company that occurs more than 12 months after the Distribution shall be subject to the approval of the Plan by the then-existing stockholders of the Company.

 

19. Section 409A

(a)        In General. The Plan is intended to be administered in a manner consistent with the requirements, where applicable only, of Section 409A. Where reasonably possible and practicable, the Plan shall be administered in a manner to avoid the imposition on Participants of immediate tax recognition and additional taxes pursuant to Section 409A. Notwithstanding the foregoing, neither the Company nor the Committee shall have any liability to any person in the event Section 409A applies to any Award in a manner that results in adverse tax consequences for the Participant or any of his beneficiaries or transferees.

(b)        Elective Deferrals. No elective deferrals or re-deferrals of compensation (as defined under Section 409A) other than in regard to restricted stock units granted under the Plan are permitted hereunder.

(c)        Applicable Requirements. To the extent an Award granted under the Plan is deemed to be “deferred compensation” subject to Section 409A, the following rules shall apply to such Awards:

(i)        Mandatory Deferrals. If the Company decides that the payment of compensation under the Plan shall be deferred within the meaning of Section 409A, then at the grant of the Award to which such payment relates, the Company shall specify in the Award Agreement the date(s) on which such compensation will be paid.

(ii)        Initial Deferral Elections. For Awards of restricted stock units where the Participant is given the opportunity to elect the timing and form of the payment of the underlying Shares at some future time once any requirements have been satisfied (e.g., retirement), the Participant must make his or her initial deferral election for such Award in accordance with the requirements of Section 409A and Treas. Reg. § 1.409A-2.

(iii)        Subsequent Deferral Elections. To the extent the Company or Committee allows Participants to elect to re-defer (after an initial deferral election has become irrevocably effective) deferred compensation that is subject to Section 409A, then the requirements of Treas. Reg. § 1.409A-2(b) must be met. Generally those requirements provide that: (1) such election will not take effect until at least 12 months after the date on which it is made; (2) in the case of an election not related to a payment on account of disability, death, or an unforeseeable emergency, the payment with respect to which such election is made must be deferred for a period of not less than 5 years from the date such payment would otherwise have been paid; and, (3) any election related to a payment at a specified time or pursuant to a fixed schedule (within the meaning of Treas. Reg. § 1.409A-3(a)(4)) must be made not less than 12 months before the date the payment is scheduled to be paid.

(iv)        Timing of Payments. Payment(s) of compensation that is subject to Section 409A shall only be made upon an event or at a time set forth in Treas. Reg. § 1.409A-3. Generally, such events and times include: a Participant’s separation from service; a Participant’s becoming disabled; a Participant’s death; a time or a fixed schedule specified in the Plan (including an Award Agreement); a change in the ownership or effective control, or in the ownership of a substantial portion of the assets, of a corporation; or the occurrence of an unforeseeable emergency, in each case as defined and provided for under Section 409A.


(v)        Certain Delayed Payments. Notwithstanding the foregoing, to the extent an amount was intended to be paid such that it would have qualified as a short-term deferral under Section 409A, then such payment may be delayed without causing such amount to be subject to Section 409A if the requirements of Treas. Reg. § 1.409A-1(b)(4)(ii) are met.

(vi)        Acceleration of Payment. Any payment made under the Plan to which Section 409A applies may not be accelerated, except in accordance with Treas. Reg. §1.409A-3(j)(4).

(vii)        Installment Payments. To the extent any amount made under the Plan to which Section 409A applies is payable in two or more installments, each installment payment shall be treated as a separate and distinct payment for purposes of Section 409A.

(d)        Determining “Controlled Group”. In order to determine for purposes of Section 409A whether a Participant or eligible individual is employed by a member of the Company’s controlled group of corporations under Section 414(b) of the Code (or by a member of a group of trades or businesses under common control with the Company under Section 414(c) of the Code) and, therefore, whether the Shares that are or have been purchased by or awarded under the Plan to the Participant are shares of “service recipient” stock within the meaning of Section 409A:

(i)        In applying Sections 1563(a)(1), (2) and (3) of the Code for purposes of determining the Company’s controlled group under Section 414(b) of the Code, the language “at least 50 percent” is to be used instead of “at least 80 percent” each place it appears in Sections 1563(a)(1), (2) and (3) of the Code;

(ii)        In applying Treas. Reg. § 1.414(c)-2 for purposes of determining trades or businesses under common control with the Company for purposes of Section 414(c) of the Code, the language “at least 50 percent” is to be used instead of “at least 80 percent” each place it appears in Treas. Reg. § 1.414(c)-2; and

(iii)        Notwithstanding the above, to the extent that the Company finds that legitimate business criteria exist within the meaning of Treas. Reg. § 1.409A-1(b)(5)(E)(1), then the language “at least 50 percent” in clauses (i) and (ii) above shall instead be “at least 20 percent.”

(e)        Specified Employees; Payment Delay. Notwithstanding anything above to the contrary, in the event that an amount that is subject to Section 409A is to be paid under the Plan to a “specified employee” upon such employee’s “separation from service” (as those terms are defined under Section 409A), then such payment shall be made on the first day of the seventh month following the month in which the separation from service occurred.


Appendix A

Converted Awards

This Appendix A shall apply to the Converted Awards granted to Timothy W. Armstrong (“Armstrong”) pursuant to the AOL Inc. 2010 Stock Incentive Plan (“Plan”), of which this Appendix A comprises a part.

(1)        Subject to paragraph (3) below, effective immediately upon the Distribution, each outstanding option to purchase Time Warner Inc. common stock (a “TWX Option”), whether vested or unvested, that is held, immediately prior to the Distribution, by Armstrong shall be converted into an Option granted under the Plan to acquire, on substantially the same terms and conditions as were applicable under such TWX Option (other than with respect to exercise price and the number and type of shares covered thereby), that will have a “fair value” and an “intrinsic value” (in each case, within the meaning of FAS 123R), as of immediately following the Distribution, that shall be identical to the fair value and intrinsic value of such TWX Option immediately prior to the Distribution. [FORMULA FOR CONVERTING OPTIONS TO COME.]

(2)        Subject to paragraph (3) below, effective immediately upon the Distribution, each outstanding restricted stock unit that was granted to Armstrong pursuant to any equity plan of Time Warner Inc. (a “TWX RSU”), whether vested or unvested, that is held, immediately prior to the Distribution, by Armstrong shall be converted into a restricted stock unit granted under the Plan, on substantially the same terms and conditions as were applicable under such TWX RSU (other than with respect to the number and type of shares covered thereby), that will have a “fair value” and an “intrinsic value” (in each case, within the meaning of FAS 123R), as of immediately following the Distribution, that shall be identical to the fair value and intrinsic value of such TWX RSU immediately prior to the Distribution. [FORMULA FOR CONVERTING RSUS TO COME.]

(3)        This Appendix A shall not become effective unless Armstrong is employed by the Company immediately following the Distribution.

(4)        Except where expressly modified by this Appendix A, the provisions of the Plan shall fully apply to the Converted Awards as though the Plan’s provisions have been fully set forth herein.

(5)        Capitalized terms used in this Appendix A shall have the meanings ascribed to them in the Plan. In addition, for purposes of this Appendix A:

(a)        “Distribution” means the distribution, on a pro rata basis, by Time Warner Inc. to the record holders of Time Warner Inc. common stock as of the applicable record date of all the outstanding Shares owned by Time Warner Inc. on the date of such distribution;

(b)        “FAS 123R” means Statement of Financial Accounting Standards No. 123R or the comparable relevant sections of the FASB Accounting Standards Codification; and

(c)        “FASB” means the Financial Accounting Standards Board.

EX-10.93 36 dex1093.htm EXHIBIT 10.93 EXHIBIT 10.93

Exhibit 10.93

AMENDMENT TO

MEMORANDUM OF UNDERSTANDING

This Amendment (this “Amendment”), dated as of                     , 2009 (“Amendment Effective Date”), is entered into by and between AOL LLC (f/k/a America Online, Inc.), a Delaware limited liability company with its principal offices at 22000 AOL Way, Dulles, Virginia 20166 (“AOL”), and Telepictures Productions Inc., a Delaware corporation, with its principal offices at 4000 Warner Blvd., Burbank, CA 91522 (“TP”; and together with AOL, the “Parties” and each a “Party”) to amend that certain Memorandum of Understanding, effective as of July 25, 2005, between AOL and TP, as such Memorandum of Understanding may have been amended from time to time (as so amended, the “MOU”).

 

1. Binding MOU; Term. Except as amended herein effective as of the date first written above, AOL and TP agree that the MOU shall remain in full force and effect, and shall be binding and enforceable against each Party, in accordance with the terms thereof. Notwithstanding any other provision in the MOU or this Amendment, the MOU, as amended by this Amendment, shall become effective as of the Amendment Effective Date and terminate on the date that is the earlier of December 31, 2010 or twelve (12) months after the on the date AOL is no longer wholly owned by Time Warner Inc. (“Spin Date”), or such earlier date as the Parties may mutually agree in writing.

 

2. Amendments. AOL and TP hereby agree to amend the MOU as follows, effective as of the Spin Date:

 

  a. Section 2.1 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “2.1 Brand Website: the website located at www.tmz.com.”

 

  b. Section 2.3 of Exhibit A to the MOU is hereby amended by deleting all references to AOL’s assistance in obtaining approvals.

 

  c. Section 2.4 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “2.4 Services Provided by AOL.

 

   

Hosting and Streaming:

 

   

AOL shall be responsible for procuring and maintaining the production equipment for the Brand Website and procuring and maintaining the transmission of the Brand Website information to the Internet (collectively, “Hosting and Streaming”). Beginning on the Spin Date, instead of the foregoing, AOL shall provide Hosting and Streaming to the Brand Website in accordance with the terms of the Master Services Agreement


 

between AOL and Time Warner Inc., dated December     , 2009 (the “Hosting Agreement”).

 

   

Hosting and Streaming provided by AOL will be maintained at the same level and quality as the Hosting and Streaming services provided by AOL to the Branded Website as of the Spin Date.

 

   

TP will pay AOL for the Hosting and Streaming provided by AOL to the Branded Website, the JV, TP or any of their affiliates at the rates which are set forth in the Hosting Agreement (“Hosting and Steaming Fees”).

 

   

Reports: AOL shall provide the JV with monthly reports on promotions provided and access to reporting systems consistent with AOL’s normal business practices and that are made available to the JV as of the Amendment Effective Date.”

 

  d. Article 7 of Exhibit A to the MOU is hereby amended by adding the following as a new Section 7.6 after Section 7.5:

 

  “7.6 Financial and Other Matters Commencing on January 1, 2010 or the date AOL is no longer owned by Time Warner Inc., whichever is earlier (“Spin Date”).

 

  (i) Prior to the Spin Date. Sections 7.1-7.5 above shall be effective until expiration on the day before the Spin Date.

 

  (ii) Commencing on the Spin Date. Commencing on the Spin Date:

 

  (a) Except for Hosting and Streaming provided by AOL pursuant to Section 2.4 of this Exhibit A and the distribution and promotion obligations of AOL set forth in Annex A, none of AOL nor any of its affiliates shall have any obligations with respect to the TMZ Parties (as defined below) hereunder, including without limitation, any obligations to make any contributions, reimbursements or other payments to the Brand, the Brand Website, Additional Brand Services (including the TMZ television show and TMZ wireless services), the Service, the JV, TP, and/or any of their affiliates (collectively, the “TMZ Parties”) under this MOU.

 

  (b)

Except for the AOL Ad Revenue Share (as defined below), the Hosting and Streaming Fees and the promotion obligations of the TMZ Parties set forth

 

2


 

in Annex A, none of the TMZ Parties shall have any obligation to make any contributions, reimbursements or other payments to AOL or any of its affiliates, and none of AOL nor any of its affiliates shall have the right to receive, share, or participate in any revenues of the TMZ Parties, in each case under this MOU.

 

  (c) From the Spin Date through the end of the Term, AOL shall receive fifteen percent (15%) of Gross Advertising Revenues for all Gross Advertising Revenues up to and including ten million dollars ($10,000,000) and twenty percent (20%) of all Gross Advertising Revenues in excess of ten million dollars, with a guaranteed minimum revenue share of one million five hundred thousand dollars ($1,500,000) to AOL. As used herein, “Gross Advertising Revenues” means gross advertising (including but not limited to display, video, text, and search advertising) revenues actually received from advertisements placed on the Brand Website and the TMZ Mobile Site (collectively, the “AOL Ad Revenue Share”). The AOL Ad Revenue Share shall be paid quarterly.”

 

  e. Article 8 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “8. Promotion and Distribution of the Brand Website.

 

   

AOL and the Brand Website shall perform their respective promotion and distribution obligations set forth on Annex A attached hereto.

 

   

Notwithstanding anything herein to the contrary, AOL reserves the right to redesign or modify the organization, structure, “look and feel,” navigation and other elements of the AOL Network at any time. In the event such modifications materially and adversely affect any particular AOL Promotions, AOL, after a good faith consultation and working with TP, will provide alternative promotional assets of equivalent value, on the AOL.com primary, “entry” or “landing” page, with reasonably equivalent placement (e.g. above the fold in a position that AOL has reasonably demonstrated to be in a equivalent position as the previous placements). AOL shall in good faith avoid exercising its rights hereunder in a manner intended to decrease the value of the AOL Promotions.”

 

3


  f. Article 9 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “9. Advertising Sales and Sponsorships for the Brand Website.

 

   • TP will solely handle the selling of all advertising and sponsorships for the Brand Website, and fulfilling and serving all sold advertising and sponsorships.”

 

  g. The first bullet point under Section 11.1 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “• All AOL Provided Technology will be owned by AOL.”

 

  h. The first bullet point under Section 11.2 of Exhibit A to the MOU is hereby amended by deleting it in its entirety and substituting the following:

 

  “• All TP Provided Content will be owned by TP.”

 

  i. Section 11.3 of Exhibit A to the MOU is hereby amended by adding the following to the end of the bullet:

 

  “11.3 JV Property.

 

   • JV Property” shall also include the Brand, the name “TMZ”, the domain name www.tmz.com, the Brand Website, Additional Brand Services (including the TMZ television show and TMZ wireless services), the Service, JV Produced Content, and Third Party Content and Third Party Technology acquired by, or licensed to, the TMZ Parties in connection with the Service, but excluding the TP Provided Content and the AOL Provided Technology.

 

   • Notwithstanding anything to the contrary in this MOU, the Parties will mutually agree on a list of all JV Developed Technology and all JV Developed Technology will be jointly owned by the Parties, with no duty by either Party to account to the other Party for use or profits. Nothing created after the Spin Date shall be deemed JV Developed Technology for the purposes of this agreement.

 

   • Any and all JV Property will be owned solely by TP. AOL shall have no ownership interests in, or rights in or to, the JV Property.”

 

  j. Articles 1, 3, 4, 5, 6, 7.1-7.5, 10, 12, 13, 14, 15, and 17, and Sections 5.2, 11.4 and 11.5 of Exhibit A to the MOU and Schedules 1-5 of the MOU are hereby amended by deleting each in its entirety and substituting the following:

 

4


“[Intentionally Omitted]”.

 

  k. The following new Section 13 shall be added to Exhibit A of the MOU:

 

  “13. Other Rights.

 

  13.1 Transfer to Non-TW Affiliate. In the event of a transfer or assignment by TP of any of its interest in the Service (or any portion thereof) or of any TMZ Party which owns the Service (or any portion thereof) (a “Transfer”) to an entity that does not control, is not controlled by or is not under common control with TP, Warner Brothers or Time Warner Inc. (“Third Party”) during the Term, TP shall provide AOL sixty (60) days prior written notice thereof and AOL shall have a right to terminate this Agreement upon ten (10) days prior written notice.

 

  13.2 Right of First Negotiation. In the event of TP wishes to make a Transfer to a Third Party during the Term and within one years thereafter, TP shall notify AOL thereof (“TP Notice”). Upon written request by AOL given within five (5) days after the TP Notice, the Parties shall negotiate in good faith for a period of thirty (30) days (“Negotiating Period”) regarding a Transfer to AOL. During the Negotiating Period, TP shall not enter into any agreement with a Third Party or enter into binding discussions with a Third Party regarding a Transfer to such Third Party.

 

  13.3 Remedies. In the event of a breach, the parties will work together in good faith to resolve the dispute. If a resolution cannot be reached the matter shall be submitted to the CEOs of AOL and Warner Brothers for resolution.

 

3. Traffic Roll-Up. Through and including February 28, 2010,(a) the traffic for Popeater will continue to roll-up to the Brand Website as it does as of October 25, 2009 and AOL will continue to provide promotions reasonably necessary to continue such arrangement (the “PopEater Roll-up Obligation”), and (b) the traffic for the Brand Website will continue to roll-up to AOL as it does as of October 25, 2009 and TP will continue to provide promotions reasonably necessary to continue such arrangement. In consideration of AOL’s performance of the Popeater Roll-up Obligation from October, 2008 through February 28, 2010, TP shall pay AOL six hundred thousand dollars ($600,000), payable on March 15, 2010. TP shall also reimburse AOL for any fee charged by ComScore to effectuate the foregoing arrangements. TP acknowledges that timing of such arrangements is not completely in AOL’s control and is subject to ComScore’s approval and implementation.

 

4. Miscellaneous.

4.1 Governing Law. The MOU and this Amendment shall be interpreted and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws, and with the same force and effect as if fully executed and performed therein.

 

5


4.2 Entire Agreement. The MOU, as amended by this Amendment, represents the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior and/or contemporaneous agreements and understandings, written or oral between the Parties with respect to the subject matter hereof.

4.3 Press Releases and Public Statements. No Party will issue any press releases or make public statements relating to the MOU, this Amendment, or the relationship between the Parties without the other Party’s review of and written consent to such press release or public statement.

[Remainder of page intentionally left blank]

 

6


IN WITNESS WHEREOF, this Amendment has been duly executed by the Parties hereto effective as of the date first set above.

 

TELEPICTURES PRODUCTIONS INC.     AOL LLC
By:  

 

    By:  

 

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

Date:  

 

    Date:  

 

 

7


ANNEX A

Brand Website/AOL Promotion and Distribution Arrangement

 

1. AOL Obligations

 

  a. Promotion and Distribution. AOL shall provide the Brand Website with eight (8) Dynamic Leads (DL) promotion spots per month, reasonably evenly distributed over the month (averaging approximately 2 per week) on the AOL “Welcome” screen/page, with 6 DLs per month in position DL2 or better, and 2 DL per month in position DL4 or better. The DL promotion touts a story from the Brand Website. An AOL DL manager shall coordinate with the Brand Website editorial team to select the story that will be promoted in the DL. TP shall ensure that the landing page linked to on the Brand Website from an AOL promotion provided hereunder, for the duration of such promotion, does not promote or market the following direct competitors of AOL: Google, Yahoo! or MSN (and any other Microsoft web properties). In addition, TP shall in good faith avoid doing anything intended to send a disproportionate amount of traffic to any other direct AOL competitor relative to traffic driven to AOL from these landing pages. In the event AOL believes TP is in violation of the foregoing sentence, AOL shall provide TP with written notice thereof and TP shall have the opportunity to cure by removing or decreasing such promotion or links within the following seven (7) days. Search tools (including bars, branding, sponsored links, etc.) shall not be considered direct competition to AOL and will be excluded from the above restrictions.

 

  b. Editorial Coverage. AOL shall provide the Brand Website with the following links:

1. for the extraordinary story (e.g., Michael Jackson’s death, Mel Gibson’s tirade) where the Brand Website is the “breaking news” source and is the actual source for the Popeater story (if any), three (3) links to the Brand Website from such Popeater story.

For example, the Michael Jackson death story was one where the Brand Website broke the story/was the originator of the content. AOL put 3 links to the Brand Website within the Popeater story because the Brand Website was the original breaking news source of the content and AOL used it as the actual source for the Popeater story.

2. With respect to stories that are not originating from the Brand Website editorial team, but are covered by the Brand Website and for which the Brand Website has additional exclusive assets like exclusive photos, video or legal documents, AOL shall provide one (1) link to the Brand Website story from Popeater stories where AOL incorporates such Brand Website exclusive asset.

 

  c.

In order to allow AOL to provide the promotions set forth in 1.a. above, TP, for itself and the TMZ Parties, hereby grants AOL a worldwide, non-

 

8


 

exclusive license to display the Licensed Content (or any portion thereof) on the AOL Network (as formerly defined in the MOU). TP will indemnify and defend AOL from and against all third party claims, actions, costs and/or damages arising from or relating to the Licensed Content and AOL use of the Licensed Content in accordance with this MOU. As used herein, “Licensed Content” shall mean any Content on the Brand Website that is displayed on the AOL Network at the request of TP and furnished by TP solely for the DL placements, but shall exclude any claims arising out of or related to AOL content that accompanies such Licensed Content (i.e. AOL inserted headline or caption), or AOL changes/modifications to Licensed Content that have not been required of TP.

 

9

EX-21.1 37 dex211.htm EXHIBIT 21.1 EXHIBIT 21.1

EXHIBIT 21.1

SUBSIDIARIES OF AOL INC.

AOL Inc. (“AOL”) maintains over 100 subsidiaries. Set forth below are the names of certain controlled subsidiaries, at least 50% owned, directly or indirectly, of AOL as of October 23, 2009, that carry on a substantial portion of AOL’s lines of business. The names of various consolidated wholly-owned subsidiaries have been omitted. None of the foregoing omitted subsidiaries, considered either alone or together with the other omitted subsidiaries of its immediate parent, constitutes a significant subsidiary.

 

Name

  

State or Other

Jurisdiction of

Incorporation

AOL Inc. (Registrant)

   Delaware

AOL Advertising Inc.

   Maryland

ADTECH AG

   Germany

ADTECH UK Limited

   United Kingdom

AdTech US, Inc.

   Delaware

Advertising.com LLC

   Delaware

AOL Advertising Denmark ApS

   Denmark

AOL Advertising Finland OY

   Finland

AOL Advertising France, Societe a Responsabilite Limitee

   France

AOL Advertising Iberia, S.L. Unipersonal

   Spain

AOL Advertising International Limited

   United Kingdom

AOL Advertising Netherlands B.V.

   Netherlands

AOL Advertising Norway AS

   Norway

ICQ LLC

   Delaware

ICQ Ltd.

   Israel

Lightningcast LLC

   Delaware

Perfiliate Limited

   United Kingdom

Lightstate Limited

   United Kingdom

Gpak Limited

   United Kingdom

Perfiliate Technologies Limited

   United Kingdom

Platform-A Sweden AB

   Sweden

Quigo Technologies LLC

   Delaware

Quigo Israel Ltd.

   Israel

TACODA LLC

   Delaware

Third Screen Media LLC

   Delaware

AOL Asia Limited

   Hong Kong

AOL Australia Pty Limited

   Australia


AOL Canada Corp.

   Canada

AOL China Holdings LLC

   Delaware

AOL Beijing Technology Research & Development Company Limited

   China

AOL Community, Inc.

   Delaware

AOL Deutschland Medien GmbH

   Germany

AOL Europe Services S.a r.l.

   Luxembourg

AOL France SNC

   France

AOL Interactive Media India Private Limited

   India

AOL LLC*

   Delaware

AOL Mexico Operations, S. de R.L. de C.V.

   Mexico

AOL Nederland BV

   Netherlands

AOL Online India Private Limited

   India

AOL (UK) Limited

   United Kingdom

Bebo, Inc.

   Delaware

Bebo PTY Limited

   Australia

Bebo UK Limited

   United Kingdom

CompuServe Interactive Services, Inc.

   Delaware

[Cranberry Properties, LLC]

   Delaware

Digital Marketing Services, Inc.

   Delaware

Going, Inc.

   Delaware

Goowy Media, Inc.

   California

InfoInterActive Corp.

   Nova Scotia

AOL Canada Inc.

   Canada

MapQuest, Inc.

   Delaware

MapQuest PA, Inc.

   Delaware

Netscape Communications Corporation

   Delaware

AOL Global Operations Limited

   Ireland

AOL Online Japan, Ltd.

   Japan

Nullsoft, Inc.

   Arizona

Patch Media Corporation

   Delaware

POSTGORILLA INC.

   Florida

Socialthing, Inc.

   Delaware

Sphere Source, Inc.

   Delaware

Spinner Networks Incorporated

   California

The Relegence Corporation

   Delaware

AOL Relegence Israel Ltd.

   Israel

Totekasche Holdings, Inc. d/b/a Userplane

   Delaware

Truveo, Inc.

   Delaware

Weblogs Inc. LLC

   Delaware

Yedda, Inc.

   Delaware

Yedda Technologies-Knowledge Management Services (Y.O.D.E.A. 2006) Ltd.

   Israel

 

* Prior to the distribution, AOL LLC will be transferred to, and retained by, Time Warner Inc.
EX-99.1 38 dex991.htm INFORMATION STATEMENT INFORMATION STATEMENT
Table of Contents

EXHIBIT 99.1

LOGO

, 2009

Dear Time Warner Shareholder:

We are pleased to inform you that on             , 2009, the board of directors of Time Warner Inc. approved the spin-off of AOL Holdings LLC, a wholly owned subsidiary of Time Warner, which will be converted into a corporation and renamed AOL Inc. prior to the spin-off. Upon completion of the spin-off, Time Warner shareholders will own 100% of the outstanding shares of common stock of AOL. We believe that this separation into two independent, publicly-traded companies is in the best interests of both Time Warner and AOL.

The spin-off will be completed by way of a pro rata dividend of AOL shares held by Time Warner to our shareholders of record as of 5:00 p.m. on             , 2009, the spin-off record date. Time Warner shareholders will be entitled to receive              shares of AOL common stock for every              shares of Time Warner common stock they hold on the record date. The dividend will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of AOL common stock will be issued. If you would have been entitled to a fractional share of AOL common stock in the distribution, you will receive the net cash value of such fractional share instead.

The spin-off is subject to certain customary conditions. Shareholder approval of the spin-off is not required, and you will not need to take any action to receive shares of AOL common stock.

Immediately following the spin-off, you will own shares of common stock of both Time Warner and AOL. Time Warner common stock will continue to trade on the New York Stock Exchange under the symbol “TWX.” AOL intends to list its common stock on the New York Stock Exchange under the symbol “AOL.”

We expect the spin-off to be tax-free to the shareholders of Time Warner, except with respect to any cash received in lieu of fractional shares. The spin-off is conditioned on the receipt of an opinion of counsel confirming that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares. Time Warner may waive receipt of the tax opinion as a condition to the spin-off.

The enclosed Information Statement, which is being mailed to the shareholders of Time Warner, describes the spin-off and contains important information about AOL, including its historical consolidated financial statements.

We look forward to your continued support.

Sincerely,

Jeff Bewkes

Chairman and Chief Executive Officer

LOGO


Table of Contents

LOGO

, 2009

Dear AOL Shareholder:

It is my pleasure to welcome you as a shareholder of our company, AOL Inc. We are a leading global web services company with a substantial worldwide audience, a suite of powerful web brands and industry-leading products, and the largest advertising network in the United States.

As an independent, publicly-traded company, we believe we can more effectively focus on our objectives and satisfy the strategic needs of our company. In connection with the distribution of our common stock by Time Warner, we intend to list our common stock on the New York Stock Exchange under the symbol “AOL.”

I invite you to learn more about AOL by reviewing the enclosed Information Statement. We look forward to your continued support as a holder of AOL common stock.

Sincerely,

Tim Armstrong

Chairman and Chief Executive Officer

 

 

770 Broadway    New York, NY     10003    USA


Table of Contents

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

SUBJECT TO COMPLETION, DATED OCTOBER 26, 2009

INFORMATION STATEMENT

AOL Inc.

770 Broadway

New York, New York 10003

Common Stock

(par value $0.01)

This Information Statement is being sent to you in connection with Time Warner Inc.’s spin-off of its wholly-owned subsidiary, AOL Inc. To effect the spin-off, Time Warner will distribute all of the shares of AOL common stock on a pro rata basis to the holders of Time Warner common stock. It is expected that the spin-off will be tax-free to Time Warner shareholders for U.S. Federal income tax purposes, except to the extent of cash received in lieu of fractional shares.

Every                      shares of Time Warner common stock outstanding as of 5:00 p.m., New York City time, on                     , 2009, the record date for the spin-off, will entitle the holder thereof to receive                      shares of AOL common stock. The distribution of shares will be made in book-entry form. Time Warner will not distribute any fractional shares of AOL common stock. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the spin-off.

The spin-off will be effective as of                     , 2009. Immediately after the spin-off becomes effective, we will be an independent, publicly-traded company.

No vote or further action of Time Warner shareholders is required in connection with the spin-off. We are not asking you for a proxy and request that you do not send us a proxy. Time Warner shareholders will not be required to pay any consideration for the shares of AOL common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their Time Warner common stock or take any other action in connection with the spin-off.

All of the outstanding shares of AOL common stock are currently owned by Time Warner. Accordingly, there is no current trading market for AOL common stock. We expect, however, that a limited trading market for AOL common stock, commonly known as a “when-issued” trading market, will develop as early as two trading days prior to the record date for the spin-off, and we expect “regular way” trading of AOL common stock will begin the first trading day after the distribution date. We intend to list AOL common stock on the New York Stock Exchange under the symbol “AOL.”

In reviewing this Information Statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 15 of this Information Statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.

The date of this Information Statement is                    , 2009.


Table of Contents

TABLE OF CONTENTS

 

     Page

SUMMARY

   1

RISK FACTORS

   15

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

   29

THE SPIN-OFF

   30

DIVIDEND POLICY

   38

CAPITALIZATION

   39

SELECTED HISTORICAL FINANCIAL DATA

   40

BUSINESS

   42

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   55

MANAGEMENT

   85

EXECUTIVE COMPENSATION

   91

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   148

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   150

DESCRIPTION OF OUR CAPITAL STOCK

   159

WHERE YOU CAN FIND MORE INFORMATION

   164

INDEX TO FINANCIAL STATEMENTS

   F-1

 

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Table of Contents

SUMMARY

This summary highlights selected information from this Information Statement and provides an overview of our company, our separation from Time Warner and the distribution of our common stock by Time Warner to its shareholders. For a more complete understanding of our business and the separation and distribution, you should read the entire Information Statement carefully, particularly the discussion set forth under “Risk Factors” beginning on page 15 of this Information Statement, and our audited and unaudited historical consolidated financial statements and notes to those statements appearing elsewhere in this Information Statement.

Unless the context otherwise requires, references in this Information Statement to (i) “AOL,” the “Company,” “we,” “our” and “us” refer to AOL Inc. and its consolidated subsidiaries, after giving effect to the reorganization, separation and distribution, and (ii) “Time Warner” refer to Time Warner Inc. and its consolidated subsidiaries, other than AOL. The transaction in which Time Warner will distribute to its shareholders all of the shares of our common stock is referred to in this Information Statement as the “distribution.” The transaction in which we will be separated from Time Warner is sometimes referred to in this Information Statement as the “separation” or the “spin-off.”

Our Company

We are a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience. Our business spans online content, products and services that we offer to consumers, publishers and advertisers. We are focused on attracting and engaging consumers and providing valuable online advertising services on both our owned and operated properties and third-party websites. We have the largest advertising network in terms of online consumer reach in the United States as of September 2009.

Our Strategic Initiatives

We have begun executing a multi-year strategic plan to reinvigorate growth in our revenues and profits by taking advantage of the migration of commerce, information and advertising to the Internet. Our strategy is to focus our resources on AOL’s core competitive strengths in web content production, local and mapping, communications and advertising networks while expanding the presence of our content, product and service offerings on multiple platforms and digital devices. We also aim to reorient AOL’s culture and reinvigorate the AOL brand by prioritizing the consumer experience, making greater use of data-driven insights and encouraging innovation. Particular areas of strategic emphasis include:

 

   

Expanding Our Owned Content Offerings. We will expand our offerings of relevant and engaging online consumer content by focusing on the creation and publication of our own original content. In addition, we will seek to provide premium global advertisers with effective and efficient means of reaching our consumers.

 

   

Pursuing Local and Mapping Opportunities. We believe that there are significant opportunities for growth in the area of local content, platforms and services, by providing comprehensive content covering all geographic areas from local neighborhoods to major metropolitan areas. By enhancing these local offerings, including through our flagship MapQuest brand, we seek to provide consumers with a comprehensive local experience.

 

   

Enhancing Our Established Communications Offerings. Our goal is to increase the reach and engagement of our established communications offerings (including our email products and instant messaging applications) on multiple platforms and digital devices.

 

 

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Growing the Third Party Network. We seek to significantly increase the number of publishers and advertisers utilizing our third-party advertising network by providing an open, transparent and easy-to-use advertising system that offers unique and valuable insights to our publishers and advertisers.

 

   

Encouraging Innovation through AOL Ventures. We believe that we can attract and develop innovative initiatives through AOL Ventures by creating an environment that encourages entrepreneurialism. We currently expect to invest significantly less capital in AOL Ventures than in our other strategic initiatives and we may seek outside capital where appropriate.

Business Overview

Our business operations are focused on the following:

 

   

AOL Media. We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services. We refer to our owned and operated content, products and services as “AOL Media.”

We generate advertising revenues on AOL Media through the sale of display and search advertising. We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers. Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.

We also generate revenues through our subscription access service. We view our subscription access service as a valuable distribution channel for AOL Media. Our access service subscribers are important users of AOL Media and engaging both present and former access service subscribers is an important component of our strategy. In addition, our subscription access service will remain an important source of revenue and cash flow for us in the near term.

Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones). As a result, we seek to ensure that our content, products and services are compatible with such devices so that our consumers are able to access and use our content, products and services via these devices.

 

   

Third Party Network. We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we refer to as the “Third Party Network.” In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory. Our mission is to provide an open and transparent advertising system that is easy-to-use and offers our publishers and advertisers unique and valuable insights. We seek to significantly increase the number of publishers and advertisers utilizing the network.

We market our offerings to advertisers on both AOL Media and the Third Party Network under the brand “AOL Advertising.” We market our offerings to publishers on the Third Party Network under the brand “Advertising.com.”

 

 

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Other Information

In connection with the spin-off, we intend to enter into a new revolving credit facility. We intend to use the proceeds of this facility, as necessary, to support our working capital needs and the growth of our business and for other general corporate purposes. We describe this facility in greater detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Debt Obligations” on page 77 of this Information Statement.

In connection with the reorganization that will occur prior to the spin-off, we will be converted into a Delaware corporation. Our principal executive offices are located at 770 Broadway, New York, New York 10003. Our telephone number is 1-877-AOL-1010. Our website address is www.corp.aol.com. Information contained on, or connected to, our website or Time Warner’s website does not and will not constitute part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is part.

The Spin-Off

Overview

On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner, following which AOL will be an independent, publicly-traded company.

Before our separation from Time Warner, we will enter into a Separation and Distribution Agreement and several other agreements with Time Warner related to the spin-off. These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property, information technology and tax-related assets and liabilities). See “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement for more detail.

The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. In addition, Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner. See “The Spin-Off—Conditions to the Spin-Off” on page 36 of this Information Statement for more detail.

Questions and Answers about the Spin-Off

The following provides only a summary of the terms of the spin-off. You should read the section entitled “The Spin-Off” beginning on page 30 of this Information Statement for a more detailed description of the matters described below.

 

Q: What is the spin-off?

 

A: The spin-off is the method by which we will separate from Time Warner. In the spin-off, Time Warner will distribute to its shareholders all of the shares of our common stock that it owns. Following the spin-off, we will be a separate company from Time Warner, and Time Warner will not retain any ownership interest in us. The number of shares of Time Warner common stock you own will not change as a result of the spin-off.

 

 

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Q: Why is the separation of AOL structured as a spin-off?

 

A: Time Warner believes that a tax-free distribution of our shares is the most efficient way to separate our business from Time Warner in a manner that will improve flexibility and benefit both Time Warner and us, and create long-term value for Time Warner shareholders.

 

Q: What will I receive in the spin-off?

 

A: As a holder of Time Warner common stock, you will receive a dividend of                     shares of our common stock for every                     shares of Time Warner common stock held by you on the record date. Your proportionate interest in Time Warner will not change as a result of the spin-off. For a more detailed description, see “The Spin-Off” beginning on page 30 of this Information Statement.

 

Q: What is being distributed in the spin-off?

 

A: Approximately                     shares of our common stock will be distributed in the spin-off, based on the number of shares of Time Warner common stock outstanding as of                     , 2009. The actual number of shares of our common stock to be distributed will be calculated on                     , 2009, the record date. The shares of our common stock to be distributed by Time Warner will constitute all of the issued and outstanding shares of our common stock immediately prior to the distribution. For more information on the shares being distributed in the spin-off, see “Description of Our Capital Stock—Common Stock” beginning on page 159 of this Information Statement.

 

Q: What is the record date for the distribution?

 

A: Record ownership will be determined as of 5:00 p.m., New York City time, on                     , 2009, which we refer to as the record date.

 

Q: When will the distribution occur?

 

A: The distribution date of the spin-off is                     , 2009. We expect that it will take the distribution agent, acting on behalf of Time Warner, up to two weeks after the distribution date to fully distribute the shares of our common stock to Time Warner shareholders.

 

Q: What do I have to do to participate in the spin-off?

 

A: No action is required on your part. Shareholders of Time Warner entitled to receive our common stock are not required to pay any cash or deliver any other consideration, including any shares of Time Warner common stock, to receive the shares of our common stock distributable to them in the spin-off.

 

Q: If I sell, on or before the distribution date, shares of Time Warner common stock that I held on the record date, am I still entitled to receive shares of AOL common stock distributable with respect to the shares of Time Warner common stock I sold?

 

A: If you decide to sell any of your shares of Time Warner common stock on or before the distribution date, you should consult with your stockbroker, bank or other nominee and discuss whether you want to sell your Time Warner common stock or the AOL common stock you will receive in the spin-off, or both. See “The Spin-Off—Trading Prior to the Distribution Date” on page 36 of this Information Statement for more information.

 

 

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Q: How will Time Warner distribute shares of our common stock?

 

A: Holders of shares of Time Warner common stock on the record date will receive shares of our common stock in book-entry form. See “The Spin-Off—Manner of Effecting the Spin-Off” on page 31 of this Information Statement for a more detailed explanation.

 

Q: How will fractional shares be treated in the spin-off?

 

A: No fractional shares will be distributed in connection with the spin-off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Time Warner shareholder who would otherwise have been entitled to receive a fractional share in the distribution. See “The Spin-Off—Treatment of Fractional Shares” on page 32 of this Information Statement for a more detailed explanation.

 

Q: What is the reason for the spin-off?

 

A: The board of directors of Time Warner considered the following potential benefits in making its determination to pursue the spin-off:

 

   

Strategic Focus and Flexibility. Following the spin-off, Time Warner and AOL will each have more focused businesses and be better able to dedicate financial resources to pursue appropriate growth opportunities and execute strategic plans best suited to its respective business. The spin-off will also allow each of Time Warner and AOL to enhance its strategic flexibility to respond to industry dynamics.

 

   

Focused Management. The spin-off will allow management of each company to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of the respective companies.

 

   

Management Incentives. The spin-off will enable AOL to create incentives for its management and employees that are more closely tied to its business performance and shareholder expectations. AOL equity-based compensation arrangements will more closely align the interests of AOL’s management and employees with the interests of its shareholders and should increase AOL’s ability to attract and retain personnel.

 

   

Investor Choice. The spin-off will allow investors to make independent investment decisions with respect to Time Warner and AOL. Investment in one or the other company may appeal to investors with different goals, interests and concerns.

 

Q: What are the U.S. Federal income tax consequences to me of the spin-off?

 

A: The spin-off is conditioned on the receipt by Time Warner, on or before the distribution date, of an opinion of Cravath, Swaine & Moore LLP confirming that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares. The opinion will be based on the assumption that, among other things, the representations made, and information submitted, in connection with it are accurate. Time Warner may waive receipt of the tax opinion as a condition to the spin-off.

The aggregate tax basis of the Time Warner common stock and our common stock, received in a tax-free spin-off, in the hands of Time Warner’s shareholders immediately after the spin-off will be the same as the aggregate tax basis of the Time Warner common stock held by the holder immediately before the spin-off, allocated between the common stock of Time Warner and us in proportion to their relative fair market values on the date of the spin-off.

 

 

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See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 33 of this Information Statement and “Risk Factors—Risks Relating to the Spin-Off—The spin-off could result in significant tax liability to Time Warner shareholders” on page 25 of this Information Statement for more information regarding the potential tax consequences to you of the spin-off.

 

Q: Does AOL intend to pay cash dividends?

 

A: We intend to retain future earnings for use in the operation of our business and to fund future growth. We do not anticipate paying any dividends for the foreseeable future. See “Dividend Policy” on page 38 of this Information Statement for more information.

 

Q: How will AOL common stock trade?

 

A: Currently, there is no public market for our common stock. We intend to list our common stock on the New York Stock Exchange under the symbol “AOL.”

We anticipate that trading will commence on a “when-issued” basis as early as two trading days prior to the record date. When-issued trading in the context of a spin-off refers to a transaction effected on or before the distribution date and made conditionally because the securities of the spun-off entity have not yet been distributed. When-issued trades generally settle within three trading days after the distribution date. On the first trading day following the distribution date, any when-issued trading in respect of our common stock will end and regular-way trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the sale transaction. See “The Spin-Off—Trading Prior to the Distribution Date” on page 36 of this Information Statement for more information. We cannot predict the trading prices for our common stock before or after the distribution date.

 

Q: Will the spin-off affect the trading price of my Time Warner common stock?

 

A: Yes. We expect the trading price of shares of Time Warner common stock immediately following the distribution to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the AOL business. Furthermore, until the market has fully analyzed the value of Time Warner without the AOL business, the price of shares of Time Warner common stock may fluctuate.

 

Q: Do I have appraisal rights?

 

A: No. Holders of Time Warner common stock are not entitled to appraisal rights in connection with the spin-off.

 

Q: Who is the transfer agent for AOL common stock?

 

A: Computershare Trust Company, N.A.

 

Q: Are there risks associated with owning shares of AOL common stock?

 

A: Our business is subject to both general and specific risks and uncertainties relating to our business. Our business is also subject to risks relating to the spin-off. Following the spin-off, we will also be subject to risks relating to being an independent, publicly-traded company. Accordingly, you should read carefully the information set forth in the section entitled “Risk Factors” beginning on page 15 of this Information Statement.

 

 

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Q: Where can I get more information?

 

A: If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent at:

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

Phone:

Before the spin-off, if you have any questions relating to the separation, you should contact Time Warner at:

Investor Relations

Time Warner Inc.

One Time Warner Center

New York, NY 10019-8016

Phone: 1-866-INFO-TWX

After the spin-off, if you have any questions relating to AOL, you should contact us at:

Investor Relations

AOL Inc.

770 Broadway

New York, NY 10003-9522

Phone: 1-877-AOL-1010

 

 

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Summary of the Spin-Off

 

Distributing Company    Time Warner Inc., a Delaware corporation. After the distribution, Time Warner will not own any shares of our common stock.
Distributed Company    AOL Inc., a Delaware corporation and a wholly-owned subsidiary of Time Warner. After the spin-off, we will be an independent, publicly-traded company.
Distributed Securities    All of the shares of our common stock owned by Time Warner, which will be 100% of our common stock issued and outstanding immediately prior to the distribution.
Record Date    The record date is                     , 2009.
Distribution Date    The distribution date is                     , 2009.
Reorganization    On July 8, 2009, Time Warner completed the purchase of Google’s 5% interest in us. Following this purchase, we became a 100%-owned subsidiary of Time Warner. Prior to the spin-off, Time Warner will convert AOL Holdings LLC into a Delaware corporation to be named AOL Inc. Time Warner will then cause substantially all of the assets and liabilities of AOL LLC (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner), our wholly-owned subsidiary that currently holds, directly or indirectly, all of the AOL business, to be transferred to and assumed by us. Following this transfer and assumption of AOL LLC’s assets and liabilities, ownership of AOL LLC will be transferred to, and retained by, Time Warner. For more information, see the description of the Internal Transactions in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement.
Distribution Ratio    Every                     shares of Time Warner common stock outstanding as of 5:00 p.m., New York City time, on the record date, will entitle the holder thereof to receive                     shares of our common stock. Please note that if you sell your shares of Time Warner common stock on or before the distribution date, the buyer of those shares may in certain circumstances be entitled to receive the shares of our common stock issuable in respect of the shares sold. See “The Spin-Off—Trading Prior to the Distribution Date” on page 36 of this Information Statement for more detail.
The Distribution    On the distribution date, Time Warner will release the shares of our common stock to the distribution agent to distribute to Time Warner shareholders. The distribution of shares will be made in book-entry form. It is expected that it will take the distribution agent up to two weeks to electronically issue shares of our common stock to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form. You will not be required to make any payment, surrender or exchange your shares of Time Warner common stock or take any other action to receive your shares of our common stock.

 

 

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Fractional Shares    The distribution agent will not distribute any fractional shares of our common stock to Time Warner shareholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient shareholders as described in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 33 of this Information Statement.
Conditions to the Spin-Off    The spin-off is subject to the satisfaction or waiver by Time Warner of the following conditions:
  

•   the board of directors of Time Warner shall have authorized and approved the separation and distribution and not withdrawn such authorization and approval, and shall have declared the dividend of AOL common stock to Time Warner shareholders;

  

•   each ancillary agreement contemplated by the Separation and Distribution Agreement shall have been executed by each party thereto;

  

•   the Securities and Exchange Commission shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Securities Exchange Act of 1934, as amended (which we refer to in this Information Statement as the Exchange Act), and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

  

•   our common stock shall have been accepted for listing on the New York Stock Exchange or another national securities exchange approved by Time Warner, subject to official notice of issuance;

  

•   the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner—Separation and Distribution Agreement” beginning on page 150 of this Information Statement) shall have been completed;

  

•   Time Warner shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares;

 

•   Time Warner shall have received a certificate signed by our Chief Financial Officer, dated as of the distribution date, certifying that prior to the distribution we have made capital and other expenditures, and have operated our cash management, accounts payable and receivables collection systems, in the ordinary course consistent with prior

 

 

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practice, subject to an exception which permits us to cause any excess cash held by our foreign subsidiaries to be transferred to us or any of our other subsidiaries;

 

•   no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution shall be in effect, and no other event outside the control of Time Warner shall have occurred or failed to occur that prevents the consummation of the distribution;

 

•   no other events or developments shall have occurred prior to the distribution date that, in the judgment of the board of directors of Time Warner, would result in the spin-off having a material adverse effect on Time Warner or its shareholders;

 

•   prior to the distribution date, this Information Statement shall have been mailed to the holders of Time Warner common stock as of the record date;

  

•   our current directors shall have duly elected the individuals listed as members of our post-distribution board of directors in this Information Statement, and such individuals shall be the members of our board of directors immediately after the distribution; provided, however, that our current directors shall appoint one independent director prior to the date on which when-issued trading of our common stock commences on the New York Stock Exchange and such director shall serve on our audit committee; and

 

•   immediately prior to the distribution date, our amended and restated certificate of incorporation and amended and restated by-laws, each in substantially the form filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, shall be in effect.

   The fulfillment of the foregoing conditions will not create any obligation on the part of Time Warner to effect the spin-off. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the distribution. Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.
Trading Market and Symbol    We intend to file an application to list shares of our common stock on the New York Stock Exchange under the symbol “AOL.” We anticipate that, as early as two trading days prior to the record date, trading of shares of AOL common stock will begin on a “when-issued” basis and will continue up to and including the distribution date, and we expect “regular-way” trading of our common stock will begin the first trading day after the distribution date. We also anticipate that, as early as two
   trading days prior to the record date, there will be two markets in Time Warner common stock: a “regular-way” market on which shares of Time Warner common stock will trade with an entitlement to shares of AOL

 

 

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   common stock to be distributed pursuant to the distribution, and an “ex-distribution” market on which shares of Time Warner common stock will trade without an entitlement to shares of AOL common stock. See “The Spin-Off—Trading Prior to the Distribution Date” on page 36 of this Information Statement for more information.
Tax Consequences to Time Warner Shareholders   

 

Time Warner shareholders are not expected to recognize any gain or loss for U.S. Federal income tax purposes as a result of the spin-off, except with respect to any cash received in lieu of fractional shares. See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 33 of this Information Statement for a more detailed description of the U.S. Federal income tax consequences of the spin-off.

   Each shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to that shareholder, including the effect of any U.S. Federal, state, local or foreign tax laws and of changes in applicable tax laws.
Relationship with Time Warner after the Spin-Off   

 

We will enter into a Separation and Distribution Agreement and other agreements with Time Warner related to the reorganization, separation and distribution. These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property, information technology and tax-related assets and liabilities). The Separation and Distribution Agreement, in particular, will provide for the settlement or extinguishment of certain obligations between AOL and Time Warner. We will enter into a Transition Services Agreement with Time Warner pursuant to which certain services will be provided on an interim basis following the distribution. We will also enter into an Employee Matters Agreement that will set forth the agreements of Time Warner and AOL concerning certain employee compensation and benefit matters. Further, we will enter into an agreement with Time Warner regarding the sharing of taxes incurred before and after the spin-off, certain indemnification rights with respect to tax matters and certain restrictions to preserve the tax-free status of the spin-off. In addition, to facilitate the ongoing use of various intellectual property by each of AOL and Time Warner, we intend to enter into an Intellectual Property Cross-License Agreement with Time Warner that will provide for reciprocal licensing arrangements. We will also enter into an IT Applications Database Agreement that will provide for reciprocal access to software applications that have been developed internally, and a Master Services Agreement for ATDN and Hosting Services pursuant to which we will provide Time Warner with network access and hosting services. We also intend to enter into various other commercial agreements with Time Warner. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on

 

 

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   page 150 of this Information Statement, and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off” beginning on page 25 of this Information Statement.
Dividend Policy    We intend to retain future earnings for use in the operation of our business to fund future growth. We do not anticipate paying any dividends for the foreseeable future. See “Dividend Policy” on page 38 of this Information Statement.
Transfer Agent    Computershare Trust Company, N.A.
Risk Factors    Our business is subject to both general and specific risks and uncertainties relating to our business. Our business is also subject to risks relating to the spin-off. Following the spin-off, we will also be subject to risks relating to being an independent, publicly-traded company. Accordingly, you should read carefully the information set forth under “Risk Factors” beginning on page 15 of this Information Statement.
Management and Strategy    In April 2009, Tim Armstrong was appointed our Chairman and Chief Executive Officer, and he commenced a review of AOL’s strategy and operations. As a result of this review, we have developed the next phase of our business strategy, which is to focus primarily on attracting and engaging Internet consumers and generating advertising revenues, with our subscription access service managed as a valuable distribution channel for our content, product and service offerings. For more information, see “Business” beginning on page 42 of this Information Statement. In order to execute this strategy, we have updated our organizational structure and hired certain members of senior management, including a new Chief Financial Officer. We will continue to evaluate our organizational structure and personnel requirements as part of the ongoing management of our business.

 

 

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Summary Historical Consolidated Financial Data

The following tables present certain summary historical financial information as of and for each of the years in the five-year period ended December 31, 2008, and as of June 30, 2009 and for the six months ended June 30, 2009 and 2008. The summary historical consolidated financial data as of December 31, 2008 and 2007 and for each of the fiscal years in the three-year period ended December 31, 2008, and as of June 30, 2009 and for the six months ended June 30, 2009 and 2008, are derived from our historical consolidated financial statements included elsewhere in this Information Statement. The summary historical consolidated financial data as of December 31, 2006 and as of and for the years ended December 31, 2005 and 2004 are derived from our unaudited consolidated financial statements that are not included in this Information Statement. The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of our management include all adjustments, consisting of only ordinary recurring adjustments, necessary for a fair presentation of the information set forth in this Information Statement.

The summary historical financial data presented below should be read in conjunction with our consolidated financial statements and accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Information Statement. For each of the periods presented, we were a subsidiary of Time Warner. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented. In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of our business. Further, the historical financial information includes allocations of certain Time Warner corporate expenses. We believe the assumptions and methodologies underlying the allocation of general corporate expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by us if we had operated as an independent, publicly-traded company or of the costs to be incurred in the future.

 

     Years Ended December 31,    Six Months Ended
June 30,
     2008    2007    2006    2005    2004    2009    2008
($ in millions)                   (unaudited)    (unaudited)    (unaudited)
Statement of Operations Data:                     

Revenues:

                    

Advertising

   $ 2,096.4    $ 2,230.6    $ 1,886.1    $ 1,337.8    $ 1,005.0    $ 862.2    $ 1,082.2

Subscription

     1,929.3      2,787.9      5,783.6      6,754.9      7,476.9      749.2      1,029.8

Other

     140.1      162.2      117.0      109.4      139.7      59.6      73.0
                                                

Total revenues

   $ 4,165.8    $ 5,180.7    $ 7,786.7    $ 8,202.1    $ 8,621.6    $ 1,671.0    $ 2,185.0

Operating income (loss)(a)

     (1,167.7)      1,853.8      1,167.8      (1,817.8)      230.5      300.3      505.1

Income (loss) from continuing operations(b)

     (1,526.6)      1,213.3      716.5      (363.6)      477.0      173.2      286.2
                                                

Net income (loss) attributable to AOL Inc.(c)

   $ (1,525.8)    $ 1,396.1    $ 749.7    $ (334.1)    $ 564.4    $ 173.4    $ 286.6
                                                

 

(a)

2008 includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill and $20.8 million in amounts incurred related to securities litigation and government investigations. 2007 includes a net pre-tax gain of $668.2 million on the sale of the German access service business and $171.4 million in amounts incurred related to securities litigation and government investigations. 2006 includes a $767.4 million gain on the sales of the French and United Kingdom access service businesses and $705.2 million in amounts incurred related to securities litigation and government investigations. 2005 includes $2,864.8 million in amounts incurred related to securities litigation and government investigations. 2004 includes $536.0 million in amounts incurred related to securities litigation and

 

 

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government investigations. The six months ended June 30, 2009 include $14.2 million in amounts incurred related to securities litigation and government investigations. The six months ended June 30, 2008 include $8.0 million in amounts incurred related to securities litigation and government investigations.

 

(b) Includes net gains of $944.4 million in 2005 and $293.6 million in 2004 related to the sale of primarily available-for-sale equity securities.

 

(c) Includes net income of $182.1 million in 2007, $18.9 million in 2006, $29.5 million in 2005 and $31.4 million in 2004 related to discontinued operations. 2006 also includes a non-cash benefit of $14.3 million as the cumulative effect of an accounting change upon the adoption of FAS 123R to recognize the effect of estimating the number of equity awards granted prior to January 1, 2006 that are ultimately not expected to vest. 2004 also includes a non-cash benefit of $34.0 million related to the cumulative effect of an accounting change in connection with the consolidation of America Online Latin America, Inc. in accordance with FIN 46R.

 

     

 

As of December 31,

  

 

As of June 30,
2009

   2008    2007    2006    2005    2004   
($ in millions)              (unaudited)    (unaudited)    (unaudited)    (unaudited)

Balance Sheet Data:

                 

Cash

   $ 134.7    $ 151.9    $ 401.5    $ 119.9    $ 256.9    $ 74.7

Total assets

   $ 4,861.3    $ 6,863.1    $ 6,786.4    $ 6,064.6    $ 7,803.0    $ 4,502.1
                                         

Long-term notes payable and obligations under capital leases

   $ 33.7    $ 24.7    $ 105.1    $ 110.4    $ 153.7    $ 40.8
                                         

Total equity

   $ 3,737.7    $ 5,269.5    $ 4,505.8    $ 3,530.8    $ 4,346.0    $ 3,284.9
                                         

 

 

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RISK FACTORS

The risks and uncertainties described below are those which we consider material and of which we are currently aware. In addition, this Information Statement contains forward-looking statements that involve risks and uncertainties. You should carefully read the section “Cautionary Statement Concerning Forward-Looking Statements” on page 29 of this Information Statement.

If any of the following events occur, our business, financial condition or results of operations could be materially and adversely affected and the trading price of our common stock could materially decline.

Risks Relating to Our Business

Our strategic shift to an online advertising-supported business model involves significant risks.

Following our strategic shift in 2006 from focusing primarily on generating subscription revenues to focusing primarily on attracting and engaging Internet consumers and generating advertising revenues, we have become increasingly dependent on advertising revenues as our subscription access service revenues continue to decline. We have not been able to generate sufficient growth in our advertising revenues to offset the loss of subscription access service revenues we have experienced in recent years. In order for us to increase advertising revenues in the future, we believe it will be important to increase our overall volume of advertising sold, including through our higher-priced channels, and to maintain or increase pricing for advertising. Our ability to generate positive cash flows will be adversely affected over the next several years by the continued decline of access subscribers unless we can successfully implement our strategic plan, grow our online advertising business and reduce our current cost structure. Adding to this risk is that advertising revenues are more unpredictable and variable than our subscription access service revenues, and are more likely to be adversely affected during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions. In addition, because subscription revenues have relatively low direct costs, the expected decline in subscription revenues will likely result in declines in operating income and cash flows for the foreseeable future, even if we achieve significant growth in advertising revenues. If we are unable to successfully implement our strategic plan and grow the earnings generated by our online advertising services, we may not be able to support our business in the future.

Accordingly, we have recently implemented several restructuring plans to better align our organizational structure and costs with our strategy. We anticipate additional restructuring plans and expect to continue to actively manage our costs. Identifying and implementing additional cost reductions, however, is becoming increasingly difficult to do in an operationally effective manner. If we do not recognize the anticipated benefits of our restructuring plans and cost reduction initiatives, or if we fail to better align our cost structure in a timely manner, our business could be adversely affected.

If we do not continue to develop and offer compelling content, products and services, our ability to attract new consumers or maintain the engagement of our existing consumers could be adversely affected.

In order to attract consumers and generate increased engagement on AOL Media, we believe we must offer compelling content, products and services. However, acquiring, developing and offering new content, products and services, as well as new functionality, features and enhanced performance of our existing content, products and services, may require significant costs and time to develop. In addition, consumer tastes are difficult to predict and subject to rapid change. If we are unable to provide content, products and services that are sufficiently attractive and relevant to consumers (including subscribers to our subscription access service), we may not be able to attract new consumers or maintain or increase our existing consumers’ engagement. Even if we successfully develop and offer compelling content, products and services, we may not be able to attract new consumers and maintain or increase our existing consumers’ engagement.

 

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In general, subscribers to our subscription access service are among the most engaged consumers on AOL Media. As our subscriber base declines, we need to maintain the engagement of former subscribers similar to historical levels and increase the number and engagement of other consumers on AOL Media in order to successfully execute our business model. There can be no assurance that we will be able to maintain the engagement of former subscribers or attract and engage sufficient other consumers to sustain or increase historical engagement levels on AOL Media. If we cannot do so, our business could be adversely affected.

Even if we are able to attract new consumers to, and generate increased engagement on, AOL Media, we may not be able to maintain or increase our advertising revenues associated with AOL Media.

Different AOL Media properties generate varying volumes of advertising that are sold at a range of prices. To the extent our consumers are active on AOL Media properties where we do not deliver a high volume of advertisements or high-priced advertisements, we are limited in our ability to generate advertising revenues from such activity. Accordingly, if we are not able to attract and engage consumers to those AOL Media properties that typically generate higher-priced and higher-volume advertising, our advertising revenues may not increase even if the aggregate number of consumers on AOL Media properties increases and their aggregate engagement increases.

We face intense competition in all aspects of our business.

The Internet industry, with its low barriers to entry and rapidly shifting consumer tastes, is dynamic and rapidly evolving. New and popular competitors, such as social networking sites, online advertising businesses and providers of communication tools, quickly emerge. Competition among companies offering advertising products, technology and services, and aggregators of third-party products and services, is intense. Internationally, we face intense competition from both global and local competitors. In addition, competition may generally cause us to incur unanticipated costs associated with research and product development.

The competition faced by our subscription access service, especially from broadband Internet access providers, could cause the number of our subscribers to decline at a faster rate than experienced in the past. Dial-up Internet access services do not compete favorably with broadband access services with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. Many broadband providers, including cable companies, bundle their offerings with telephone, entertainment or other services, which may result in lower prices than stand-alone services. Based on customer survey information, the majority of our canceling access subscribers either already have broadband Internet connections or are leaving for broadband Internet connections. Broadband penetration of U.S. households increased from 28% in 2004 to 63% in 2008 and the number of U.S. households with dial-up access decreased from approximately 44 million in 2004 to 14 million in 2008. In addition to competition from broadband providers, competition among dial-up Internet access service providers is intense.

There can be no assurance that we will be able to compete successfully in the future with existing or potential competitors or that competition will not adversely affect our business.

Weak economic conditions could adversely affect our revenues.

The global economy is in a sustained and deep recession, and the future economic environment may continue to be less favorable than that of recent years. This recession could lead to further reduced advertising spending in the foreseeable future. Because we derive a substantial portion of our revenues from the sale of advertising, declines and delays in advertising spending could continue to reduce our revenues. Advertising spending by companies in certain sectors that have been significantly impacted by the downturn in the economy represents a significant portion of our advertising revenues, and any economic or other changes resulting in a significant reduction in the advertising spending of these or other sectors could further adversely affect our advertising revenues.

 

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Additionally, declines in consumer spending due to weak economic conditions may cause advertisers to reduce their spending if consumers are purchasing fewer of their products or services, ultimately resulting in downward pricing pressure on our advertising inventory. As a result, declines in consumer spending could indirectly adversely affect our advertising revenues.

While we do not believe that our subscription access service has been adversely affected by the current recession, there is a risk that existing subscribers may elect to cancel their subscriptions as a result of the weaker economic climate. Should this occur, we may experience an accelerated decline in our subscription revenues.

Demand and pricing for, and volume sold of, online advertising may face downward pressure which would adversely affect our advertising revenues.

During 2008 and the first half of 2009, we experienced lower demand from advertisers across a number of advertiser categories that have been significantly impacted by weak global economic conditions. In order for us to maintain or increase advertising revenues in the future, we believe it will be important to increase our overall volume of advertising sold, including sales of advertising through our higher-priced channels, and to maintain or increase pricing for advertising. If overall demand continues to decline or if overall pricing declines occur, our advertising revenues could be adversely affected.

We are dependent on a third-party search provider.

We do not own or control a general text-based web search service. Instead, Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media. In 2008, search advertising revenues comprised approximately one-third of our total advertising revenues and was the only category of our advertising revenues that grew year-over-year. Changes that Google has made and may unilaterally make in the future to its search service or advertising network, including changes in pricing, algorithms or advertising relationships, could adversely affect our advertising revenues. Furthermore, except in certain limited circumstances, we have agreed to use Google’s algorithmic search and sponsored links on an exclusive basis in the United States through December 19, 2010. Upon expiration of this agreement, there can be no assurance that the agreement will be renewed, or, if the agreement is renewed, that we would receive the same or a higher revenue share as we do under the current agreement. In addition, there can be no assurance that if we enter into an arrangement with an alternative search provider the terms would be as favorable as those under the current Google agreement. Even if we were to enter into an arrangement with an alternative search provider with terms as or more favorable than those under the current Google agreement, such an arrangement might generate significantly lower search advertising revenues for us if the alternative search provider is not able to generate search advertising revenues as successfully as Google currently does.

Because we do not own or control such a search service, we are not able to package and sell search advertising along with display advertising services outside of AOL Media. As search advertising represents a significant portion of online advertising spending, we believe that our lack of a proprietary search service could adversely affect our ability to maintain and increase advertising revenues.

We may need to raise additional capital, and we cannot be sure that additional financing will be available.

While subsequent to the separation we expect to fund our ongoing working capital, capital expenditure and financing requirements through cash flows from operations and a new 364-day senior secured revolving credit facility to be entered into in connection with the separation, we may require additional financing in the future. Our ability to obtain future financing will depend, among other things, on our financial condition and results of operations as well as on the condition of the capital markets or other credit markets at the time we seek financing. We expect that Time Warner will provide a guarantee of the proposed revolving credit facility in order to facilitate its arrangement in connection with the spin-off. However, Time Warner will not provide guarantees with respect to our future financings, and without the benefit of such guarantee we may not be able to obtain replacement or other future financing on terms acceptable to us in a timely manner, or at all. Our ability to fund

 

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our working capital, capital expenditure and financing requirements in the future may be adversely affected if we are unable to extend the credit facility beyond the anticipated 364-day term or obtain a new credit facility or other financing at the end of the anticipated one-year term on acceptable terms. If we are unable to enter into the necessary financing arrangements or sufficient funds are not available on acceptable terms when required, we may not have sufficient liquidity and our business may be adversely affected.

The terms of our new revolving credit facility will contain restrictive covenants which may limit our business and financing activities.

The terms of our new revolving credit facility will include customary covenants which may impose restrictions on our business and financing activities, subject to certain exceptions or the consent of our lenders and Time Warner as guarantor, including, among other things, limits on our ability to incur additional debt, create liens, enter into merger and acquisition transactions, pay dividends and engage in transactions with affiliates. We also expect that the credit facility will contain certain customary affirmative covenants, including a requirement that we maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, and customary events of default. Our ability to comply with these covenants may be adversely affected by events beyond our control, including economic, financial and industry conditions. A breach of any of the credit facility covenants, including a failure to maintain a required ratio or meet a required test, may result in an event of default. This may allow our lenders to declare all amounts outstanding under the credit facility, together with accrued interest, to be immediately due and payable. If this occurs, we may not be able to refinance the accelerated indebtedness on acceptable terms, or at all, or otherwise repay the accelerated indebtedness. In addition, we will be restricted from extending, renewing or increasing our obligations under our new revolving credit facility, and the documentation entered into in connection with the facility may not be amended, modified, waived or released, in each case, without the consent of Time Warner, which may limit our ability to react to changes in financing needs or obtain relief from covenant restrictions in the event necessary.

If we cannot make our content, products and services available and attractive to consumers via devices other than personal computers, our ability to attract consumers and maintain or increase their engagement could be adversely affected.

Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones). In order for consumers to access and use our content, products and services via these devices, we must ensure that our content, products and services are compatible with such devices. We also need to secure arrangements with device manufacturers and wireless carriers in order to have placement on these devices. We must also ensure that our licensing arrangements with third-party content providers allow us to make this content available on these devices. If we cannot effectively make our content, products and services available on these devices, fewer consumers may access and use our content, products and services. In addition, we must develop and offer effective advertising solutions on these devices in order to generate advertising revenues from the use of such devices by our consumers. If we are not able to attract and engage consumers via these devices or develop effective advertising solutions for such devices, our business could be adversely affected.

We rely on legacy technology infrastructure and a failure to update or replace this technology infrastructure could adversely affect our business.

Significant portions of our content, services and products are dependent on technology infrastructure that was developed a number of years ago. We expect to incur substantial ongoing costs to update and replace our legacy technology. In addition, we incur significant costs operating our business with multiple and often contradictory technology platforms and infrastructure. Updating and replacing our technology infrastructure may be challenging to implement and manage, may take time to test and deploy, may cause us to incur substantial costs and may cause us to suffer data loss or delays or interruptions in service. These delays or interruptions in service may cause our consumers, advertisers and publishers to become dissatisfied with our offerings and could adversely affect our business.

 

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Our dependence on legacy technology infrastructure may also put us in a weaker position relative to a number of our key web services competitors. Competitors with newer technology infrastructure may have greater flexibility and be in a position to respond more quickly than us to new opportunities, which may impact our competitive position in certain markets and adversely affect our business.

In addition, many of our employees with the necessary skills to maintain and repair our legacy technology infrastructure have either been reassigned within the Company or are no longer with the Company, creating a potential gap in our ability to service and support this legacy infrastructure.

If we are unable to hire, engage and retain key personnel, our business could be adversely affected.

We are dependent on our ability to hire, engage and retain talented, highly-skilled employees, including employees with specific areas of expertise. Accomplishing this may be difficult due to many factors, including the impact of our restructuring plans on employee morale, the geographic location of our main corporate and business offices, fluctuations in global economic and industry conditions, frequent changes in our management and leadership and the attractiveness of our compensation programs relative to those of our competitors. If we do not succeed in retaining and engaging our key employees and in attracting new key personnel, including personnel with specific areas of expertise, we may be unable to meet our strategic objectives and, as a result, our business could be adversely affected.

Further, due to past changes in our strategic direction, we may not have employees whose skills fully align with those required to achieve our strategic objectives. In some cases, we may need to hire suitably skilled employees to address strategic challenges we may encounter in the future.

A failure to scale and adapt our existing technology architecture to manage the expansion of our offerings could adversely affect our business.

We expect to continue to expand our offerings to consumers, advertisers and publishers. Expanding the amount and type of our offerings will require substantial expenditures to scale or adapt our technology infrastructure. The technology architectures utilized for our consumer offerings and advertising services are highly complex and may not provide satisfactory support as usage increases and products and services expand, change and become more complex in the future. We may make additional changes to our architectures and systems to deliver our consumer offerings and services to advertisers and publishers, including moving to completely new technology architectures and systems. Such changes may be challenging to implement and manage, may take time to test and deploy, may cause us to incur substantial costs and may cause us to suffer data loss or delays or interruptions in service. These delays or interruptions in service may cause consumers, advertisers and publishers to become dissatisfied with our offerings and could adversely affect our business.

If we cannot effectively distribute our content, products and services, our ability to attract new consumers could be adversely affected.

As the Internet audience continues to fragment, distribution of our content, products and services via traditional methods (e.g., toolbars) may become less effective, and new distribution strategies may need to be developed. Even if we are able to distribute our content, products and services effectively, this does not assure that we will be able to attract new consumers.

Currently, an important distribution channel for AOL Media is through our subscription access service. However, our access service subscriber base has declined and is expected to continue to decline. This continued decline is likely to reduce the effectiveness of our subscription access service as a distribution channel. If we are unable to grow organically by attracting new consumers to our content, products and services, we may need to rely on distribution channels that require us to pay significant fees to third parties. Furthermore, these fees have been increasing as Internet companies compete for a limited number of premium distribution channels. Any increased reliance on these third-party distribution channels could adversely affect our business.

 

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If we cannot continue to develop and offer effective advertising products and services, our advertising revenues could be adversely affected.

Growth in our advertising revenues depends on our ability to continue offering effective products and services for advertisers and publishers. Continuing to develop and improve these products and services may require significant time and costs. If we cannot continue to develop and improve our advertising products and services, our advertising revenues could be adversely affected. Furthermore, if we cannot enhance our existing advertising offerings or develop new advertising offerings or technologies to keep pace with market trends, including new technologies that more effectively or efficiently plan, price or target advertising, our advertising revenues could be adversely affected.

We are dependent on third parties for our business in Europe.

In 2006 and 2007, we sold to third parties our subscription access service businesses, including our subscriber relationships, in the United Kingdom, France and Germany. We now depend on the current owners of these businesses to continue our relationships with our former subscribers and to generate advertising revenues in these countries. We provide the owners of our former subscription access service businesses varying levels of programming and advertising services and receive a portion of advertising revenues generated from certain activities. If one or more of these agreements is terminated by these third parties, or these parties take actions that affect the relationships with our former subscribers, our advertising revenues and business in Europe could be adversely affected.

Our access service subscriber base could decline faster than we currently anticipate.

Our access service subscriber base has declined and is expected to continue to decline. This decline is the result of several factors, including the increased availability of high-speed Internet broadband connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services. Also, a substantial number of the subscribers to our subscription access service do not use the service to access the Internet on a regular basis and may terminate their subscription at any time. In addition, we must maintain the current payment method information of our subscribers and, if we fail to do so, we may lose paid relationships with some of our access subscribers. If any of these factors result in our access subscriber base declining faster than we currently anticipate, our subscription revenues and business could be adversely affected.

If we do not present a clear message about our strategic focus to our commercial partners, our ability to attract and retain partners could be adversely affected.

We have had multiple changes in executive leadership and leadership direction and, accordingly, we have presented our commercial partners with numerous mixed messages about our goals and our strategy for achieving these goals. As a result, some of our commercial partners may become reluctant to continue to partner with us. If our advertising and publishing partners become reluctant to partner with us, our business could be adversely affected.

A disruption or failure of our networks and information systems, the Internet or other technology may disrupt our business.

Our business is heavily dependent on the availability of network and information systems, the Internet and other technologies. Shutdowns or service disruptions caused by events such as criminal activity, computer viruses, denial of service attacks, power outages, natural disasters, accidents, terrorism or other events within or outside our control could adversely affect us and our consumers, including through service disruption, damage to

 

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equipment and data and excessive call volume to call centers. Such an event could result in large expenditures necessary to repair or replace such networks or information systems or to protect them from similar events in the future. Significant incidents could result in a disruption of our business, consumer dissatisfaction and a loss of consumers or revenues.

We are dependent on third-party providers of telecommunications services.

Although we currently have agreements with several different third-party telecommunications service providers, there are only a limited number of such providers that are capable of providing our network services. To the extent that we cannot renew or extend our contracts with these providers on similar terms or to the extent that we cannot acquire similar network capacity from other providers on similar terms, the cost of obtaining network services may increase and our financial results could be adversely affected. In addition, because of the limited number of telecommunications services providers, in the event that a provider decides to exit the business of providing telecommunications services, our ability to maintain the geographic scope of these network services could be adversely affected. In such an event, certain consumers in the affected geographic areas would be unable to continue to use our subscription access service and our business could be adversely affected.

If we cannot continue to enforce and protect our intellectual property rights, our business could be adversely affected.

We rely on patent, copyright, trademark, domain name and trade secret laws in the United States and similar laws in other countries, as well as licenses and other agreements with our employees, consumers, suppliers and other parties, to establish and maintain our intellectual property rights in the technology, content, products and services used in our operations. These laws and agreements may not guarantee that our intellectual property rights will be protected and our intellectual property rights could be challenged or invalidated. In addition, such intellectual property rights may not be sufficient to permit us to take advantage of current industry trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of offerings or otherwise adversely affect our business.

We have been, and may in the future be, subject to claims of intellectual property infringement that could adversely affect our business.

Periodically, third parties claim that we infringe their intellectual property rights. We expect to continue to be subject to claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of others. These claims, whether meritorious or not, are time-consuming and costly to resolve, and may require expensive changes in our methods of doing business and/or our content, products and services. These intellectual property infringement claims may require us to enter into royalty or licensing agreements on unfavorable terms or to incur substantial monetary liability. Additionally, these claims may result in our being enjoined preliminarily or permanently from further use of certain intellectual property and/or our content, products and services, or may require us to cease or significantly alter certain of our operations. The occurrence of any of these events as a result of these claims could result in substantially increased costs, or could limit or reduce the number of our offerings to consumers, advertisers and publishers and otherwise adversely affect our business.

Some of our commercial agreements may require us to indemnify parties against intellectual property infringement claims, which may require us to use substantial resources to defend against or settle such claims or, potentially, to pay damages. Additionally, we may be exposed to liability or substantially increased costs if a commercial partner does not honor its contractual obligation to indemnify us for intellectual property infringement claims made by third parties. The occurrence of any of these events could adversely affect our business.

 

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The misappropriation, release, loss or misuse of AOL data or consumer or other data could adversely affect our business.

Our business utilizes significant amounts of data about our business, consumers and our advertising and publishing partners in order to deliver our content, products and services and our advertising solutions. The misappropriation, release, loss or misuse of this data, whether by accident, omission or as the result of criminal activity, computer hacking, natural disasters, terrorism or other events, could lead to negative publicity, harm to our reputation, customer dissatisfaction, regulatory enforcement actions or individual or class-action lawsuits or significant expenditures to recover the data or protect data from similar releases in the future, and may otherwise adversely affect our business.

Changes to federal, state or international laws or regulations applicable to our business could adversely affect our business.

Our business is subject to a variety of federal, state and international laws and regulations, including those with respect to advertising generally, consumer protection, content regulation, privacy, defamation, child protection, advertising to and collecting information from children, taxation and billing. These laws and regulations and the interpretation or application of these laws and regulations could change. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.

There are several federal laws that specifically affect our business, including the following:

 

   

The Children’s Online Privacy Protection Act of 1998 and the Federal Trade Commission’s related implementing regulations, which prohibit the collection of personal information from users under the age of 13 without parental consent. In addition, there has been an international movement to provide additional protections to minors who are online which, if enacted, could result in substantial compliance costs.

 

   

The Digital Millennium Copyright Act of 1998, parts of which limit the liability of certain eligible online service providers for listing or linking to third-party websites that include materials which infringe copyrights or other intellectual property rights of others.

 

   

The Communications Decency Act of 1996, sections of which provide certain statutory protections to online service providers who distribute third-party content.

 

   

The Protect Our Children Act of 2008, which requires online services to report and preserve evidence of violations of federal child pornography laws under certain circumstances.

 

   

The Electronic Communications Privacy Act of 1986, which sets forth the provisions for access, use, disclosure and interception and privacy protections of electronic communications.

In addition, many states have enacted legislation governing the breach of data security in which sensitive consumer information is released or accessed. If we fail to comply with these applicable laws or regulations we could be subject to significant liabilities which could adversely affect our business.

Many of our advertising partners are subject to industry specific laws and regulations or licensing requirements, including advertisers in the following industries: pharmaceuticals, online gaming, alcohol, adult content, tobacco, firearms, insurance, securities brokerage, real estate, sweepstakes, free trial offers, automatic renewal services and legal services. If any of our advertising partners fail to comply with any of these licensing requirements or other applicable laws or regulations, or if such laws and regulations or licensing requirements become more stringent or are otherwise expanded, our business could be adversely affected.

 

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Failure to comply with federal, state or international privacy laws or regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.

A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. We have posted privacy policies and practices concerning the collection, use and disclosure of user data on our websites. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with our own privacy policies and procedures could result in a loss of consumers or advertisers and adversely affect our business.

Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web “cookies” for behavioral advertising. We use cookies, which are small text files placed in a consumer’s browser, to facilitate authentication, preference management, research and measurement, personalization and advertisement and content delivery. In the Third Party Network, cookies or similar technologies help present, target and measure the effectiveness of advertisements. The regulation of these “cookies” and other current online advertising practices could adversely affect our business.

Changes to products, technology and services made by third parties and consumers could adversely affect our business.

We are dependent on many products, technologies and services provided by third parties, including browsers, data and search indexes, in order for consumers to use our content, products and services, as well as to deliver, measure, render and report advertising. Any changes made by these third parties or consumers to functionality, features or settings of these products, technologies and services could adversely affect our business. For example, third parties may develop, and consumers may install, software that is used to block advertisements or delete cookies, or consumers may elect to manually delete cookies more frequently. Likewise, search services providers may adjust their algorithms and indexes, which may hinder the ability of consumers to reach and use our content, products and services. This risk is increased because there are a small number of search services providers and any change made by one or more of these providers could significantly affect our business. The widespread adoption of these products and technologies or changes to current products, technologies and services could adversely affect our business.

Acquisitions of other businesses could adversely affect our operations and result in unanticipated liabilities.

Since January 1, 2008, we have acquired 11 businesses and we are likely to make additional acquisitions and strategic investments in the future. The completion of acquisitions and strategic investments and the integration of acquired companies or assets involve a substantial commitment of resources. In addition, past or future transactions may be accompanied by a number of risks, including:

 

   

the uncertainty of our returns on investment due to the new and developing industries in which some of the acquired companies operate;

 

   

the adverse effect of known potential liabilities or unknown liabilities, such as claims of patent or other intellectual property infringement, associated with the companies acquired or in which we invest;

 

   

the difficulty of integrating technology, administrative systems, personnel and operations of acquired companies into our services, systems and operations and unanticipated expenses related to such integration;

 

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the potential loss or disengagement of key talent at acquired companies;

 

   

the potential disruption of our ongoing business and distraction of our management;

 

   

additional operating losses and expenses of the businesses we acquire or in which we invest and the failure of such businesses to perform as expected;

 

   

the failure to successfully further develop acquired technology, resulting in the impairment of amounts currently capitalized as intangible assets;

 

   

the difficulty of reconciling potentially conflicting or overlapping contractual rights and duties; and

 

   

the potential impairment of relationships with consumers, partners and employees as a result of the combination of acquired operations and new management personnel.

The failure to successfully address these risks or other problems encountered in connection with past or future acquisitions and strategic investments could cause us to fail to realize the anticipated benefits of such transactions and incur unanticipated liabilities that could harm our business.

We face risks relating to doing business internationally that could adversely affect our business.

Our business operates and serves consumers worldwide. There are certain risks inherent in doing business internationally, including:

 

   

economic volatility and the current global economic recession;

 

   

currency exchange rate fluctuations;

 

   

the requirements of local laws and customs relating to the publication and distribution of content and the display and sale of advertising;

 

   

uncertain protection and enforcement of our intellectual property rights;

 

   

import or export restrictions and changes in trade regulations;

 

   

difficulties in developing, staffing and simultaneously managing a large number of foreign operations as a result of distance as well as language and cultural differences;

 

   

issues related to occupational safety and adherence to local labor laws and regulations;

 

   

potentially adverse tax developments;

 

   

longer payment cycles;

 

   

political or social unrest;

 

   

seasonal volatility in business activity;

 

   

risks related to government regulation;

 

   

the existence in some countries of statutory shareholder minority rights and restrictions on foreign direct ownership;

 

   

the presence of corruption in certain countries; and

 

   

higher than anticipated costs of entry.

One or more of these factors could adversely affect our business.

Also, we could be at a competitive disadvantage in the long term if we are not able to capitalize on international opportunities in growth economies. International expansion involves significant investment as well as risks associated with doing business abroad, as described above. Furthermore, investments in some regions can take a long period to generate an adequate return and in some cases there may not be a developed or an

 

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efficient legal system to protect foreign investment or intellectual property rights. In addition, if we expand into new international regions, we may have limited experience in operating and marketing our products and services in such regions and could be at a disadvantage compared to competitors with more experience.

We could be subject to additional tax liabilities which could adversely affect our business.

International, federal, state and local tax laws and regulations affecting our business, or interpretations or application of these tax laws and regulations, could change. In addition, new international, federal, state and local tax laws and regulations affecting our business could be enacted or taxing authorities may disagree with our interpretation of tax laws and regulations. Our subscription access service is protected from taxation through the Federal Internet Tax Non-Discrimination Act, which is in effect until November 2014. However, faced with decreasing revenues, several states have sought to increase revenue by taxing advertising generally, Internet advertising specifically, or by increasing general business taxes. Imposing new taxes on advertising or Internet advertising would adversely affect us. An increase in general business taxes would adversely affect us if it occurred in a jurisdiction in which we operate. Other states have sought to expand the definition of “nexus” for the purpose of taxing goods and services sold over the Internet. If enacted, these new taxes would adversely affect our consumers and, as a result, could adversely affect our business.

We could be required to record significant impairment charges in the future.

We are required under generally accepted accounting principles to test goodwill for impairment at least annually, and to review our identifiable intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill and identifiable intangible assets include significant adverse changes in the business climate and declines in the value of our business. We recorded a significant goodwill impairment charge in 2008 and may be required to record additional impairment charges (which would reduce our net income) in the future.

Risks Relating to the Spin-Off

The spin-off could result in significant tax liability to Time Warner shareholders.

The spin-off is conditioned on the receipt by Time Warner, on or before the distribution date, of an opinion of counsel confirming that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares. Time Warner can waive receipt of the tax opinion as a condition to the spin-off. See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 33 of this Information Statement for more detail.

The opinion will be based on, among other things, certain assumptions and representations made by Time Warner and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the Internal Revenue Service or the courts. Notwithstanding receipt by Time Warner of the opinion of counsel, the IRS could determine that the spin-off should be treated as a taxable transaction if it disagrees with the conclusions in the opinion.

If the IRS were to determine that the spin-off should be treated as a taxable transaction, then a U.S. holder receiving our shares in the spin-off will be treated as having received a distribution to the extent of the fair market value of the shares received on the distribution date. That distribution will be treated as taxable dividend income to the extent of such holder’s ratable share of the current and accumulated earnings and profits of Time Warner, if any. Any amount that exceeds such share of earnings and profits of Time Warner will be treated first as a tax-free return of capital to the extent of the U.S. holder’s adjusted tax basis in its shares of common stock of Time Warner (thus reducing such adjusted tax basis), with any remaining amounts being treated as capital gain. For a more detailed discussion, see “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 33 of this Information Statement.

 

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We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Time Warner.

As an independent, publicly-traded company, we believe that our business will benefit from, among other things, allowing us to better focus our financial and operational resources on our specific business, allowing our management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of our business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for our management and employees that are more closely tied to our business performance. However, by separating from Time Warner, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of Time Warner. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all. For example, it is possible that investors and securities analysts will not place a greater value on our business as an independent company than on our business as a part of Time Warner.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the spin-off.

We have historically operated as part of Time Warner’s corporate organization, and Time Warner has assisted us by providing certain corporate functions. Following the spin-off, Time Warner will have no obligation to provide assistance to us other than the interim services to be provided as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement. Because our business has previously operated as part of the wider Time Warner organization, we cannot assure you that we will be able to successfully implement the changes necessary to operate independently or that we will not incur additional costs that could adversely affect our business.

Our historical financial information is not necessarily representative of the results we would have achieved as an independent, publicly-traded company and may not be a reliable indicator of our future results.

The historical financial information we have included in this Information Statement may not reflect what our results of operations, financial position and cash flows would have been had we been an independent, publicly-traded company during the periods presented, or what our results of operations, financial position and cash flows will be in the future when we are an independent company. This is primarily because:

 

   

we will enter into transactions with Time Warner that either have not existed historically or that are on different terms than the terms of arrangements or agreements that existed prior to the spin-off;

 

   

our historical financial information reflects allocations for certain services historically provided to us by Time Warner that may not reflect the costs we will incur for similar services in the future as an independent company; and

 

   

our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the cost structure, personnel needs, financing and operations of our business.

Following the spin-off, we also will be responsible for the additional costs associated with being an independent, publicly-traded company, including costs related to corporate governance and public reporting. Therefore, our financial statements may not be indicative of our future performance as an independent company. For additional information about our past financial performance and the basis of presentation of our financial statements, see “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included elsewhere in this Information Statement.

 

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Certain of the contracts to be transferred or assigned to us contain provisions requiring the consent of a third party in connection with the transactions contemplated by the reorganization and distribution. If such consent is not given, we may not be entitled to the benefit of such contracts in the future.

Certain of the contracts to be transferred or assigned to us in connection with the reorganization contain provisions which require the consent of a third party to the reorganization, the distribution or both. If we are unable to obtain such consents on commercially reasonable and satisfactory terms, our ability to obtain the benefit of such contracts in the future may be impaired.

We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with Time Warner.

The agreements related to our separation from Time Warner, including the Separation and Distribution Agreement, Transition Services Agreement, Second Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Cross-License Agreement, IT Applications and Database Agreement, Master Services Agreement for ATDN and Hosting Services and any other agreements, will be negotiated in the context of our separation from Time Warner while we are still part of Time Warner. Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our separation are related to, among other things, allocations of assets, liabilities, rights, indemnifications and other obligations among Time Warner and us. We may have received better terms from third parties because third parties may have competed with each other to win our business. See “Certain Relationships and Related Party Transactions” beginning on page 150 of this Information Statement for more detail.

Risks Relating to our Common Stock and the Securities Market

There is no existing market for our common stock and we cannot be certain that an active trading market will develop or be sustained after the spin-off, and following the spin-off our stock price may fluctuate significantly.

There is currently no public market for our common stock. It is anticipated that before the distribution date for the spin-off, trading of shares of our common stock will begin on a “when-issued” basis and such trading will continue up to and including the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the spin-off or be sustained in the future. The lack of an active market may make it more difficult for you to sell our shares and could lead to our share price being depressed or more volatile.

We cannot predict the prices at which our common stock may trade after the spin-off. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

   

our business profile and market capitalization may not fit the investment objectives of some Time Warner shareholders and, as a result, these Time Warner shareholders may sell our shares after the distribution;

 

   

actual or anticipated fluctuations in our operating results due to factors related to our business;

 

   

success or failure of our business strategy;

 

   

our quarterly or annual earnings, or those of other companies in our industry;

 

   

our ability to obtain financing as needed;

 

   

announcements by us or our competitors of significant acquisitions or dispositions;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

the failure of securities analysts to cover our common stock after the spin-off;

 

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changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

   

the operating and stock price performance of other comparable companies;

 

   

overall market fluctuations;

 

   

changes in laws and regulations affecting our business; and

 

   

general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. This has been particularly true in recent years for Internet services companies. These broad market fluctuations could adversely affect the trading price of our common stock.

Substantial sales of common stock may occur in connection with the spin-off, which could cause our stock price to decline.

The shares of our common stock that Time Warner distributes to its shareholders generally may be sold immediately in the public market. Although we have no actual knowledge of any plan or intention on the part of any significant shareholder to sell our common stock following the separation, it is possible that some Time Warner shareholders, possibly including some of our larger shareholders, will sell our common stock received in the distribution if, for reasons such as our business profile or market capitalization as an independent company, we do not fit their investment objectives. The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.

Your percentage ownership in AOL will be diluted in the future.

Your percentage ownership in AOL will be diluted in the future because of equity awards that have been granted to our Chairman and Chief Executive Officer that will be converted into AOL common stock-based equity awards, as well as any additional equity awards that are granted to our directors, officers and employees. We intend to establish equity incentive plans that will provide for the grant of common stock-based equity awards to our directors, officers and other employees. In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments we may make in the future.

Provisions in our amended and restated certificate of incorporation and by-laws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover.  These provisions include rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings and the right of our board to issue preferred stock without shareholder approval.

Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15% or more of our outstanding common stock and us.  For more information, see “Description of Our Capital Stock—Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and By-laws” beginning on page 160 of this Information Statement.

We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board and by providing our board with more time to assess any acquisition proposal.  These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board determines is not in the best interests of our company and our shareholders.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Information Statement contains certain “forward-looking statements” regarding business strategies, market potential, future financial performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except for our ongoing obligations to disclose material information under the federal securities laws, neither we nor Time Warner are under any obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in “Risk Factors” beginning on page 15 of this Information Statement. In addition, we operate in a highly competitive, consumer and technology-driven and rapidly changing interactive services business. This business is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors.

Further, lower than expected valuations associated with our cash flows and revenues may result in our inability to realize the value of recorded intangibles and goodwill. In addition, achieving our business and financial objectives, including growth in operations and maintenance of a strong balance sheet, could be adversely affected by the factors discussed or referenced under the section “Risk Factors” beginning on page 15 of this Information Statement as well as, among other things:

 

   

a longer than anticipated continuation of the current economic slowdown or further deterioration in the economy;

 

   

decreased liquidity in the capital markets, including any reduction in the ability to access the capital markets for debt securities or bank financings;

 

   

our borrowing capacity under the new revolving credit facility;

 

   

the impact of terrorist acts and hostilities;

 

   

changes in our plans, strategies and intentions;

 

   

the impact of significant acquisitions, dispositions and other similar transactions; and

 

   

the failure to meet earnings expectations.

 

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THE SPIN-OFF

Background

On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner. Prior to the spin-off, Time Warner will convert AOL Holdings LLC into a Delaware corporation to be named AOL Inc. Time Warner will then cause substantially all of the assets and liabilities of AOL LLC (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner, certain leasehold interests and other assets and liabilities which are not material to the AOL business), our wholly-owned subsidiary that currently holds, directly or indirectly, all of the AOL business, to be transferred to and assumed by us. Following this transfer and assumption of AOL LLC’s assets and liabilities, ownership of AOL LLC will be transferred to, and retained by, Time Warner. We refer to these steps in this Information Statement as the reorganization. For more information, see the description of the Internal Transactions in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement.

The structure of the reorganization was determined by Time Warner in connection with the successful completion of a solicitation of consents, which we refer to as the Consent Solicitation, from the holders of certain outstanding public debt of Time Warner or its subsidiaries that is guaranteed by AOL LLC. The Consent Solicitation resulted in the adoption on April 16, 2009 of amendments to each indenture underlying such debt. As a result of the Consent Solicitation, certain covenant restrictions no longer apply to the conveyance or transfer by AOL LLC of its properties and assets substantially as an entirety (including the transfer to AOL contemplated by the reorganization), provided that Home Box Office, Inc. issues a guarantee of such debt, but AOL LLC was not released from its guarantee obligations as a result of the Consent Solicitation and will remain a guarantor following the spin-off. Accordingly, it is necessary for AOL LLC to remain a part of Time Warner following the distribution of substantially all of its assets and liabilities to AOL. Following the spin-off, AOL and its subsidiaries will not guarantee any debt issued by Time Warner or its subsidiaries. See Note 8 of the interim consolidated financial statements for more information regarding the Consent Solicitation.

As part of a broad strategic alliance with Google Inc., on April 13, 2006, Time Warner issued a 5% equity interest in us to Google for $1,000 million in cash. On July 8, 2009, Time Warner repurchased Google’s 5% interest in us. Following this purchase, we became a 100%-owned subsidiary of Time Warner. For a more detailed discussion of the strategic alliance, see Note 3 to the accompanying audited consolidated financial statements.

To accomplish the spin-off, Time Warner will, following the reorganization, distribute all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to Time Warner shareholders on a pro rata basis. Following the spin-off, Time Warner will not own any equity interest in us, and we will operate independently from Time Warner. No vote of Time Warner’s shareholders is required or is being sought in connection with the spin-off, and Time Warner’s shareholders will not have any appraisal rights in connection with the spin-off.

The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. In addition, Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner. For a more detailed description, see “—Conditions to the Spin-Off” on page 36 of this Information Statement.

Reasons for the Spin-Off

The Time Warner board of directors has regularly reviewed the businesses that comprise Time Warner to ensure that Time Warner’s resources are being put to use in a manner that is in the best interests of Time Warner and its shareholders. In reaching the decision to separate AOL and to pursue a spin-off of AOL, the Time Warner

 

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board considered a wide range of potential structural alternatives for AOL, such as retaining some or all of the AOL business as part of Time Warner, a sale or merger of some or all of the AOL business to or with third parties, and a variety of different approaches to separating some or all of the AOL business as a stand-alone entity or entities. Time Warner’s management retained Allen & Company LLC, BofA Merrill Lynch and Deutsche Bank Securities, Inc. to advise management and assist in the evaluation of a range of strategic alternatives with respect to Time Warner’s ownership of AOL. The board evaluated these alternatives with the goal of enhancing shareholder value with the input and advice of Time Warner and AOL management. As part of this evaluation, the board considered a number of factors, including the strategic focus and flexibility for Time Warner and AOL, the ability of Time Warner and AOL to compete and operate efficiently and effectively (including, but not limited to, AOL’s ability to retain and attract management talent), the financial profile of Time Warner and AOL, the potential reaction of investors and the probability of successful execution of the various structural alternatives and the risks associated with those alternatives.

As a result of this evaluation, the Time Warner board of directors determined that proceeding with a spin-off of AOL would be in the best interests of Time Warner and its shareholders. The board considered the following benefits of this approach:

 

   

Strategic Focus and Flexibility. Following the spin-off, Time Warner and AOL will each have more focused businesses and be better able to dedicate financial resources to pursue appropriate growth opportunities and execute strategic plans best suited to its respective business. The spin-off will also allow each of Time Warner and AOL to enhance its strategic flexibility to respond to industry dynamics.

 

   

Focused Management. The spin-off will allow management of each company to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of the respective companies.

 

   

Management Incentives. The spin-off will enable AOL to create incentives for its management and employees that are more closely tied to its business performance and shareholder expectations. AOL equity-based compensation arrangements will more closely align the interests of AOL’s management and employees with the interests of its shareholders and should increase AOL’s ability to attract and retain personnel.

 

   

Investor Choice. The spin-off will allow investors to make independent investment decisions with respect to Time Warner and AOL. Investment in one or the other company may appeal to investors with different goals, interests and concerns.

In determining whether to effect the spin-off, the board of directors of Time Warner also considered the costs and risks associated with the transaction, including those associated with preparing AOL to become an independent, publicly-traded company, the risk of volatility in our stock price that may occur immediately following the spin-off due to sales by Time Warner’s shareholders whose investment objectives may not be met by our common stock and the time that it may take for our Company to attract its optimal shareholder base. Notwithstanding these costs and risks, however, the board of directors of Time Warner determined that a spin-off was the best alternative to enhance shareholder value taking into account the factors discussed above.

Manner of Effecting the Spin-Off

Time Warner will effect the spin-off by distributing to its shareholders, as a pro rata dividend,                      shares of our common stock for every                      shares of Time Warner common stock outstanding as of                    , 2009, the record date of the distribution.

Prior to the spin-off, Time Warner will deliver all of the issued and outstanding shares of our common stock to the distribution agent. Following the distribution date, which is                     , 2009, the distribution agent will electronically deliver the shares of our common stock issuable in the spin-off to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership where no physical share certificates are issued to shareholders, as is the case in this distribution.

 

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Commencing on or shortly after the distribution date, if you are a registered holder of Time Warner shares entitled to shares of our common stock, the distribution agent will mail to you an account statement that indicates the number of shares of our common stock that have been registered in book-entry form in your name. We expect it will take the distribution agent up to two weeks after the distribution date to complete the distribution of the shares of our common stock and mail statements of holding to all Time Warner shareholders.

Please note that if you sell any of your shares of Time Warner common stock on or before the distribution date, the buyer of those shares, and not you, may in certain circumstances be entitled to receive the shares of our common stock issuable in respect of the shares sold. See “—Trading Prior to the Distribution Date” on page 36 of this Information Statement for more information.

A number of Time Warner shareholders hold their Time Warner common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Time Warner common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the common stock of our company that you are entitled to receive in the spin-off. If you have any questions concerning the mechanics of having shares held in street name, we encourage you to contact your bank or brokerage firm.

Shareholders of Time Warner are not being asked to take any action in connection with the spin-off. No shareholder approval of the spin-off is required or is being sought. We are not asking you for a proxy, and request that you not send us a proxy. You are also not being asked to surrender any of your shares of Time Warner common stock for shares of our common stock. The number of outstanding shares of Time Warner common stock will not change as a result of the spin-off.

We expect to incur approximately $13.0 million of costs associated with the separation, primarily related to consulting and audit fees, board search and recruiting costs and legal expenses. We expect to fund these costs through our cash flows from operations.

Treatment of Fractional Shares

The distribution agent will not distribute any fractional shares in connection with the spin-off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Time Warner shareholder who would otherwise have been entitled to receive a fractional share in the distribution. The distribution agent will, in its sole discretion, without any influence by Time Warner or us, determine when, how, through which broker-dealer and at what price to sell the whole shares. The distribution agent and any broker-dealer used by the distribution agent will not be an affiliate of either Time Warner or us.

The distribution agent will send a check to each registered holder of Time Warner common stock who is entitled to a fractional share representing the cash amount deliverable in lieu of the shareholder’s fractional share interest as soon as practicable following the distribution date. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds from the sales. No interest will be paid on any cash distributed in lieu of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders.
See “—Material U.S. Federal Income Tax Consequences of the Spin-Off” below for more information.

 

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Material U.S. Federal Income Tax Consequences of the Spin-Off

The following is a summary of the material U.S. Federal income tax consequences to the holders of Time Warner common stock in connection with the spin-off. This summary is based on the Internal Revenue Code, the Treasury Regulations promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect and available as of the date of this Information Statement and all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below.

This summary is limited to holders of Time Warner common stock that are U.S. Holders, as defined immediately below. A U.S. Holder is a beneficial owner of Time Warner common stock that is, for U.S. Federal income tax purposes:

 

   

an individual who is a citizen or a resident of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. Federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. Federal income taxation regardless of its source; or

 

   

a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.

This summary also does not discuss all tax considerations that may be relevant to shareholders in light of their particular circumstances, nor does it address the consequences to shareholders subject to special treatment under the U.S. Federal income tax laws, such as:

 

   

dealers or traders in securities or currencies;

 

   

tax-exempt entities;

 

   

banks, financial institutions or insurance companies;

 

   

real estate investment trusts, regulated investment companies or grantor trusts;

 

   

persons who acquired Time Warner common stock pursuant to the exercise of employee stock options or otherwise as compensation;

 

   

shareholders who own, or are deemed to own, at least 10% or more, by voting power or value, of Time Warner equity;

 

   

holders owning Time Warner common stock as part of a position in a straddle or as part of a hedging, conversion or other risk reduction transaction for U.S. Federal income tax purposes;

 

   

certain former citizens or long-term residents of the United States;

 

   

holders who are subject to the alternative minimum tax; or

 

   

persons that own Time Warner common stock through partnerships or other pass-through entities.

This summary does not address the U.S. Federal income tax consequences to Time Warner shareholders who do not hold Time Warner common stock as a capital asset. Moreover, this summary does not address any state, local or foreign tax consequences or any estate, gift or other non-income tax consequences.

If a partnership (or any other entity treated as a partnership for U.S. Federal income tax purposes) holds Time Warner common stock, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to its tax consequences.

 

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YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE DISTRIBUTION.

The spin-off is conditioned on Time Warner’s receipt of a favorable opinion of Cravath, Swaine & Moore LLP confirming that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares. The opinion will be based on the assumption that, among other things, the representations made, and information submitted, in connection with it are accurate. Assuming the spin-off qualifies as tax-free:

 

   

the spin-off will not result in any taxable income, gain or loss to Time Warner;

 

   

no gain or loss will be recognized by, or be includible in the income of, a shareholder of Time Warner common stock, except with respect to any cash received in lieu of fractional shares;

 

   

the aggregate tax basis of the Time Warner common stock and our common stock in the hands of Time Warner’s shareholders immediately after the spin-off will be the same as the aggregate tax basis of the Time Warner common stock held by the holder immediately before the spin-off, allocated between the common stock of Time Warner and us in proportion to their relative fair market values on the date of the spin-off; and

 

   

the holding period of our common stock received by Time Warner’s shareholders will include the holding period of their Time Warner common stock, provided that such Time Warner common stock is held as a capital asset on the date of the spin-off.

Time Warner’s shareholders that have acquired different blocks of Time Warner common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted basis among, and their holding period of, shares of our common stock distributed with respect to such blocks of Time Warner common stock.

The Spin-Off and Tax-Free Transaction Status

Time Warner has not requested, and does not intend to request, a private letter ruling from the IRS confirming that the spin-off will be tax-free to shareholders of Time Warner for U.S. Federal income tax purposes. Time Warner has made it a condition to the spin-off that Time Warner obtain an opinion of Cravath, Swaine & Moore LLP confirming that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares. The opinion will be based on various factual representations and assumptions, as well as certain undertakings made by Time Warner and us. If any of those factual representations or assumptions were untrue or incomplete in any material respect, any undertaking was not complied with, or the facts upon which the opinion is based were materially different from the facts at the time of the spin-off, the spin-off may not qualify for tax-free treatment. Opinions of counsel are not binding on the IRS. As a result, the conclusions expressed in the opinion of counsel could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable.

If the spin-off were not to qualify as a tax-free transaction, each shareholder who receives our common stock in the spin-off would generally be treated as receiving a distribution in an amount equal to the fair market value of our common stock received, which would generally result in:

 

   

a taxable dividend to the extent of the shareholder’s pro rata share of Time Warner’s current and accumulated earnings and profits;

 

   

a reduction in the shareholder’s basis (but not below zero) in Time Warner common stock to the extent the amount received exceeds the shareholder’s share of Time Warner’s earnings and profits; and

 

   

a taxable gain from the exchange of Time Warner common stock to the extent the amount received exceeds both the shareholder’s share of Time Warner’s earnings and profits and the basis in the shareholder’s Time Warner common stock.

 

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Information Statement

U.S. Treasury Regulations require each Time Warner shareholder that immediately before the spin-off owned 5% or more (by vote or value) of the total outstanding stock of Time Warner to attach to such shareholder’s U.S. Federal income tax return for the year in which such stock is received a statement setting forth certain information related to the spin-off.

Results of the Spin-Off

After the spin-off, we will be an independent, publicly-traded company. Immediately following the spin-off, we estimate we will have approximately                      million shares of our common stock issued and outstanding (based on the number of shares of Time Warner common stock outstanding as of                     , 2009). The actual number of shares of our common stock to be distributed in the spin-off will depend on the actual number of shares of Time Warner common stock outstanding on the record date, and will reflect any issuance of new shares pursuant to Time Warner’s equity plans, including from exercises of stock options and vestings of restricted stock units or performance stock units, and any shares repurchased by Time Warner under its common stock repurchase program, in each case on or prior to the record date. The spin-off will not affect the number of outstanding shares of Time Warner common stock or any rights of Time Warner shareholders, although we expect the trading price of shares of Time Warner common stock immediately following the distribution to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the AOL business. Furthermore, until the market has fully analyzed the value of Time Warner without the AOL business, the price of shares of Time Warner common stock may fluctuate.

Immediately following the spin-off, we expect to have approximately                      holders of record of shares of our common stock (based on the number of holders of record of Time Warner common stock on                     , 2009).

Before our separation from Time Warner, we will enter into a Separation and Distribution Agreement and several other agreements with Time Warner related to the spin-off. These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property, information technology and tax-related assets and liabilities). We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement.

Listing and Trading of our Common Stock

As of the date of this Information Statement, we are a wholly-owned subsidiary of Time Warner. Accordingly, there is currently no public market for our common stock, although a “when-issued” market in our common stock may develop prior to the distribution. See “—Trading Prior to the Distribution Date” below for an explanation of a “when-issued” market. We intend to list our shares of common stock on the New York Stock Exchange under the symbol “AOL.”   Following the spin-off, Time Warner common stock will continue to trade on the New York Stock Exchange under the symbol “TWX.”

Neither we nor Time Warner can assure you as to the trading price of Time Warner common stock or our common stock after the spin-off, or as to whether the combined trading prices of our common stock and the Time Warner common stock after the spin-off will be less than, equal to or greater than the trading prices of Time Warner common stock prior to the spin-off. The trading price of our common stock may fluctuate significantly following the spin-off. See “Risk Factors—Risks Relating to our Common Stock and the Securities Market” beginning on page 27 of this Information Statement for more detail.

The shares of our common stock distributed to Time Warner shareholders will be freely transferable, except for shares received by individuals who are our affiliates. Individuals who may be considered our affiliates after

 

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the spin-off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 1933, as amended (which we refer to in this Information Statement as the Securities Act), or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.

Trading Prior to the Distribution Date

It is anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be a “when-issued” market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of our common stock that will be distributed to Time Warner shareholders on the distribution date. If you own shares of Time Warner common stock at the close of business on the record date, you will be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of our common stock, without the shares of Time Warner common stock you own, on the when-issued market. On the first trading day following the distribution date, we expect when-issued trading with respect to our common stock will end and regular-way trading will begin.

Following the distribution date, we expect shares of our common stock to be listed on the New York Stock Exchange under the trading symbol “AOL.” We will announce our when-issued trading symbol when and if it becomes available.

It is also anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Time Warner common stock: a “regular-way” market and an “ex-distribution” market. Shares of Time Warner common stock that trade on the regular way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if you sell shares of Time Warner common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of our common stock in the distribution. However, if you own shares of Time Warner common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of our common stock that you would otherwise be entitled to receive pursuant to the distribution.

Conditions to the Spin-Off

We expect that the separation will be effective on the distribution date, provided that the following conditions shall have been satisfied or waived by Time Warner:

 

   

the board of directors of Time Warner shall have authorized and approved the separation and distribution and not withdrawn such authorization and approval, and shall have declared the dividend of AOL common stock to Time Warner shareholders;

 

   

each ancillary agreement contemplated by the Separation and Distribution Agreement shall have been executed by each party thereto;

 

   

the SEC shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Exchange Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

 

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our common stock shall have been accepted for listing on the New York Stock Exchange or another national securities exchange approved by Time Warner, subject to official notice of issuance;

 

   

the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner—Separation and Distribution Agreement” beginning on page 150 of this Information Statement) shall have been completed;

 

   

Time Warner shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that the spin-off will not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares;

 

   

Time Warner shall have received a certificate signed by our Chief Financial Officer, dated as of the distribution date, certifying that prior to the distribution we have made capital and other expenditures, and have operated our cash management, accounts payable and receivables collections systems, in the ordinary course consistent with prior practice, subject to an exception which permits us to cause any excess cash held by our foreign subsidiaries to be transferred to us or any of our other subsidiaries;

 

   

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution shall be in effect, and no other event outside the control of Time Warner shall have occurred or failed to occur that prevents the consummation of the distribution;

 

   

no other events or developments shall have occurred prior to the distribution date that, in the judgment of the board of directors of Time Warner, would result in the spin-off having a material adverse effect on Time Warner or its shareholders;

 

   

prior to the distribution date, this Information Statement shall have been mailed to the holders of Time Warner common stock as of the record date;

 

   

our current directors shall have duly elected the individuals listed as members of our post-distribution board of directors in this Information Statement, and such individuals shall be the members of our board of directors immediately after the distribution; provided, however, that our current directors shall appoint one independent director prior to the date on which when-issued trading of our common stock commences on the New York Stock Exchange and such director shall serve on our audit committee; and

 

   

immediately prior to the distribution date, our amended and restated certificate of incorporation and by-laws, each in substantially the form filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, shall be in effect.

The fulfillment of the foregoing conditions will not create any obligation on the part of Time Warner to effect the spin-off. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the distribution. Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.

Reasons for Furnishing this Information Statement

This Information Statement is being furnished solely to provide information to Time Warner shareholders who will receive shares of our common stock in the distribution. It is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Time Warner. We believe that the information contained in this Information Statement is accurate as of the date set forth on the cover. Changes to the information contained in this Information Statement may occur after that date, and neither we nor Time Warner undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

 

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DIVIDEND POLICY

We intend to retain future earnings for use in the operation of our business and to fund future growth. We do not anticipate paying any dividends for the foreseeable future. The decision whether to pay future dividends will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our board of directors deems relevant. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends.

 

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CAPITALIZATION

The following table sets forth the unaudited cash and capitalization of AOL as of June 30, 2009, on an historical basis and as adjusted for the spin-off. You should review the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this Information Statement.

 

     June 30, 2009  
     Historical     As adjusted  
($ in millions)    (unaudited)     (unaudited)  

Cash(1)

   $ 74.7      $ 100.0   

Capitalization:

    

Indebtedness:

    

Senior secured revolving credit facility

   $ —        $ —     

Current portion of obligations under capital lease

     27.5        27.5   

Long-term obligations under capital lease

     40.8        40.8   

Equity:

    

Common stock, $.01 par value(2)

     —          1.0   

Additional paid-in capital(2)

     —          3,518.5   

Divisional equity(2)

     3,566.2        —     

Accumulated other comprehensive loss, net

     (282.6     (282.6

Noncontrolling interest

     1.3        1.3   
                

Total capitalization

   $ 3,353.2      $ 3,306.5   
                

 

(1) The “As adjusted” cash reflects a cash contribution to us from Time Warner in connection with the spin-off such that our total cash balance as of the effective date of the spin-off will be $100.0 million.

 

(2) Upon the effective date of the spin-off, our divisional equity will be reclassified and allocated between common stock and additional paid-in capital based on the number of shares of AOL common stock issued and outstanding. The “As adjusted” capitalization reflects an estimate of 100 million shares of our common stock assumed to be issued and outstanding upon the spin-off. In addition, the “As adjusted” capitalization reflects the effects of certain transactions between us and Time Warner which will be recorded as adjustments to equity prior to the spin-off. These adjustments primarily consist of the reversal of our liability to Time Warner for certain tax positions (an estimated increase to additional paid-in capital of $359.8 million based on the outstanding liability at June 30, 2009, which includes the related accrual for interest and penalties), and the reversal of certain equity-based compensation deferred tax assets (an estimated decrease to additional paid-in capital of $438.9 million, based on the deferred tax asset balance at June 30, 2009) which will be retained by Time Warner following the spin-off.

 

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SELECTED HISTORICAL FINANCIAL DATA

The following tables present certain selected historical financial information as of and for each of the years in the five-year period ended December 31, 2008, and as of June 30, 2009 and for the six months ended June 30, 2009 and 2008. The selected historical consolidated financial data as of December 31, 2008 and 2007 and for each of the fiscal years in the three-year period ended December 31, 2008, and as of June 30, 2009 and for the six months ended June 30, 2009 and 2008, are derived from our historical consolidated financial statements included elsewhere in this Information Statement. The selected historical consolidated financial data as of December 31, 2006 and as of and for the years ended December 31, 2005 and 2004 are derived from our unaudited consolidated financial statements that are not included in this Information Statement. The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of our management include all adjustments, consisting of only ordinary recurring adjustments, necessary for a fair presentation of the information set forth in this Information Statement.

The selected historical financial data presented below should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Information Statement.  For each of the periods presented, we were a subsidiary of Time Warner. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented. In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of our business. Further, the historical financial information includes allocations of certain Time Warner corporate expenses. We believe the assumptions and methodologies underlying the allocation of general corporate expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by us if we had operated as an independent, publicly-traded company or of the costs to be incurred in the future.

 

     Years Ended December 31,    Six Months Ended
June 30,
     2008     2007    2006    2005     2004    2009    2008
($ in millions)                    (unaudited)     (unaudited)    (unaudited)

Statement of Operations Data:

                  

Revenues:

                  

Advertising

   $ 2,096.4      $ 2,230.6    $ 1,886.1    $ 1,337.8      $ 1,005.0    $ 862.2    $ 1,082.2

Subscription

     1,929.3        2,787.9      5,783.6      6,754.9        7,476.9      749.2      1,029.8

Other

     140.1        162.2      117.0      109.4        139.7      59.6      73.0
                                                  

Total revenues

   $ 4,165.8      $ 5,180.7    $ 7,786.7    $ 8,202.1      $ 8,621.6    $ 1,671.0    $ 2,185.0

Operating income (loss)(a)

   $ (1,167.7   $ 1,853.8    $ 1,167.8    $ (1,817.8   $ 230.5    $ 300.3    $ 505.1

Income (loss) from continuing operations(b)

   $ (1,526.6   $ 1,213.3    $ 716.5    $ (363.6   $ 477.0    $ 173.2    $ 286.2
                                                  

Net income (loss) attributable to AOL Inc.(c)

   $ (1,525.8   $ 1,396.1    $ 749.7    $ (334.1   $ 564.4    $ 173.4    $ 286.6
                                                  

 

(a)

2008 includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill and $20.8 million in amounts incurred related to securities litigation and government investigations. 2007 includes a net pre-tax gain of $668.2 million on the sale of the German access service business and $171.4 million in amounts incurred related to securities litigation and government investigations. 2006 includes a $767.4 million gain on the sales of the French and United Kingdom access service businesses and $705.2 million in amounts incurred related to securities litigation and government investigations. 2005 includes $2,864.8 million in amounts incurred related to securities litigation and government investigations. 2004 includes

 

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$536.0 million in amounts incurred related to securities litigation and government investigations. The six months ended June 30, 2009 include $14.2 million in amounts incurred related to securities litigation and government investigations. The six months ended June 30, 2008 include $8.0 million in amounts incurred related to securities litigation and government investigations.

 

(b) Includes net gains of $944.4 million in 2005 and $293.6 million in 2004 related to the sale of primarily available-for-sale equity securities.

 

(c) Includes net income of $182.1 million in 2007, $18.9 million in 2006, $29.5 million in 2005 and $31.4 million in 2004 related to discontinued operations. 2006 also includes a non-cash benefit of $14.3 million as the cumulative effect of an accounting change upon the adoption of FAS 123R to recognize the effect of estimating the number of equity awards granted prior to January 1, 2006 that are ultimately not expected to vest. 2004 also includes a non-cash benefit of $34.0 million related to the cumulative effect of an accounting change in connection with the consolidation of America Online Latin America, Inc. in accordance with FIN 46R.

 

     As of December 31,    As of June 30,
2009
     2008    2007    2006    2005    2004   
($ in millions)              (unaudited)    (unaudited)    (unaudited)    (unaudited)

Balance Sheet Data:

                 

Cash

   $ 134.7    $ 151.9    $ 401.5    $ 119.9    $ 256.9    $ 74.7

Total assets

   $ 4,861.3    $ 6,863.1    $ 6,786.4    $ 6,064.6    $ 7,803.0    $ 4,502.1
                                         

Long-term notes payable and obligations under capital leases

   $ 33.7    $ 24.7    $ 105.1    $ 110.4    $ 153.7    $ 40.8
                                         

Total equity

   $ 3,737.7    $ 5,269.5    $ 4,505.8    $ 3,530.8    $ 4,346.0    $ 3,284.9
                                         

 

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BUSINESS

Introduction

We are a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience. Our business spans online content, products and services that we offer to consumers, publishers and advertisers. We are focused on attracting and engaging consumers and providing valuable online advertising services on both our owned and operated properties and third-party websites. We have the largest advertising network in terms of online consumer reach in the United States as of September 2009. Our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers.

Historically, our primary strategic focus was our dial-up Internet access services business which operated one of the largest Internet subscription access services in the United States. As broadband penetration in the United States increased, we experienced a decline, which we continue to experience, in subscribers to our access service. At the same time, online advertising experienced significant growth. In August 2006, we fundamentally shifted the primary strategic focus of our business from generating subscription revenues to attracting and engaging Internet consumers and generating advertising revenues. In connection with this shift, we began offering the vast majority of our content, products and services to consumers for free in an effort to attract and engage a broader group of consumers. While this strategic shift was announced in 2006, we are still in the process of completing this transition. Consequently, our subscription access service remains an important source of our total revenues and cash flows.

Time Warner has been evaluating potential transactions involving, and structural alternatives for, AOL for some time, including the possibility of separating the global web services and subscription access services businesses, which share infrastructure such as data centers and network operations centers. Historically, the global web services business had three units: the first focused on content published on a variety of websites with related applications and services; the second focused on social networking, community and instant communications products and services; and the third focused on providing advertising services on both our owned and operated properties and third-party websites. The subscription access services business included the AOL-branded Internet access service as well as CompuServe and Netscape Internet access services.

In April 2009, Tim Armstrong was appointed our Chairman and Chief Executive Officer, and he commenced a review of AOL’s strategy and operations while Time Warner continued its evaluation of structural alternatives. Time Warner’s evaluation resulted in the announcement on May 28, 2009 that it would move forward with plans for the complete legal and structural separation of AOL from Time Warner.

In connection with the strategic review conducted by Mr. Armstrong, which factored in Time Warner’s decision to spin off AOL, we have updated our organizational structure and developed the next phase in the strategic shift begun in 2006. Our strategy remains focused primarily on attracting and engaging Internet consumers and generating advertising revenues, with our subscription access service managed as a valuable distribution channel for our content, product and service offerings. As a result, we intend to continue to operate as a single integrated business rather than as two separate businesses.

Our Strategic Initiatives

Consistent with our strategic shift to a business focused primarily on generating advertising revenues, we have begun executing a multi-year strategic plan to reinvigorate growth in our revenues and profits by taking advantage of the migration of commerce, information and advertising to the Internet. Our strategy is to focus our resources on AOL’s core competitive strengths in web content production, local and mapping, communications and advertising networks while expanding the presence of our content, product and service offerings on multiple

 

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platforms and digital devices. We also aim to reorient AOL’s culture and reinvigorate the AOL brand by prioritizing the consumer experience, making greater use of data-driven insights and encouraging innovation. Particular areas of strategic emphasis include:

 

   

Expanding Our Owned Content Offerings. We will expand our offerings of relevant and engaging online consumer content by focusing on the creation and publication of our own original content. In addition, we will seek to provide premium global advertisers with effective and efficient means of reaching our consumers.

 

   

Pursuing Local and Mapping Opportunities. We believe that there are significant opportunities for growth in the area of local content, platforms and services, by providing comprehensive content covering all geographic areas from local neighborhoods to major metropolitan areas. By enhancing these local offerings, including through our flagship MapQuest brand, we seek to provide consumers with a comprehensive local experience.

 

   

Enhancing Our Established Communications Offerings. Our goal is to increase the reach of and engagement on our established communications offerings (including our email products and instant messaging applications) on multiple platforms and digital devices.

 

   

Growing the Third Party Network. We seek to significantly increase the number of publishers and advertisers utilizing our third-party advertising network by providing an open, transparent and easy-to-use advertising system that offers unique and valuable insights to our publishers and advertisers.

 

   

Encouraging Innovation through AOL Ventures. We believe that we can attract and develop innovative initiatives through AOL Ventures by creating an environment that encourages entrepreneurialism. We currently expect to invest significantly less capital in AOL Ventures than in our other strategic initiatives and we may seek outside capital where appropriate.

Business Overview

Our business operations are focused on the following:

 

   

AOL Media. We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services. AOL Media includes our owned and operated content, products and services in the Content, Local and Mapping, Communications and AOL Ventures strategy areas.

We generate advertising revenues from our owned and operated content, products and services through the sale of display and search advertising. We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers.

We also generate revenues through our subscription access service. We view our subscription access service as a valuable distribution channel for AOL Media. Our access service subscribers are important users of AOL Media and engaging both present and former access service subscribers is an important component of our strategy. In addition, our subscription access service will remain an important source of revenue and cash flow for us in the near term.

Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones). As a result, we seek to ensure that our content, products and services are compatible with such devices so that our consumers are able to access and use our content, products and services via these devices.

 

   

Third Party Network. We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we refer to as the “Third Party Network.” Our mission is to provide an open and transparent advertising system that is easy-to-use and offers our publishers and advertisers unique and valuable insights. We seek to significantly increase the number of publishers and advertisers utilizing the network.

 

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We market our offerings to advertisers on both AOL Media and the Third Party Network under the brand “AOL Advertising.” We market our offerings to publishers on the Third Party Network under the brand “Advertising.com.”

AOL Media

Content Offerings

AOL Media content offerings include content we license from third parties, original content produced through our large network of content creators, which includes established journalists and other freelance writers, and aggregations of user-generated content. Our content offerings are made available to broad audiences through sites such as the AOL.com homepage, as well as to niche audiences on highly-targeted, branded properties, such as Asylum, Engadget and WalletPop. Over time, to increase the flexibility and revenue generation potential of our content, we intend to create more of our own original content and rely less on licensed third-party content. To facilitate the intake, management and publication of original content, we are moving toward utilizing publishing platforms and content management systems that are designed to scale in a cost-effective manner in order to produce a large variety of relevant content for consumers.

AOL Media content offerings include the following:

 

   

News & Information (including Engadget, DailyFinance, WalletPop, AOL Autos, FanHouse and PoliticsDaily);

 

   

Women & Lifestyle (including StyleList, Lemondrop and ParentDish);

 

   

Entertainment (including Moviefone, AOL Music, AOL TV, PopEater and Games.com); and

 

   

Targeted Audiences (including Black Voices and AOL Latino).

Local and Mapping

We seek to be a leading provider of local content, platforms and services covering geographic levels ranging from neighborhoods to major metropolitan areas. We have developed and acquired a number of platforms that are designed to facilitate the aggregation, distribution and consumption of local content. This local content includes professional editorial content, user-generated content and business listings. Through our flagship MapQuest brand, we provide trusted maps and directions directly to consumers as well as through business-to-business licensing. By linking our local and mapping platforms, we anticipate providing one of the most compelling, accessible and comprehensive local experiences on the Internet.

Historically, local “city guide” and “directory-style” sites have focused on providing information and services to larger-scale metropolitan areas, while smaller communities and towns have been largely ignored. We believe that these smaller communities represent a significant opportunity. For small communities, local newspapers associated with nearby metropolitan regions have been a central resource for news and events. We believe these local print publications are currently facing significant economic challenges. In order to take advantage of these dynamics we intend to significantly invest in this area and establish online destinations that provide comprehensive news, events and directories at the community level.

Our local and mapping offerings include the following:

 

   

MapQuest, which is a leading online mapping and directions service;

 

   

Local Entertainment Guides (including AOL City Guide, City’s Best and Digital City);

 

   

Local Directories (including AOL Yellow Pages, AOL White Pages and AOL Classifieds);

 

   

Local Events (including Going.com and When.com); and

 

   

Local Sites (including Patch), which aggregate news, events and directories for small communities and towns.

 

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Communications

We offer a powerful global suite of communications products and services. Our email and instant messaging products and services provide us with the ability to reach millions of consumers and we seek to continue to develop and enhance the functionality of these communications offerings. Our goal is to increase the reach and engagement of our communications offerings on multiple platforms and digital devices.

Our communications offerings include the following:

 

   

AOL Mail, which is one of the most popular e-mail services in the United States;

 

   

AIM, which is a leading instant messaging service in the United States;

 

   

ICQ, which is an instant messaging service that has a strong international presence; and

 

   

Communications solutions for third parties (including co-branded, white-labeled and AOL-branded solutions).

We believe there are long-term opportunities to distribute content, products and advertising through our communications offerings, enabling us to generate increased advertising revenue.

Search

We offer AOL Search on AOL Media. We provide our consumers with a general, Internet-based search experience that utilizes Google’s organic web search results and additional links on the search results page that showcase contextually relevant AOL and third-party content and information (adjacent to the search results), as well as provide a variety of search-related features (such as suggesting related searches to help users further refine their search queries). We also provide our consumers with relevant paid text-based search advertising through our relationship with Google, in which we provide consumers search-based, sponsored link ads in response to their search queries.

We also offer our own proprietary video (Truveo) and news (Relegence) search services. Truveo is one of the most comprehensive video search engines in the world. Truveo’s functionality enables consumers to enter search terms to discover publicly available online videos and receive search results that include links to each video’s host site and thumbnails to help consumers refine their search queries for relevant videos. The Relegence news search service acquires information on a real-time basis from public and private information sources, including news wires, websites, regulatory feeds and corporate sources, and indexes this information on a proprietary platform to enable use of relevant, targeted news feeds throughout AOL Media. In addition, we offer vertical search services (i.e., search within a specific content category) and mobile search services on AOL Media.

Distribution of AOL Media

AOL Media content, products and services are generally available to online consumers and we are focused on attracting greater numbers of consumers to our offerings. In addition, we utilize various distribution channels which allow us to more directly reach online consumers.

Subscription Access Service

Our AOL-brand subscription access service, which we offer consumers in the United States for a monthly fee, is a valuable distribution channel for AOL Media. As of June 30, 2009, we had 5.8 million AOL-brand access subscribers in the United States.

 

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In addition to our content, products and services that are available to all online consumers, an AOL access subscription provides members with dial-up access to the Internet and, depending on the applicable price plan, various degrees of enhanced safety and security features, technical support and other benefits. In addition, we continue to offer Internet access services under the CompuServe and Netscape brands.

Our major access service partners are Level 3 Communications, LLC and MCI Communications Services, Inc., who provide us with modem networks and related services for a substantial portion of our subscription access service. We have agreed to commit a significant portion of our access service subscribers’ total dial-up network hours to the Level 3 and MCI networks, and will incur penalty payments if we fail to dedicate the required percentage of dial-up hours to these service partners. As of June 30, 2009, we are meeting our volume commitments to each of these service partners. We have agreed to use the Level 3 and MCI networks until March 31, 2011 and December 31, 2009, respectively. The agreement with MCI may be renewed at our option until December 31, 2010. Upon expiration of these agreements, we expect to continue our relationships with Level 3 and MCI or enter into agreements with one or more other providers of modem networks and related services.

Our access service subscriber base has declined and is expected to continue to decline as a result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services. See “Risk Factors—Risks Relating to Our Business—Our strategic shift to an online advertising-supported business model involves significant risks” on page 15 of this Information Statement.

Other Distribution Channels

We also distribute AOL Media through a variety of other channels, including agreements with original equipment manufacturers of computers, digital devices and other consumer electronics, broadband access providers and mobile carriers. Additional distribution channels include toolbars, widgets, co-branded portals and websites, and third-party websites and social networks that link to AOL Media. We also utilize search engine marketing and search engine optimization as distribution methods. In addition, we make available open standards and protocols for use by third-party developers to enhance, promote and distribute AOL Media.

AOL Media Revenue Generation

Advertising Revenues

We generate advertising revenues from AOL Media through the sale of display and search advertising. We offer advertisers a wide range of capabilities and solutions to effectively deliver advertising and reach targeted audiences across AOL Media through our dedicated sales force. The substantial number of unique visitors on AOL Media allows us to offer advertisers the capability of reaching a broad and diverse demographic and geographic audience without having to partner with multiple content providers. We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers. We offer advertisers marketing and promotional opportunities to purchase specific placements of advertising directly on AOL Media (i.e., in particular locations and on specific dates). In addition, we offer advertisers the opportunity to bid on unsold advertising inventory on AOL Media utilizing our proprietary scheduling, optimization and delivery technology. Finally, advertising inventory on AOL Media not sold directly to advertisers, as described above, may be included for sale to advertisers with inventory purchased from third-party publishers in the Third Party Network.

We offer numerous types of advertising, including text and banner advertising, mobile, search-sponsored links, video and rich media advertising, sponsorship of content offerings, local and classified advertising, contextual and audience targeting opportunities, lead generation and affiliate marketing solutions. Advertising revenues are generated through the display of graphical advertisements, the display of sponsored links to an

 

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advertiser’s website that are associated with search results, the display of contextual links to an advertiser’s website as well as other performance-based advertising. Agreements for advertising on AOL Media typically take the following forms:

 

   

impression-based contracts in which we provide “impressions” (an “impression” is delivered when an advertisement appears in web pages viewed by users) in exchange for a fixed fee (generally stated as cost-per-thousand impressions);

 

   

time-based contracts in which we provide a minimum number of impressions over a specified time period for a fixed fee; or

 

   

performance-based contracts in which performance is measured in terms of either “click-throughs” (when a user clicks on a company’s advertisement) or other user actions such as product/customer registrations, survey participation, sales leads or product purchases.

We utilize our own proprietary “ad serving technology” (i.e., technology that places advertisements on websites and digital devices) as the primary vehicle for placements of advertisements on AOL Media through our subsidiary, ADTECH AG. We also license this ad serving technology to third parties.

Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media. In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search advertising on AOL Media. For the year ended December 31, 2008, advertising revenues associated with the Google relationship (substantially all of which were generated on AOL Media) were $678 million. In addition, we sell search-based keyword advertising directly to advertisers on AOL Media through the use of a white-labeled, modified version of Google’s advertising platform, for which we provide a share of the revenue generated through such sales to Google. Domestically, we have agreed, except in certain limited circumstances, to use Google’s search services on an exclusive basis through December 19, 2010. Upon expiration of this agreement, we expect to continue to generate advertising revenues by providing paid-search advertising on AOL Media, either through the continuation of our relationship with Google or an agreement with another search provider. See “Risk Factors—Risks Relating to Our Business—We are dependent on a third-party search provider” on page 17 of this Information Statement.

Subscription Revenues

We generate subscription revenues through our subscription access service. As of September 2009, our primary AOL-brand price plans were $25.90 and $11.99 per month. We also offer consumers, among other things, enhanced online safety and security features and technical support for a monthly subscription fee. As noted above, our access service subscriber base has declined and is expected to continue to decline, and this has resulted in year-over-year declines in our subscription revenues. The number of domestic AOL-brand access subscribers was 6.9 million, 9.3 million and 13.2 million at December 31, 2008, 2007 and 2006, respectively. For the years ended December 31, 2008, 2007 and 2006, our subscription revenues were $1,929 million, $2,788 million and $5,784 million, respectively.

Although our subscription revenues have declined and are expected to continue to decline, we believe that our subscription access service will continue to provide us with an important source of revenue and cash flow in the near term. The revenue and cash flow generated from our subscription access service will help us to pursue our strategic initiatives and continue the transition of our business toward attracting and engaging Internet consumers and generating advertising revenues in accordance with the 2006 strategy shift.

Third Party Network

We also generate advertising revenues through the sale of advertising on the Third Party Network. In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory.

 

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The Third Party Network includes a display advertising interface that gives advertisers the ability to target and control the delivery of their advertisements and provides advertisers and agencies with relevant display analytics and measurement tools. For our publishers, inclusion in the Third Party Network offers a comprehensive set of tools and technologies to manage and maximize their return.

We utilize a proprietary scheduling, optimization and delivery technology, called AdLearn, which employs a set of complex mathematical algorithms that seek to optimize advertisement placements across the Third Party Network and the available inventory on AOL Media. This optimization is based on expected user response, which is derived from previous user response plus factors such as user segmentation, creative performance and site performance. AdLearn allows performance to be analyzed quickly and advertisement placement to be frequently optimized based on specific objectives, including click-through rate, conversion rate, sales volume and other metrics.

Advertising arrangements for the sale of Third Party Network inventory typically take the form of impression-based contracts or performance-based contracts.

Other Revenues

In addition to advertising and subscription revenues, we also generate fee, license and other revenues. From our communications offerings, we generate fees associated with mobile email and instant messaging functionality from mobile carriers. Through MapQuest’s business-to-business services, we generate licensing revenue from third-party customers. We also generate revenues by licensing our proprietary ad serving technology to third parties, primarily through our subsidiary, ADTECH AG.

AOL Ventures

Some of the initiatives described above may be classified as part of AOL Ventures. We formed AOL Ventures with the goal of creating an entrepreneurial environment to attract and develop innovative initiatives. AOL Ventures will focus on acquisitions that we have previously made which have start-up characteristics or which do not currently fit within our other areas of strategic focus, investments we intend to make in early-stage, externally-developed opportunities and employee-originated innovations that we believe would benefit from incubation and development within the AOL Ventures environment.

For initiatives included within AOL Ventures, our goal is to create an improved environment for fostering sustained long-term growth. For future initiatives and investments – whether externally-developed or employee-originated – AOL Ventures will focus on early-stage opportunities that are aligned with our long-term strategy. The size of our investment and corresponding ownership interest will vary depending on the opportunity, as will our level of involvement and control. We intend to attract top talent and source attractive opportunities by partnering with leading angel investors, venture capitalists and universities. We currently expect to invest significantly less capital in AOL Ventures than in our other operations. In addition to capitalizing the initiatives and investments included within AOL Ventures ourselves, we may seek outside capital where appropriate.

Product Development

We seek to develop new and enhanced versions of our products and services for our consumers, publishers and advertisers. While in the past we have relied primarily on our own proprietary technology to support our products and services, we have been steadily increasing our use of open source technologies and platforms with a view to diversifying our sources of technology, as well as for cost management. Research and development costs related to our software development efforts for 2008, 2007 and 2006 totaled $68.8 million, $74.2 million and $114.4 million, respectively. These costs consist primarily of personnel and related costs that are incurred related to the development of software and user-facing Internet offerings that do not qualify for capitalization.

 

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Intellectual Property

Our intellectual property assets include copyrights, trademarks and trademark applications, patents and patent applications, domain names, trade secrets and licenses of intellectual property rights of various kinds. These intellectual property assets, both in the United States and in other countries around the world, are, collectively, among our most valuable assets. We rely on a combination of copyright, trademark, patent, trade secret and unfair competition laws as well as contractual provisions to protect these assets. The duration and scope of the protection afforded to our intellectual property depend on the type of property in question and the laws and regulations of the relevant jurisdiction. In the case of licenses, they also depend on contractual provisions. We consider the “AOL” brand and our other brands to be some of our most valuable assets and these assets are protected by numerous trademark registrations in the United States and globally. These registrations may generally be maintained in effect for as long as the brand is in use in the respective jurisdictions.

Google Alliance

In April 2006, AOL, Google and Time Warner completed the issuance to Google of a 5% equity interest in us and entered into agreements in March 2006 which expanded their existing strategic alliance. Under the expanded alliance, Google provides our consumers with a general, Internet-based search experience that utilizes Google’s organic web search results and additional links on the search results page that showcase contextually relevant AOL and third-party content and information (adjacent to the search results), as well as a variety of search-related features (such as suggesting related searches to help users further refine their search queries). We also provide our consumers with relevant paid text-based search advertising through our relationship with Google, in which we provide consumers search-based sponsored link ads in response to their search queries. In addition, Google provides us with the use of a white-labeled, modified version of its advertising platform to enable us to sell search-based keyword advertising directly to advertisers on AOL Media, provides us with advertising credits for promotion of AOL Media on Google’s network, provides other promotional opportunities for our content and collaborates with us on a number of other areas.

On July 8, 2009, Time Warner completed the purchase of Google’s 5% interest in us. See Note 3 to the accompanying audited consolidated financial statements for additional information on this purchase.

Competition

We compete for the time and attention of consumers with a wide range of Internet companies, including Yahoo! Inc., Google, Microsoft Corporation’s MSN, IAC/Interactive Corp. and social networking sites such as Facebook, Inc. and Fox Interactive Media Inc.’s MySpace, as well as traditional media companies which are increasingly offering their own Internet products and services.

We compete for advertisers and publishers with a wide range of companies offering competing advertising products, technology and services, aggregators of such advertising products, technology and services and aggregators of third-party advertising inventory. In addition to those companies listed above, competitors include WPP Group plc (24/7 Real Media) and ValueClick, Inc. Competition among these companies has been intensifying and may lead to continuing decreases in prices for certain advertising inventory, particularly in light of current economic conditions where advertisers in certain categories are lowering their marketing expenditures.

Our subscription access service competes with other Internet access providers, especially broadband providers.

Internationally, our primary competitors are global enterprises such as Yahoo!, Google, MSN, IAC, Facebook, MySpace and other social networking sites, as well as a large number of local enterprises.

The Internet industry is dynamic and rapidly evolving, and new and popular competitors, such as social networking sites, providers of communications tools and providers of advertising services, frequently emerge.

 

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Government Regulation and Other Regulatory Matters

Our business is subject to various federal and state laws and regulations, particularly in the areas of privacy, data security and consumer protection.

Laws and regulations applicable to our business include the following:

 

   

The Children’s Online Privacy Protection Act of 1998 and the Federal Trade Commission’s related implementing regulations, which prohibit the collection of personal information from users under the age of 13 without parental consent. In addition, there has been an international movement to provide additional protections to minors who are online which, if enacted, could result in substantial compliance costs.

 

   

The Digital Millennium Copyright Act of 1998, parts of which limit the liability of certain eligible online service providers for listing or linking to third-party websites that include materials which infringe copyrights or other intellectual property rights of others.

 

   

The Communications Decency Act of 1996, sections of which provide certain statutory protections to online service providers who distribute third-party content.

 

   

The Protect Our Children Act of 2008, which requires online services to report and preserve evidence of violations of federal child pornography laws under certain circumstances.

 

   

The Electronic Communications Privacy Act of 1986, which sets forth the provisions for access, use, disclosure and interception and privacy protections of electronic communications.

 

   

The Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003, which establishes requirements for those who send commercial email, sets forth penalties for email “spammers” and companies whose products are advertised in spam if they violate the law and gives consumers the right to ask emailers to stop spamming them.

Our marketing and billing activities are subject to regulation by the Federal Trade Commission and each of the states and the District of Columbia under both general consumer protection laws and regulations prohibiting unfair or deceptive acts or practices as well as various laws and regulations mandating disclosures, authorizations, opt-out procedures and record-keeping for particular sorts of marketing and billing transactions. These laws and regulations include, for example, the Telemarketing Sales Rule, federal and state “Do Not Call” statutes, the Electronic Funds Transfer Act, Regulation E, anti-cramming regulations promulgated by state Public Utilities Commissions and other regulatory bodies. Moreover, our ability to bill under certain payment methods is subject to commercial agreements including, for example, the Credit Card Association Rules and agreements between our payment aggregator and telephone carriers.

We regularly receive and resolve inquiries relating to marketing and billing issues from state Attorneys General, the Federal Trade Commission and the Federal Communications Commission and, over the course of more than 20 years of operations, we have entered into several Consent Orders, Assurances of Voluntary Compliance/Discontinuance and settlements pursuant to which we have implemented a series of consumer protection safeguards. Examples include the prohibition of consumer retention-related compensation to call center personnel based either on non-third-party verified retention transactions or minimum retention thresholds; implementing tools that mandate adherence to various consumer protection procedural safeguards around marketing, sales, registration, cancellation, retention and reactivation transactions; recordation and retention of particular call types; enabling and requiring full customer support for disabled consumers; and implementing regular training programs and monitoring mechanisms to ensure compliance with these obligations.

In the United States, Internet access services are generally classified as “information services” which are not subject to regulation by the Federal Communications Commission.

 

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Various international laws and regulations also affect our growth and operations. In addition, various legislative and regulatory proposals under consideration from time to time by the United States Congress and various federal, state and international authorities have in the past, and may in the future, materially affect us. In particular, federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web “cookies” for behavioral advertising. We use cookies, which are small text files placed in a consumer’s browser, to facilitate authentication, preference management, research and measurement, personalization and advertisement and content delivery. In the Third Party Network, cookies or similar technologies help present, target and measure the effectiveness of advertisements. More sophisticated targeting and measurement facilitate enhanced revenue opportunities. The regulation of these “cookies” and other current online advertising practices could adversely affect our business.

Employees

We employ approximately 7,000 people, based in 18 countries around the world, including the United States, India, the United Kingdom, Germany, Ireland, Israel, Canada and France. The countries outside of the United States where we have the largest employee populations are India, with over 1,000, and the United Kingdom, with approximately 500. A significant number of our international employees support our domestic operations. In general, we consider our relationship with employees to be good.

Global Presence

We have AOL-branded and co-branded portals and websites in North and South America, Europe and the Asia Pacific region. In addition, we continue to offer Internet access service under the AOL-brand in the United States and Canada. We sold our AOL-brand access service businesses in the United Kingdom and France in the fourth quarter of 2006 and sold our German access service business in the first quarter of 2007. We have advertising operations in the United States, Canada and nine countries across Europe, as well as in Japan through a joint venture with Mitsui & Co., Ltd. We are currently evaluating the countries in which we operate as a part of the effort to align our cost structure. As part of this evaluation, we may decide to cease or reduce operations in certain countries. For geographic area data for the years ended December 31, 2008, 2007 and 2006, see Note 12 to the accompanying audited consolidated financial statements.

Seasonality

In the fourth quarter, we have historically seen a sequential increase in advertising revenues associated with holiday advertising; however, this fluctuation can be offset by adverse economic conditions.

 

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Property and Equipment

The following table sets forth certain information concerning our principal properties:

 

Description/Use/Location

  

Approximate
Square Footage

  

Leased or
Owned

  

Expiration Date,
if Leased

Corporate Headquarters,

770 Broadway,

New York, New York

   228,000    Leased    2023

Corporate Campus,

22000 AOL Way,

Dulles, Virginia

   1,573,000(a)    Owned    N/A

Corporate Offices,

75 Rockefeller Plaza,

New York, New York

   178,000(b)    Leased    2014

Dulles Technology Center,

22080 Pacific Boulevard,

Dulles, Virginia

   180,000    Owned    N/A

Manassas Technology Center,

777 Infantry Ridge Road,

Manassas, Virginia

   228,000    Owned    N/A

Netscape Technology Center,

Executive, Administrative and Business Offices,

401, 464, 468 and 475 Ellis,

Mountain View, California

      363,000(c)    Leased    2010-2014

Development Center,

RMZ EcoSpace Campus 1A

Outer Ring Road,

Bellandur, Bangalore, India

  

262,000

   Leased    2012

 

(a) Approximately 663,000 square feet are leased to third-party tenants.

 

(b) This space is currently sublet from Time Warner, with all but 2,435 square feet being sub-sublet to a third party through the end of the AOL sublease, and this space will remain with Time Warner following the spin-off.

 

(c) Approximately 195,000 square feet are subleased to third-party tenants.

In addition to the properties above, we own and lease over 100 facilities for use as corporate offices, sales offices, development centers, technology centers and other operations in other locations in California, Colorado, the District of Columbia, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New York, Ohio, Pennsylvania, Texas, Virginia and Washington and in the countries of Australia, Canada, China, Denmark, Finland, France, Germany, India, Ireland, Israel, Japan, Luxembourg, Mexico, The Netherlands, Norway, Spain, Sweden and the United Kingdom.

We believe that our facilities are well maintained and are sufficient to meet our current and projected needs. We also have an ongoing process to continually review and update our real estate portfolio to meet changing business needs.

Legal Proceedings

On May 24, 1999, two former AOL Community Leader volunteers brought a putative class action, Hallissey et al. v. America Online, Inc., in the U.S. District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (“FLSA”) and New York State law. The plaintiffs allege that, in serving as AOL

 

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Community Leader volunteers, they were acting as employees rather than volunteers for purposes of the FLSA and New York State law and are entitled to minimum wages. The court denied the Company’s motion to dismiss in 2006 and ordered the issuance of notice to the putative class in 2008. In February 2009, plaintiffs filed a motion to file an amended complaint, the briefing for which was completed in May 2009, and which the court denied on July 17, 2009. In 2001, four of the named plaintiffs in the Hallissey case filed a related lawsuit alleging retaliation as a result of filing the FLSA suit in Williams, et al. v. America Online, Inc., et al. A related case was filed by several of the Hallissey plaintiffs in the U.S. District Court for the Southern District of New York alleging violations of the retaliation provisions of the FLSA. This case was stayed pending the outcome of the Company’s motion to dismiss in the Hallissey matter discussed above, but has not yet been activated. Also in 2001, two related class actions were filed in state courts in New Jersey (Superior Court of New Jersey, Bergen County Law Division) and Ohio (Court of Common Pleas, Montgomery County, Ohio), alleging violations of the FLSA and/or the respective state laws. These cases were removed to federal court and subsequently transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.

On January 17, 2002, AOL Community Leader volunteers filed a class action lawsuit in the U.S. District Court for the Southern District of New York, Hallissey et al. v. AOL Time Warner, Inc., et al., against AOL LLC alleging ERISA violations. Plaintiffs allege that they are entitled to pension and/or welfare benefits and/or other employee benefits subject to ERISA. In March 2003, plaintiffs filed and served a second amended complaint, adding as defendants the AOL Time Warner Administrative Committee and the AOL Administrative Committee. On May 19, 2003, AOL filed a motion to dismiss and the Administrative Committees filed a motion for judgment on the pleadings. Both of these motions are pending. The Company intends to defend against all these lawsuits vigorously.

On August 1, 2005, Thomas Dreiling, a shareholder of Infospace Inc., filed a derivative suit in the U.S. District Court for the Western District of Washington against AOL LLC and Infospace Inc. as nominal defendant. The complaint, brought in the name of Infospace, asserts violations of Section 16(b) of the Exchange Act. The plaintiff alleges that certain AOL LLC executives and the founder of Infospace, Naveen Jain, entered into an agreement to manipulate Infospace’s stock price through the exercise of warrants that AOL LLC received in connection with a commercial agreement with Infospace. The complaint seeks disgorgement of profits, interest and attorneys’ fees. On January 3, 2008, the court granted AOL LLC’s motion and dismissed the complaint with prejudice. Plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit, and the oral argument occurred on May 7, 2009. On August 19, 2009, the Ninth Circuit issued its opinion affirming the District Court’s opinion on all issues. The petitioners’ September 2, 2009 motion for rehearing en banc before the Ninth Circuit was denied on October 13, 2009. The Company intends to defend against this lawsuit vigorously.

On September 22, 2006, Salvadore Ramkissoon and two unnamed plaintiffs filed a putative class action against AOL LLC in the U.S. District Court for the Northern District of California based on AOL LLC’s public posting of AOL LLC member search queries in late July 2006. Among other things, the complaint alleges violations of the Electronic Communications Privacy Act and California statutes relating to privacy, data protection and false advertising. The complaint seeks class certification and damages, as well as injunctive relief that would oblige AOL LLC to alter its search query retention practices. In February 2007, the District Court dismissed the action without prejudice. The plaintiffs then appealed this decision to the Ninth Circuit. On January 16, 2009, the Ninth Circuit held that AOL LLC’s Terms of Service violated California public policy as to any California plaintiffs in the putative class, as it did not allow for them to fully exercise their rights. The Ninth Circuit reversed and remanded to the District Court for further proceedings. On April 24, 2009, AOL LLC filed a motion to stay discovery as well as a motion to implement the Ninth Circuit’s mandate; the former motion was denied on June 22, 2009. AOL LLC filed its answer on June 29, 2009. On July 6, 2009, the District Court found that the plaintiffs’ claims for unjust enrichment and public disclosure of private facts were subject to the forum selection clause in the Terms of Service and thus could not be pursued in that court. Further, the District Court ordered additional briefing on whether the District Court may compel plaintiffs to litigate their claims for alleged violations of the Electronic Communications Privacy Act in a state court. The briefing has been filed by both sides and the Company awaits a ruling from the District Court. The Company intends to defend against this lawsuit vigorously.

 

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Between December 27, 2006 and July 6, 2009, AOL Europe Services SARL (which we refer to as “AOL Luxembourg”), a wholly-owned subsidiary of AOL organized under the laws of Luxembourg, received four assessments from the French tax authority for French value added tax related to AOL Luxembourg’s subscription revenues from French subscribers earned during the period from July 1, 2003 through October 31, 2006. The assessments, including interest accrued through the respective assessment dates, total €187.1 million (approximately $262.8 million based on the euro to dollar exchange rate as of June 30, 2009). The Company disputes these assessments and has recorded an incremental expense of $14.7 million related to this matter in the third quarter of 2009.

In addition to the matters listed above, we are a party to a variety of legal proceedings that arise in the normal course of our business. While the results of such normal course legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of the current pending matters will not have a material adverse effect on our financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on us because of defense costs, diversion of management resources and other factors. See “Risk Factors—Risks Relating to Our Business—If we cannot continue to enforce and protect our intellectual property rights, our business could be adversely affected” and “Risk Factors—Risks Relating to Our Business—We have been, and may in the future be, subject to claims of intellectual property infringement that could adversely affect our business” included elsewhere in this Information Statement.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition together with our audited and unaudited historical consolidated financial statements and the notes thereto included elsewhere in this Information Statement as well as the discussion in the section of this Information Statement entitled “Business” beginning on page 42 of this Information Statement. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this Information Statement entitled “Risk Factors” beginning on page 15 of this Information Statement and “Cautionary Statement Concerning Forward-Looking Statements” on page 29 of this Information Statement.

Introduction

Management’s discussion and analysis of financial condition and results of operations is a supplement to the accompanying consolidated financial statements and provides additional information on AOL’s business, recent developments, financial condition, liquidity and capital resources, cash flows and results of operations. MD&A is organized as follows:

 

   

Overview. This section provides a general description of our business, as well as recent developments we believe are important in understanding the results of operations and financial condition or in understanding anticipated future trends.

 

   

Results of operations. This section provides an analysis of our results of operations for the three years ended December 31, 2008 and the three and six months ended June 30, 2009 and June 30, 2008.

 

   

Liquidity and capital resources. This section provides a discussion of our current financial condition and an analysis of our cash flows for the three years ended December 31, 2008 and the six months ended June 30, 2009 and June 30, 2008. This section also provides a discussion of our contractual obligations and commitments, off-balance sheet arrangements and customer credit risk that existed at December 31, 2008. Included in this section is a discussion of the amount of financial capacity available to fund our future commitments and ongoing operating activities.

 

   

Market risk management. This section discusses how we monitor and manage exposure to potential gains and losses arising from changes in market rates and prices, which, for us, is primarily associated with changes in foreign currency exchange rates.

 

   

Critical accounting policies. This section identifies and summarizes those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and require estimates on the part of management in application.

Overview

The Spin-Off

On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner. The spin-off will be completed by way of a pro rata dividend of AOL shares held by Time Warner to its shareholders as of the record date. Immediately following completion of the spin-off, Time Warner shareholders will own 100% of the outstanding shares of common stock of AOL. After the spin-off, we will operate as an independent, publicly-traded company.

 

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Prior to the spin-off, Time Warner will complete the Internal Transactions as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement. Additionally, AOL and Time Warner expect to enter into a series of agreements, including the Separation and Distribution Agreement, Transition Services Agreement, Employee Matters Agreement, Second Tax Matters Agreement, Intellectual Property Cross-License Agreement, IT Applications and Database Agreement, Master Services Agreement for ATDN and Hosting Services and continue various other commercial arrangements which are also described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner.” Consummation of the separation is subject to certain conditions, as described in “The Spin-Off—Conditions to the Spin-Off” on page 36 of this Information Statement.

Our Business

As described further in the section entitled “Business” beginning on page 42 of this Information Statement, our business operations are focused on AOL Media and the Third Party Network. We market our offerings to advertisers on both AOL Media and the Third Party Network under the brand “AOL Advertising.”

AOL Media

We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services. In addition, we plan to extend the reach of our offerings to a consumer audience on multiple platforms and digital devices.

We generate advertising revenues from AOL Media through the sale of display and search advertising. We offer advertisers a wide range of capabilities and solutions to effectively deliver advertising and reach targeted audiences across AOL Media through our dedicated sales force. We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers. We offer advertisers marketing and promotional opportunities to purchase specific placements of advertising directly on AOL Media (i.e., in particular locations and on specific dates). In addition, we offer advertisers the opportunity to bid on unsold advertising inventory on AOL Media utilizing our proprietary scheduling, optimization and delivery technology. Finally, advertising inventory on AOL Media not sold directly to advertisers, as described above, may be included for sale to advertisers with inventory purchased from third-party publishers in the Third Party Network.

Growth of our advertising revenues depends on our ability to attract consumers and increase engagement on AOL Media by offering compelling content, products and services, as well as on our ability to monetize such engagement by offering effective advertising solutions. In order to attract consumers and generate increased engagement, we have developed and acquired, and in the future will continue to develop and acquire, content, products and services designed to attract and engage consumers in various ways.

We have made and are exploring making additional changes to our content, products and services designed to enhance the consumer experience (e.g., fewer advertisements on certain AOL Media properties). These changes have involved and may continue to involve the elimination or modification of advertising practices that historically have been a source of revenues. These enhancements to the consumer experience are intended to ultimately increase our revenues by increasing the attractiveness of our content, product and service offerings to consumers and therefore their value to advertisers, but these enhancements may have a negative impact on revenues in the near term.

Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media. In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search advertising on AOL Media. For the year ended December 31, 2008, advertising revenues associated with the Google relationship (substantially all of which were generated on AOL Media) were $678 million. Domestically, we have agreed, except in certain limited circumstances, to use Google’s search services on an exclusive basis through December 19, 2010. Upon expiration of this agreement, we expect to continue to generate advertising revenues by providing paid-search advertising on AOL Media, either through the continuation of our relationship with Google or an agreement with another search provider.

 

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We view our subscription access service, which we offer consumers in the United States for a monthly fee, as a valuable distribution channel for AOL Media. In general, subscribers to our subscription access service are among the most engaged consumers on AOL Media. However, our access service subscriber base has declined and is expected to continue to decline. This decline is the result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services. See “Risk Factors—Risks Relating to Our Business—Our strategic shift to an online advertising-supported business model involves significant risks” on page 15 of this Information Statement. As our subscriber base declines, we need to maintain the engagement of former subscribers similar to historical levels and increase the number and engagement of other consumers on AOL Media. We seek to do this by developing and offering engaging content, products and services. Further, we will continue to seek to transition those access subscribers who are terminating their paid access subscriptions to free AOL Media offerings.

For the years ended December 31, 2008, 2007 and 2006, our subscription revenues were $1,929.3 million, $2,787.9 million and $5,783.6 million, respectively. Although our subscription revenues have declined and are expected to continue to decline, we believe that our subscription access service will continue to provide us with an important source of revenue and cash flow in the near term. The revenue and cash flow generated from our subscription access service will help us to pursue our strategic initiatives and continue the transition of our business toward attracting and engaging Internet consumers and generating advertising revenues in accordance with the 2006 strategy shift. Even if our strategy is successful and we are able to grow our advertising revenues, we will be challenged to grow our operating income in the near term because of the continuing decline in our subscriber base. In particular, because subscription revenues have relatively low direct costs, the expected decline in subscription revenues will result in declines in operating income and cash flows for the foreseeable future, even if we achieve significant growth in advertising revenues.

Some of the initiatives described above may be classified as part of AOL Ventures.

Third Party Network

We also generate advertising revenues through the sale of advertising on the Third Party Network. Our advertising offerings on the Third Party Network consist primarily of the sale of display advertising. In order to generate advertising revenues on the Third Party Network, we have historically had to incur higher traffic acquisition costs as compared to advertising on AOL Media.

We plan to expand the Third Party Network in order to allow us to serve many more publishers and advertisers than at present. We currently market our offerings to publishers under the brand “Advertising.com.” A significant portion of our revenues on the Third Party Network are generated from the advertising inventory acquired from a limited number of publishers. Accordingly, we intend to make strategic investments in order to expand the Third Party Network and related advertising solutions.

Trends, Demands and Uncertainties Impacting Our Business

The web services industry is highly competitive and rapidly changing. Trends, challenges and uncertainties that may have a significant impact on our business, our opportunities and our ability to execute our strategy include the following:

 

   

Commerce, information and advertising continue to migrate to the Internet and away from traditional media outlets. We believe this continuing trend will create strategic growth opportunities for us to attract new consumers and develop new and effective advertising solutions.

 

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We believe that effectively aligning our organizational structure and costs to our strategy is an important challenge to the successful implementation of our strategic plan. We anticipate additional restructuring plans, and expect to continue to actively manage our costs, in order to realize the desired benefits of our strategic plan.

 

   

As the amount of content that is available online continues to expand, consumers are increasingly fragmenting across the Internet away from portals such as AOL.com. While this fragmentation may result in fewer consumers utilizing portals for their information consumption, we own a large variety of niche sites (e.g., Engadget, Lemondrop and PoliticsDaily) that we expect to continue to drive consumer engagement. Furthermore, the Third Party Network, which reaches thousands of websites, will allow us to continue to provide advertising solutions across a fragmenting Internet environment.

 

   

In recent years, there has been a significant shift in the method of Internet access away from dial-up access. This is due to a number of factors, including the increased availability of high-speed broadband Internet connections and the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections. This trend, combined with the effects of our strategic shift announced in 2006, has contributed to the continuing decline in the number of our access subscribers.

In addition to the trends, challenges and uncertainties listed above, we have historically operated as part of Time Warner’s corporate organization, and Time Warner has assisted us by providing certain corporate functions. Following the spin-off, Time Warner will have no obligation to provide assistance to us other than the interim services to be provided as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement. Because our business has previously operated as part of the Time Warner organization, we cannot assure you that we will be able to efficiently implement the changes necessary to operate independently or that we will not incur additional costs that could adversely affect our business. Further, implementing these changes may require a significant portion of our management’s attention.

Audience Metrics

We utilize unique visitor numbers to evaluate the performance of AOL Media. In addition, we utilize unique visitor numbers to evaluate the reach of our total advertising network, which includes both AOL Media and the Third Party Network. Unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers.

The source for our unique visitor information is a third party (comScore Media Metrix, or Media Metrix). Media Metrix estimates unique visitors based on a sample of Internet users in various countries. While we are familiar with the general methodologies and processes that Media Metrix uses in estimating unique visitors, we have not performed independent testing or validation of Media Metrix’s data collection systems or proprietary statistical models, and therefore we can provide no assurance as to the accuracy of the information that Media Metrix provides.

Our average monthly domestic unique visitors to AOL Media, as reported by Media Metrix, for the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006 were 106 million, 110 million, 112 million and 111 million, respectively. Our average monthly global unique visitors to AOL Media, as reported by Media Metrix, for the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006 were 282 million, 260 million, 235 million and 193 million, respectively. Our average monthly domestic unique visitors to our total advertising network, which includes both AOL Media and the Third Party Network, as reported by Media Metrix, for the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006 were 175 million, 171 million, 156 million and 143 million, respectively. AOL’s unique visitor numbers also include unique visitors attributable to co-branded websites owned by third parties for which certain criteria have been met, including that the Internet traffic has been assigned to us.

 

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Recent Developments

Impact of the Current Economic Environment

The current global economic recession adversely impacted our advertising revenues in 2008 and the first half of 2009. During the three and six months ended June 30, 2009, our advertising revenues declined 21% and 20%, respectively, as compared to the corresponding periods in 2008. While our ability to forecast future advertising revenues is limited, we expect that the global economic recession will continue to adversely impact our advertising revenues at least through the remainder of 2009. We do not believe that the current global economic recession has had a material impact on our subscription revenues.

AOL-Google Alliance

On July 8, 2009, Time Warner repurchased Google’s 5% interest in us for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in us. Following this purchase, we became a 100%-owned subsidiary of Time Warner.

Goodwill Impairment Charge

In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2008, we determined that the carrying value of our goodwill was impaired and, accordingly, recorded a goodwill impairment charge of $2,207.0 million to write goodwill down to its implied fair value. This impairment was partially attributable to lower cash flow expectations associated with the significant economic downturn in 2008. See Notes 1 and 2 to the accompanying audited consolidated financial statements for more information on this goodwill impairment charge.

Restructuring Actions

We undertook various restructuring activities in the first half of 2009 in an effort to better align our cost structure with our revenues. As a result, for the three and six months ended June 30, 2009, we incurred restructuring charges of $14.4 million and $72.7 million, respectively, related to involuntary employee terminations and facility closures. We currently expect to incur $10 to $20 million of additional restructuring charges through the spin-off, which is anticipated to occur in the fourth quarter of 2009. Shortly after the spin-off, we plan to undertake additional restructuring activities to more effectively align our organizational structure and costs to our strategy. Additionally, we are evaluating the countries in which we operate as part of the effort to align our cost structure. As part of this evaluation, we may decide to cease or reduce operations in certain countries. Although we are not yet in a position to quantify specific amounts, we expect to incur significant additional restructuring charges.

Acquisition of Patch Media Corporation

On June 10, 2009, we purchased Patch Media Corporation (“Patch”), a news, information and community platform business dedicated to providing comprehensive local information and services for individual towns and communities, for approximately $7.0 million in cash. Approximately $700,000 of the consideration is being held in an indemnity escrow account until the first anniversary of the closing.

At the time of closing, Tim Armstrong, our Chairman and Chief Executive Officer, held, indirectly, through Polar Capital Group, LLC (“Polar Capital”) (a private investment company which he founded), economic interests in Patch that entitled him to receive approximately 75% of the transaction consideration. Mr. Armstrong’s original investment in Patch, made in December 2007 through Polar Capital, was approximately $4.5 million. In connection with the transaction, Mr. Armstrong, through Polar Capital, waived his right to

 

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receive any transaction consideration in excess of his original $4.5 million investment, opting to accept only the return of his initial investment. In addition, Mr. Armstrong elected to return the $4.5 million (approximately $450,000 of which is being held in the indemnity escrow account for a year) that he was entitled to receive in connection with the transaction to us, to be held by us until after our separation from Time Warner. As soon as legally permissible, following the separation, we will cause to be issued to Polar Capital an amount of AOL Inc. common stock equivalent to $4.5 million (minus any amounts held in the indemnity escrow account) based on an average of the high and low market prices on the relevant trading day. The issuance of shares of AOL Inc. common stock to Polar Capital will be exempt from registration under Section 4(2) of the Securities Act of 1933, as a transaction by an issuer not involving a public offering. The payment to Polar Capital of the $4.5 million of consideration is not contingent on the continued employment of Mr. Armstrong with us.

In evaluating the fair market value of Patch, Time Warner engaged the services of a financial advisory firm, which reviewed certain information, including recent financial performance and financial forecasts relating to Patch’s earnings and cash flow and performed valuation analyses including: a discounted cash flow analysis of Patch’s expected earnings, a comparison of the multiple being paid for Patch to the trading multiples of comparable public companies, and a comparison of the multiple being paid for Patch to the multiples paid in comparable merger and acquisition transactions. The discounted cash flow analysis was based on terminal multiples of revenue of 2.0 to 4.0x, terminal multiples of EBITDA of 8.0 to 12.0x and discount rates of 20 to 40%. Comparable public companies were trading at 0.2 to 3.2x 2010 revenue and 0.01 to 0.20x revenue on a growth adjusted basis. In comparable mergers and acquisitions, acquirors paid a multiple of 0.7 to 29.4x revenue for the last 12 months prior to the transaction, 0.8 to 8.6x forward revenue and 1.6 to 10.6x invested capital. The purchase price of $7.0 million for Patch was within the range implied by the discounted cash flow analysis and the implied valuation multiples were below or within the range of multiples for the comparable public companies and comparable merger and acquisition transactions.

In connection with its analysis, the financial advisory firm assumed and relied upon the accuracy and completeness of the financial and other information that was available to it from public sources, that was provided to it by Time Warner or its representatives, or that was otherwise available to it, without independent verification of such information. With respect to the financial forecasts, the financial advisory firm assumed no responsibility for such forecasts or the assumptions on which they were based and assumed that such forecasts had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Time Warner as to the future financial performance of Patch, and that such financial information was materially complete.

Based on the analyses undertaken, and subject to the above assumptions and qualifications, the financial advisory firm confirmed that the $7.0 million value ascribed by us was within the range of estimated fair market values for Patch as of the transaction date.

The Patch acquisition did not significantly affect our consolidated financial results for the three and six months ended June 30, 2009.

Results of Operations

Basis of Presentation

The consolidated financial statements included elsewhere in this Information Statement, which are discussed below, include 100% of our assets, liabilities, revenues, expenses and cash flows as well as those of our subsidiaries. While the consolidated financial statements have been derived from the historical results of AOL Holdings LLC, we have presented the consolidated financial statements as those of AOL Inc., which AOL Holdings LLC will be converted into prior to the spin-off and the stock of which will be distributed in the distribution. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. For each of the periods presented, we were a subsidiary of Time Warner. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we

 

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been an independent, publicly-traded company during the periods presented. We expect to incur additional costs to be able to function as an independent, publicly-traded company, including additional costs related to corporate finance, governance and public reporting.

In connection with the spin-off, we will enter into transactions with Time Warner that either have not existed historically or that are on terms different from the terms of arrangements or agreements that existed prior to the spin-off. See “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 150 of this Information Statement for more detail. In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of our business. Further, the historical financial statements include allocations of certain Time Warner corporate expenses. We believe the assumptions and methodologies underlying the allocation of general corporate expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by us if we had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. These allocated expenses relate to various services that have historically been provided to us by Time Warner, including cash management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit, accounting and human resources), equity-based compensation plan administration, aviation services, insurance coverage and the licensing of certain third-party patents. During the years ended December 31, 2008, 2007 and 2006, we incurred $23.3 million, $28.4 million and $35.8 million, respectively, of expenses related to charges for services performed by Time Warner, and for the three and six months ended June 30, 2009, we incurred $5.4 million and $10.7 million, respectively, of such expenses.

Consolidated Results

2008, 2007 and 2006

The following table presents our historical operating results as a percentage of revenues for the periods presented, and should be read in conjunction with the accompanying consolidated statements of operations:

 

     Years Ended December 31,  
     2008     2007     2006  

Revenues

   100   100   100

Costs and expenses:

      

Costs of revenues

   55      51      53   

Selling, general and administrative

   16      19      28   

Amortization of intangible assets

   4      2      2   

Amounts related to securities litigation and government investigations, net of recoveries

   —        3      9   

Restructuring costs

   —        2      3   

Goodwill impairment charge

   53      —          

Gain on disposal of assets and consolidated businesses, net

   —        (13)      (10)   
                  

Total costs and expenses

   128      64      85   
                  

Operating income (loss)

   (28)      36      15   
                  

Income (loss) from continuing operations before income taxes

   (28 )%    36   15
                  

 

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The following table presents our revenues, by revenue type, for the periods presented ($ in millions):

 

     Years Ended December 31,  
     2008    2007    % Change
from 2007
to 2008
    2006    % Change
from 2006
to 2007
 

Revenues:

             

Advertising

   $ 2,096.4    $ 2,230.6    (6 )%    $ 1,886.1    18

Subscription

     1,929.3      2,787.9    (31 )%      5,783.6    (52 )% 

Other

     140.1      162.2    (14 )%      117.0    39
                         

Total revenues

   $ 4,165.8    $ 5,180.7    (20 )%    $ 7,786.7    (33 )% 
                         

The following table presents our revenues, by revenue type, as a percentage of total revenues for the periods presented:

 

     Years Ended December 31,  
     2008     2007     2006  

Revenues:

      

Advertising

   50   43   24

Subscription

   46      54      74   

Other

   4      3      2   
                  

Total revenues

   100   100   100
                  

Advertising Revenues

Advertising revenues are generated through the display of graphical advertisements, the display of sponsored links to an advertiser’s website that are associated with search results (also referred to as paid-search), the display of contextual links to an advertiser’s website, as well as other performance-based advertising. Agreements for advertising on AOL Media typically take the form of impression-based contracts in which we provide impressions in exchange for a fixed fee (generally stated as cost-per-thousand impressions), time-based contracts in which we provide a minimum number of impressions over a specified time period for a fixed fee or performance-based contracts in which performance is measured in terms of either “click-throughs” when a user clicks on a company’s advertisement or other user actions such as product/customer registrations, survey participation, sales leads or product purchases. In addition, agreements with advertisers can include other advertising-related elements such as content sponsorships, exclusivities or advertising effectiveness research.

In addition to advertising revenues generated on AOL Media, we also generate revenues from our advertising offerings on the Third Party Network. To generate revenues on the Third Party Network, we purchase advertising inventory from publishers (both large and small) in the Third Party Network using proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory. Advertising arrangements for the sale of Third Party Network inventory typically take the form of impression-based contracts or performance-based contracts.

Advertising revenues on AOL Media and the Third Party Network for the years ended December 31, 2008, 2007 and 2006 are as follows ($ in millions):

 

     Years Ended December 31,
     2008    2007    % Change
from 2007 to
2008
  2006    % Change
from 2006 to
2007

AOL Media

   $ 1,450.4    $ 1,553.1    (7)%   $ 1,405.1    11%

Third Party Network

     646.0      677.5    (5)%     481.0    41%
                         

Total advertising revenues

   $ 2,096.4    $ 2,230.6    (6)%   $ 1,886.1    18%
                         

 

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Advertising revenues generated on AOL Media decreased 7%, or $102.7 million, for the year ended December 31, 2008, as compared to the year ended December 31, 2007. The decrease was due in part to a benefit to revenue for the year ended December 31, 2007 of approximately $19 million related to a change in an accounting estimate as a result of more timely impression delivery data. The remaining decrease included a decline of approximately $115 million due to weak economic conditions which resulted in lower advertising demand, as well as the challenges of integrating businesses acquired in late 2007 and early 2008, partially offset by an increase of $31 million in paid-search revenues from the Google relationship. The increase in paid-search revenues was driven by higher revenues per search query on certain AOL Media properties and broader distribution of paid-search through AOL Media, which contributed $76 million and $30 million, respectively, to the increase, partially offset by a $75 million decrease due to a decline in search query volume on certain AOL Media properties.

Advertising revenues generated on AOL Media increased 11%, or $148.0 million, for the year ended December 31, 2007, as compared to the year ended December 31, 2006. The increase was due in part to a $66 million increase in paid-search revenues from the Google relationship driven by higher revenues per search query on certain AOL Media properties, the $19 million benefit related to the change in an accounting estimate discussed above and an increase of approximately $63 million due to an increase in volume of sold inventory.

For all periods presented in this Information Statement, we have had a contractual relationship with Google whereby Google provides paid text-based search advertising on AOL Media. For all of the periods presented in this Information Statement, revenues under the Google arrangement represented a significant percentage of the advertising revenues generated by AOL Media. For the years ended December 31, 2008, 2007 and 2006, the revenues associated with the Google relationship (substantially all of which were generated on AOL Media) were $678 million, $642 million and $573 million, respectively.

The 5% decrease in advertising revenues generated on the Third Party Network for the year ended December 31, 2008, as compared to the year ended December 31, 2007, was due to a decrease of $189 million resulting from the wind-down of a contract with a major customer, which was partially offset by increased revenues of $131 million attributable to acquisitions completed in 2007 and other advertising growth of $27 million. Since January 1, 2008, the major customer noted above has been under no contractual obligation to do business with us, and our advertising revenues from this customer declined to $26 million in 2008 from $215 million in 2007.

The 41% increase in advertising revenues generated on the Third Party Network for the year ended December 31, 2007, as compared to the year ended December 31, 2006, is attributable to organic growth and, to a lesser extent, the effect of acquisitions completed in 2007, which contributed revenues of $27 million in 2007. Our revenues on the Third Party Network benefited from the expansion of the relationship with the major customer referred to in the paragraph above in the second quarter of 2006. The revenues associated with this relationship increased $58 million to $215 million in 2007, as compared to 2006.

Subscription Revenues

The 31% decline in subscription revenues for the year ended December 31, 2008, as compared to the year ended December 31, 2007, was due to a 26% decrease in the number of domestic AOL-brand access subscribers (which is discussed further below), the sale of our German access service business in the first quarter of 2007, which resulted in a decrease of $88 million for the year ended December 31, 2008, and a decrease of $51 million related to a decline in non-AOL-brand access subscribers (i.e., CompuServe and Netscape brand access subscribers). The 52% decline in subscription revenues for the year ended December 31, 2007, as compared to the year ended December 31, 2006, was driven by the 30% decrease in the number of domestic AOL-brand access subscribers as well as the sales of the access service businesses in the United Kingdom and France in the fourth quarter of 2006 and the sale of the German access service business in the first quarter of 2007 (which we collectively refer to as the European access service businesses). As a result of the sales of the European access service businesses, subscription revenues declined by $1,465 million in 2007.

 

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The number of domestic AOL-brand access subscribers was 6.9 million, 9.3 million and 13.2 million at December 31, 2008, 2007 and 2006, respectively. The average monthly revenue per domestic AOL-brand access subscriber (which we refer to in this Information Statement as ARPU) was $18.38, $18.66 and $19.18 for the years ended December 31, 2008, 2007 and 2006, respectively. We include in our subscriber numbers individuals, households and entities that have provided billing information and completed the registration process sufficiently to allow for an initial log-on to the AOL access service. Domestic AOL-brand access subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs, which together represented 2% or less of our total subscribers at December 31, 2008 and 2007 and 6% of our total subscribers at December 31, 2006. Individuals who have registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL-brand access subscriber numbers presented above. Subscribers to our subscription access service contribute to our ability to generate advertising revenues.

The continued decline in domestic AOL-brand access subscribers is the result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services. The decrease in ARPU of $0.28 for the year ended December 31, 2008, as compared to the year ended December 31, 2007, was due to a shift in the subscriber mix to lower-priced plans, which reduced ARPU by $1.35, and a decrease in premium services revenues, which reduced ARPU by $0.30. These decreases were partially offset by an increase in the percentage of revenue-generating customers, which increased ARPU by $0.43, and price increases for lower-priced plans, which increased ARPU by $1.11. The decrease in ARPU of $0.52 for the year ended December 31, 2007, as compared to the year ended December 31, 2006, was due to a shift in the subscriber mix to lower-priced plans, which reduced ARPU by $1.63, partially offset by an increase in the percentage of revenue-generating customers, which increased ARPU by $1.11.

Other Revenues

Other revenues consist primarily of fees associated with our mobile email and instant messaging functionality from mobile carriers, licensing revenues from third-party customers through MapQuest’s business-to-business services and licensing revenues from licensing our proprietary ad serving technology to third parties through our subsidiary, ADTECH AG.

Other revenues decreased 14% for the year ended December 31, 2008, as compared to the year ended December 31, 2007, due to declines in the revenues associated with the transition support services agreements with the purchasers of our European access service businesses (which ended in 2008), which contributed $23 million in revenue for the year ended December 31, 2008, as compared to $51 million for the year ended December 31, 2007, partially offset by increases in mobile email and instant messaging revenues of $14 million. Other revenues increased 39% for the year ended December 31, 2007, as compared to the year ended December 31, 2006, due to the commencement of the agreements to provide transition support services to the purchasers of the European access service businesses in late 2006 and early 2007, which contributed $51 million in other revenues for the year ended December 31, 2007, partially offset by a decline in modem sales of $18 million. These modems were sold as part of a bundled broadband offering to European access subscribers, and are no longer part of our subscription access service offerings due to the sales of the European access service businesses.

Geographical Concentration of Revenues

Since the sales of the European access service businesses, a significant majority of our revenues have been generated in the United States. In 2008 and 2007, 87% and 88%, respectively, of our revenues were generated in the United States, whereas in 2006, only 73% of our revenues were generated in the United States. This change

 

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was due to the significance of the international revenues associated with the European access service businesses in 2006. Substantially all of the non-United States revenues in 2008, 2007 and 2006 were generated by our European operations (primarily in the United Kingdom, France and Germany). We expect the significant majority of our revenues to continue to be generated in the United States for the foreseeable future.

Operating Costs and Expenses

The following table presents our operating costs and expenses for the periods presented ($ in millions):

 

     Years Ended December 31,
     2008    2007    % Change
from 2007

to 2008
   2006    % Change
from 2006

to 2007

Costs of revenues

   $   2,278.4       $   2,652.6         (14)%    $   4,129.0         (36)%

Selling, general and administrative

     644.8         964.2         (33)%      2,199.6         (56)%

Amortization of intangible assets

     166.2         95.9          73%      133.5          (28)%

Amounts related to securities litigation and government investigations, net of recoveries

     20.8         171.4         (88)%      705.2         (76)%

Restructuring costs

     16.6         125.4         (87)%      222.2         (44)%

Goodwill impairment charge

     2,207.0         —               NA          —           —  

Gain on disposal of assets and consolidated businesses, net

     (0.3)        (682.6)        (100)%      (770.6)        (11)%

The following categories of costs are generally included in costs of revenues: network-related costs, traffic acquisition costs (which we refer to in this Information Statement as TAC), product development costs and other costs of revenues. For the year ended December 31, 2008, the largest component of costs of revenues was TAC. TAC consists of costs incurred through arrangements in which we acquire third-party online advertising inventory for resale and arrangements whereby partners distribute our free products or services or otherwise direct traffic to AOL Media. TAC arrangements have a number of different economic structures, the most common of which are: payments based on a cost-per-thousand impressions or based on a percentage of the ultimate advertising revenues generated from the advertising inventory acquired for resale, payments for direct traffic delivered to AOL Media priced on a per click basis (e.g., search engine marketing fees) and payments to partners in exchange for distributing our products to their users (e.g., agreements with computer manufacturers to distribute our toolbar or a co-branded web portal on computers shipped to end users). These arrangements can be on a fixed-fee basis (which often carry reciprocal performance guarantees by the counterparty), on a variable basis or, in some cases, a combination of the two. Network-related costs include narrowband access costs, hardware and software maintenance expense, high-speed data circuits, personnel and related overhead costs incurred in supporting the network and depreciation of network-related assets. Product development costs include software maintenance costs, research and development costs and other expenses incurred in the development of software and user-facing Internet offerings, including personnel and related overhead support costs. Other costs of revenues include content royalties and customer service costs, which include outsourced customer service costs and, historically, employee and related costs for our operated customer support call centers, as well as costs associated with customer billing and collections, personnel and related overhead costs, depreciation and amortization of certain capitalized software and certain asset impairments.

Our costs of revenues and selling, general and administrative expenses declined significantly for the periods presented, driven by two factors. First, our cost structure in Europe is significantly lower than it was prior to the sales of our European access service businesses, as such sales led to significant cost decreases for the year ended December 31, 2007 and, to a lesser extent, for the year ended December 31, 2008. Second, we have undertaken a number of cost reduction initiatives as a result of the strategic shift announced in 2006. The decisions made in connection with these cost reduction initiatives included ceasing to actively market our subscription access

 

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service, closing and outsourcing our customer support and call center functions, entering into variable network cost agreements as opposed to fixed cost agreements to reduce costs in response to the declining access subscriber base, reducing headcount through restructuring actions taken during the periods presented and leveraging non-United States personnel in a cost-effective manner.

More specifically, costs of revenues decreased 14% to $2,278.4 million for the year ended December 31, 2008, as compared to $2,652.6 million for the year ended December 31, 2007. The sale of our German access service business in the first quarter of 2007 contributed $78 million of the decrease. Excluding that decline, the primary drivers of the decrease in costs of revenues were a decrease in network-related costs, product development and certain other costs of revenues. Network-related costs declined by $149 million, which included declines in narrowband network costs of $56 million due to the decline in access service subscribers, a decrease in personnel and related overhead costs to support the network of $43 million resulting from reduced headcount, declines in depreciation expense associated with network equipment of $29 million and other declines of $26 million related to the decline in access service subscribers. Product development expenses declined $32 million due to a decrease in personnel-related costs as a result of reduced headcount. Other costs of revenues included a decrease in other personnel and related overhead costs of $97 million as a result of reduced headcount, declines in non-network depreciation and amortization of $47 million, declines in costs associated with customer billing and collections of $24 million due to the decline in subscribers and lower content royalties of $21 million. Also contributing to the decline in personnel-related costs described above was our decision not to pay bonuses for 2008. Partially offsetting these declines were increases in TAC. TAC increased 14% to $687 million for the year ended December 31, 2008, as compared to $604 million for the year ended December 31, 2007, due to a new product distribution agreement resulting in TAC of $106 million, additional TAC of $92 million related to revenues generated by the acquisitions completed in 2007 and other increases in TAC consistent with the other Third Party Network advertising growth of $27 million previously discussed, partially offset by the wind-down of the contract with the major customer described above, which resulted in a decline of $160 million.

Costs of revenues as a percentage of revenues were 55% and 51% in the years ended December 31, 2008 and 2007, respectively. The increase in costs of revenues as a percentage of revenues for the year ended December 31, 2008, as compared to the year ended December 31, 2007, was a result of declines in our subscription revenues and advertising revenues exceeding the decline in costs to deliver such revenues.

Costs of revenues decreased 36% to $2,652.6 million for the year ended December 31, 2007, as compared to $4,129.0 million the year ended December 31, 2006. The decline reflects a decrease of $1,020 million attributable to the sales of our European access service businesses. Excluding that decline, the primary drivers of the decrease in costs of revenues were decreases in network-related costs, product development costs and certain other costs of revenues. Network-related costs declined by $251 million, which included declines in narrowband network costs of $147 million due to the decline in access service subscribers, declines in broadband costs of $36 million and declines in depreciation expense associated with network equipment of $18 million. Product development expenses declined $54 million due to a decrease in personnel and consulting costs as a result of significantly reduced development efforts and the use of lower-cost, non-United States personnel in connection with the strategic shift announced in 2006. Other declines in costs of revenues in 2007 included a decline of $237 million as a result of reduced headcount and lower outside services costs due primarily to call center closures, a $69 million decrease in content royalties and a decline in costs associated with customer billing and collections of $37 million. Partially offsetting these declines were increases in TAC. TAC increased 57% to $604 million for the year ended December 31, 2007, as compared to $384 million for the year ended December 31, 2006, due to increases in Third Party Network TAC, driven by the Third Party Network advertising growth previously discussed. Also contributing to this increase was approximately $50 million in TAC incurred in 2007 related to revenue share payments made to the buyers of the European access service businesses. Since we sold these businesses in late 2006 and early 2007, the TAC incurred in 2006 related to these arrangements was not significant.

 

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Costs of revenues as a percentage of revenues were 51% and 53% in the years ended December 31, 2007 and 2006, respectively. This decrease in costs of revenues as a percentage of revenues for the year ended December 31, 2007, as compared to the year ended December 31, 2006, was driven by our cost management initiatives that we implemented as part of the strategic shift announced in 2006. These cost management initiatives included a restructuring action in 2006 to reduce headcount and terminate certain contracts.

Selling, general and administrative expenses consist primarily of marketing costs associated with subscriber acquisition marketing efforts and payments to marketing partners for domestic AOL-brand access subscribers, personnel costs and facility costs related to our corporate and business support functions, depreciation on property and equipment used in our corporate and business support functions, consulting fees, bad debt expense and legal fees.

Selling, general and administrative expenses decreased to $644.8 million for the year ended December 31, 2008, a 33% decline as compared to the year ended December 31, 2007, of which $34 million was attributable to the sale of our German access service business. The remaining decrease was due to a decline in marketing costs of $127 million, which was related to reduced subscriber acquisition marketing efforts as part of the strategic shift announced in 2006, and a reduction in personnel and related overhead costs of $88 million, due partially to reduced headcount and our decision not to pay annual bonuses for 2008. Selling, general and administrative expenses for the year ended December 31, 2008 also included $22 million of external costs incurred in connection with Time Warner’s evaluation of various strategic alternatives related to us, including the previously contemplated separation of AOL into separate businesses, which more than offset a $20 million decline in other outside consulting expenses.

Selling, general and administrative expenses decreased to $964.2 million for the year ended December 31, 2007, a 56% decline as compared to the year ended December 31, 2006, of which $361 million was attributable to the sales of our European access service businesses. The remaining decrease was due to a decline in marketing costs of $593 million resulting from the strategic shift announced in 2006, a decline in subscriber bad debt expense of $99 million due to lower subscriber membership, a decline in personnel-related costs of $76 million, a decline in depreciation expense of $60 million and a decline in outside consulting expenses of $48 million.

Amortization of intangible assets results primarily from acquired intangible assets including technology, customer relationships and trade names. Amortization of intangible assets increased $70.3 million for the year ended December 31, 2008, a 73% increase as compared to the year ended December 31, 2007, due primarily to a significant increase in our acquired intangible assets resulting from the acquisitions of Bebo, Inc. in early 2008 and the acquisitions of Quigo Technologies Inc. and TACODA, Inc. in late 2007. Amortization of intangible assets decreased $37.6 million for the year ended December 31, 2007, a 28% decrease as compared to the year ended December 31, 2006, due primarily to $45 million of amortization expense in 2006 that did not recur in 2007, as this expense was associated with intangible assets that were included in the sales of our European access service businesses.

Amounts related to securities litigation and government investigations, net of recoveries consist of legal settlement costs and legal and other professional fees incurred by Time Warner related to the defense of various securities lawsuits involving us or our former officers and employees. While these amounts were historically incurred by Time Warner and reflected in Time Warner’s financial results, they have been reflected as an expense and a corresponding additional capital contribution by Time Warner in our consolidated financial statements because they involve us. We recognized $20.8 million, $171.4 million and $705.2 million of expense related to these matters for the years ended December 31, 2008, 2007 and 2006, respectively. Following the spin-off, these costs will continue to be incurred by Time Warner to the extent that proceeds from a settlement with insurers are available to pay those costs, and thereafter will be borne by AOL or Time Warner to the extent either entity is obligated by its bylaws or otherwise to pay such costs. See Note 9 to the accompanying audited consolidated financial statements for more information.

 

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As a result of the strategic shift announced in 2006 and continuing efforts to better position and optimize our business, we undertook restructurings in 2008, 2007 and 2006. Our 2008 results included net restructuring charges of $16.6 million related to costs incurred associated with involuntary employee terminations and facility closures. Our 2007 results included restructuring charges of $125.4 million, reflecting costs incurred associated with involuntary employee terminations, asset write-offs and facility closures. The 2007 charges also included a reversal of $15 million of restructuring costs associated with a change in estimate for 2006 and prior restructuring activity. Our 2006 results included $222.2 million in restructuring charges, related to costs incurred associated with involuntary employee terminations, contract terminations, asset write-offs and facility closures.

The goodwill impairment charge in 2008 was incurred as a result of the annual goodwill impairment analysis performed during the fourth quarter of 2008. In that analysis, we determined that the carrying value of our goodwill was impaired and, accordingly, recorded a goodwill impairment charge of $2,207.0 million to write goodwill down to its implied fair value. See Notes 1 and 2 to the accompanying audited consolidated financial statements for more information.

The gain on disposal of assets and consolidated businesses for the years ended December 31, 2007 and 2006 consisted primarily of the $668.2 million gain on the sale of our German access service business in 2007 and the $767.4 million in gains on the sales of our French and United Kingdom access service businesses in 2006.

Operating Income (Loss)

Our operating loss was $1,167.7 million for the year ended December 31, 2008, as compared to operating income of $1,853.8 million for the year ended December 31, 2007. The decline was due primarily to the goodwill impairment charge in 2008, a significant decrease in revenues in 2008 and a gain on the disposal of our German access service business in 2007, partially offset by decreases in costs of revenues, selling, general and administrative expenses and restructuring costs.

Operating income was $1,853.8 million for the year ended December 31, 2007, as compared to operating income of $1,167.8 million for the year ended December 31, 2006. The increase was due primarily to decreases in costs of revenues, selling, general and administrative expenses, a decrease in costs related to securities litigation and government investigations, a decrease in restructuring costs and an increase in advertising revenues, partially offset by a decrease in subscription revenues.

Other Income Statement Amounts

The following table presents our other income amounts from continuing operations for the periods presented ($ in millions):

 

     Years Ended December 31,
     2008    2007    % Change
from 2007
to 2008
   2006    % Change
from 2006
to 2007

Other income (loss), net

   $ (3.8)      $ 1.2      (417)%      $     29.4      (96)%

Income tax provision

     355.1         641.7      (45)%        480.7      33%

Other income (loss), net was essentially flat for the year ended December 31, 2008, as compared to the year ended December 31, 2007, as there were no significant changes in other income activity in those periods. Other income (loss), net decreased $28.2 million to $1.2 million for the year ended December 31, 2007, as compared to the year ended December 31, 2006, due primarily to $17 million of net gains in 2006 associated with foreign currency transactions.

The provision for income taxes for the year ended December 31, 2008 differs from the amount computed by applying the U.S. Federal statutory income tax rate due to state taxes and a non-deductible goodwill impairment charge.

 

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Our effective tax rate for the year ended December 31, 2008 was (30.3)%, which included the effect of the $2,207.0 million goodwill impairment charge, the majority of which was non-deductible for income tax purposes. Excluding the effect of this charge, our effective tax rate for the year ended December 31, 2008 was 43.4%, as compared to 34.6% for the year ended December 31, 2007. The increase in the effective tax rate (after excluding the effect of the goodwill impairment charge) was due to tax benefits realized in 2007 associated with the utilization of tax loss carryforwards on the sale of our German access service business. Our effective tax rate for the year ended December 31, 2007 was 34.6%, compared to 40.2% in 2006. The higher effective tax rate in 2006 was due to uncertainties associated with certain foreign intangible assets.

Three and Six Months Ended June 30, 2009 and 2008

The following table presents our operating results as a percentage of revenues for the periods presented, and should be read in conjunction with the accompanying consolidated statements of operations:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
       2009         2008         2009         2008    

Revenues:

   100   100   100   100

Costs and expenses:

        

Costs of revenues

   58      57      57      56   

Selling, general and administrative

   15      18      16      16   

Amortization of intangible assets

   4      4      4      4   

Amounts related to securities litigation and government investigations, net of recoveries

   1      —        1      —     

Restructuring costs

   2      —        4      1   
                        

Total costs and expenses

   80      79      82      77   
                        

Operating income

   20      21      18      23   

Other income (loss), net

   —        —        —        —     
                        

Income before income taxes

   20   21   18   23
                        

The following table presents our revenues, by revenue type, for the three and six months ended June 30, 2009 and 2008 ($ in millions):

 

     Three Months Ended
June 30,
   % Change     Six Months Ended
June 30,
   % Change  
       2009        2008          2009        2008     

Revenues:

                

Advertising

   $ 419.2    $ 530.3    (21 )%    $ 862.2    $ 1,082.2    (20 )% 

Subscription

     355.7      491.0    (28 )%      749.2      1,029.8    (27 )% 

Other

     28.9      35.4    (18 )%      59.6      73.0    (18 )% 
                                

Total revenues

   $ 803.8    $ 1,056.7    (24 )%    $ 1,671.0    $ 2,185.0    (24 )% 
                                

The following table presents our revenues, by revenue type, as a percentage of total revenues for the three and six months ended June 30, 2009 and 2008:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
       2009         2008         2009         2008    

Revenues:

        

Advertising

   52   50   52   50

Subscription

   44      46      45      47   

Other

   4      4      3      3   
                        

Total revenues

   100   100   100   100
                        

 

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The strengthening of the U.S. dollar relative to significant foreign currencies to which we are exposed negatively affected our revenues by approximately $24 million and $47 million for the three and six months ended June 30, 2009, respectively, as compared to the three and six months ended June 30, 2008. However, due to an offsetting positive impact on expenses, the impact of exchange rate differences on operating income and net income in comparing these periods was not material. If exchange rates remain at levels similar to those in the first half of 2009, we expect similar impacts on revenues, operating income and net income during the remainder of 2009.

Advertising Revenues

Advertising revenues on AOL Media and the Third Party Network for the three and six months ended June 30, 2009 and 2008 are as follows ($ in millions):

 

     Three Months Ended
June 30,
       % Change        Six Months Ended
June 30,
       % Change    
     2009    2008       2009    2008   

AOL Media

   $ 294.7      $ 363.2      (19)%    $ 604.8      $ 726.9      (17)%

Third Party Network

     124.5        167.1      (26)%      257.4        355.3      (28)%
                                 

Total advertising revenues

   $     419.2      $     530.3      (21)%    $     862.2      $     1,082.2      (20)%
                                 

Advertising revenues generated on AOL Media decreased 19%, or $69 million, and 17%, or $122 million, for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, respectively. The decrease was due in part to a decline in paid-search revenues from the Google relationship of $29 million and $50 million for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, respectively, due to decreases in search query volume on certain AOL Media properties which contributed $18 million and $47 million to the decline, respectively, and, for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008, lower revenues per search query on certain AOL Media properties which contributed $11 million to the decline. The remaining decrease of approximately $40 million and $72 million for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, was due to weak economic conditions that resulted in lower advertising demand. For the three months ended June 30, 2009 and 2008, the revenues associated with our arrangement with Google (substantially all of which were generated on AOL Media) were $139 million and $168 million, respectively, and were $285 million and $336 million, respectively, for the six months ended June 30, 2009 and 2008.

The decrease in advertising revenues on the Third Party Network for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, was 26% and 28%, respectively, and was also due to weakening global economic conditions that resulted in lower advertising demand. In addition, the decline in advertising revenues on the Third Party Network included a decrease of $4 million and $20 million for the three and six months ended June 30, 2009, respectively, due to the wind-down of the contract with the major customer previously discussed. Revenues associated with this major customer were $1 million and $2 million for the three and six months ended June 30, 2009, respectively, compared to $5 million and $22 million for the three and six months ended June 30, 2008, respectively.

While our ability to forecast future advertising revenue is limited, we expect that our advertising revenues will be negatively impacted by weak global economic conditions at least through the remainder of 2009. Our advertising revenues will also continue to be negatively impacted by the decline in our domestic AOL-brand access subscribers. In addition, we also expect that the changes to our content, products and services designed to enhance the consumer experience which are discussed in “—Overview—AOL Media” above may have a negative impact on our advertising revenues in the near term.

 

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Subscription Revenues

The decline in subscription revenues for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, was 28% and 27%, respectively, due to a 28% decrease in the number of domestic AOL-brand access subscribers between June 30, 2008 and June 30, 2009.

The number of domestic AOL-brand access subscribers was 5.8 million, 6.3 million and 8.1 million as of June 30, 2009, March 31, 2009 and June 30, 2008, respectively. ARPU was $18.27 and $17.99 for the three months ended June 30, 2009 and 2008, respectively, and $18.38 and $18.14 for the six months ended June 30, 2009 and 2008, respectively. The increase in ARPU for the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, was due to price increases for lower-priced plans, which increased ARPU by $2.17 and $2.07, respectively, partially offset by a shift in the subscriber mix to lower-priced plans, which decreased ARPU by $1.41 and $1.45, respectively.

The continued decline in domestic AOL-brand access subscribers is the result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services. As a result of these factors, we expect subscription revenues to decline for the foreseeable future.

Other Revenues

Other revenues decreased 18% for both the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, due to declines in the revenues associated with the transition support services agreements with the purchasers of the European access service businesses. These agreements ended in 2008, and contributed $6 million and $15 million in revenue for the three and six months ended June 30, 2008, respectively. The decline in revenue from these agreements was partially offset by an increase in mobile email and instant messaging revenues of $1 million and $5 million for the three and six months ended June 30, 2009, respectively, as compared to the three and six months ended June 30, 2008.

We expect other revenues for the remainder of 2009 to be essentially flat as compared to the corresponding period of 2008.

Operating Costs and Expenses

The following table presents our operating costs and expenses for the periods presented ($ in millions):

 

     Three Months Ended
June 30,
   % Change   Six Months Ended
June 30,
   % Change
       2009        2008          2009        2008     

Costs of revenues

   $ 464.3    $ 601.6    (23)%   $ 949.4    $ 1,225.1    (23)%

Selling, general and administrative

     124.8      180.1    (31)%     263.1      354.1    (26)%

Amortization of intangible assets

     34.8      42.1    (17)%     71.3      79.4    (10)%

Amounts related to securities litigation and government investigations, net of recoveries

     6.8      4.1    66%     14.2      8.0    78%

Restructuring costs

     14.4      3.8    279%     72.7      13.3    447%

Costs of revenues decreased 23% to $464.3 million for the three months ended June 30, 2009, as compared to $601.6 million for the three months ended June 30, 2008, and decreased 23% to $949.4 million for the six months ended June 30, 2009, as compared to $1,225.1 million for the six months ended June 30, 2008. The primary drivers of the decrease in costs of revenues were a decrease in TAC, network-related costs, product

 

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development and certain other costs of revenues. TAC decreased 27% to $130 million for the three months ended June 30, 2009, as compared to $179 million for the three months ended June 30, 2008, and decreased 29% to $263 million for the six months ended June 30, 2009 from $370 million for the six months ended June 30, 2008, due to the decrease in advertising revenues on the Third Party Network and, to a lesser extent, declines in product distribution costs related to an amendment to a product distribution agreement in the third quarter of 2008. Network-related costs declined by $15 million and $33 million, respectively, for the three and six months ended June 30, 2009 due to declines in narrowband network costs resulting from the decline in access service subscribers and declines in other network related costs. Further contributing to the declines in costs of revenues for the three and six months ended June 30, 2009 were decreases in product development costs of $14 million and $33 million, respectively, due to a decrease in personnel and consulting costs as a result of reduced headcount and reduced development efforts and decreases in other outside services costs of $12 million and $25 million, respectively, as a result of reduced consulting and lower outsourced call center expenses. Other costs of revenues declines for the three and six months ended June 30, 2009 were due to cost savings initiatives, including declines in personnel costs, content royalties and ad serving expenses.

Costs of revenues as a percentage of revenues were essentially flat at 58% and 57% for the three months ended June 30, 2009 and 2008, respectively, and 57% and 56% for the six months ended June 30, 2009 and 2008, respectively.

Selling, general and administrative expenses decreased 31% to $124.8 million for the three months ended June 30, 2009, as compared to $180.1 million for the three months ended June 30, 2008, and decreased 26% to $263.1 million for the six months ended June 30, 2009, as compared to $354.1 million for the six months ended June 30, 2008. These decreases were due to declines in direct marketing costs of $21 million and $44 million, respectively, for the three and six months ended June 30, 2009, reflecting reduced subscriber acquisition marketing and reduced spending due to cost savings initiatives. Further contributing to the decline in selling, general and administrative expenses for the three and six months ended June 30, 2009 were decreases in consulting costs of $12 million and $32 million, respectively, partially due to the costs incurred in 2008 associated with Time Warner’s evaluation of various strategic alternatives related to our business.

Amortization of intangibles declined 17% to $34.8 million for the three months ended June 30, 2009, as compared to $42.1 million for the three months ended June 30, 2008, and declined 10% to $71.3 million for the six months ended June 30, 2009, as compared to $79.4 million for the six months ended June 30, 2008, due to certain intangible assets becoming fully amortized at the end of 2008, partially offset by an increase in our acquired intangible assets resulting from the acquisition of Bebo, Inc. in early 2008.

We undertook various restructuring activities in the first half of 2009 in an effort to better align our cost structure with our revenues. As a result, for the three and six months ended June 30, 2009, we incurred restructuring charges of $14.4 million and $72.7 million, respectively, related to involuntary employee terminations and facility closures. We currently expect to incur $10 to $20 million of additional restructuring charges through the spin-off, which is anticipated to occur in the fourth quarter of 2009. Shortly after the spin-off, we plan to undertake additional restructuring activities to more effectively align our organizational structure and costs to our strategy. Although we are not yet in a position to quantify specific amounts, we expect to incur significant additional restructuring charges. The results for the three and six months ended June 30, 2008 included restructuring charges of $3.8 million and $13.3 million, respectively, related to involuntary employee terminations and facility closures.

Operating Income

Operating income was $158.7 million for the three months ended June 30, 2009, as compared to operating income of $225.0 million for the three months ended June 30, 2008, and was $300.3 million for the six months ended June 30, 2009, as compared to $505.1 million for the six months ended June 30, 2008. These decreases were due to the decline in revenues and an increase in restructuring costs, offset by decreases in costs of revenues and selling, general and administrative expenses.

 

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Other Income Statement Amounts

The following table presents our other income statement amounts impacting our income from continuing operations for the periods presented ($ in millions):

 

     Three Months Ended
June 30,
   % Change    Six Months Ended
June 30,
   % Change
     2009    2008       2009    2008   

Other income (loss) net

   $5.3      ($1.5)    453%    $2.2      $0.2    N/A  

Income tax provision

   73.3      96.9     (24)%    129.3      219.1    (41)%  

Other income (loss), net increased to $5.3 million for the three months ended June 30, 2009, as compared to a $1.5 million loss for the three months ended June 30, 2008, and increased to $2.2 million for the six months ended June 30, 2009, as compared to $0.2 million for the six months ended June 30, 2008, due to net gains in 2009 associated with foreign currency transactions.

Our effective tax rates were 44.7% and 42.7% for the three and six months ended June 30, 2009, as compared to 43.4% for both the three and six months ended June 30, 2008. The effective tax rates for the three and six months ended June 30, 2009, as compared to the same period in 2008, were essentially flat as there were no significant changes in activity in those periods. The effective tax rates for the three and six months ended June 30, 2009 differ from the statutory U.S. Federal income tax rate of 35.0% due to state income taxes, net of the income tax benefit.

Liquidity and Capital Resources

Current Financial Condition

Historically, the cash we generate has been sufficient to fund our working capital, capital expenditure and financing requirements. Subsequent to the separation, while our ability to forecast future cash flows is limited, we expect to fund our ongoing working capital, capital expenditure and financing requirements through cash flows from operations and a new revolving credit facility to be entered into in connection with the separation. While we expect to continue to generate positive cash flows from operations, we believe that our cash flows from operations will decline over the next several years due to the continued decline in the number of domestic AOL-brand access subscribers. Growth in cash flows from operations will only be achieved when, and if, the growth in earnings from our online advertising services more than offsets the continued decline in domestic AOL-brand access subscribers. In order for us to achieve such increase in earnings from advertising services, we believe it will be important to increase our overall volume of advertising sold, including through our higher-priced channels, and to maintain or increase pricing for advertising. Advertising revenues, however, are more unpredictable and variable than our subscription revenues, and are more likely to be adversely affected during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions. If we are unable to successfully implement our strategic plan and grow the earnings generated by our online advertising services, we would reassess our cost structure or seek other financing alternatives to fund our business.

At June 30, 2009, our cash totaled $74.7 million, as compared to $134.7 million at December 31, 2008. Until the separation is consummated, Time Warner will provide cash management and other treasury services to us. As part of these services, we sweep the majority of our domestic cash balances to Time Warner on a daily basis and receive funding from Time Warner for any domestic cash needs. Accordingly, our cash balances presented herein consist primarily of cash held at international locations for international cash needs.

 

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In connection with the separation, we intend to enter into a new revolving credit facility. We intend to use the proceeds of this facility, as necessary, to support our working capital needs and the growth of our business and for other general corporate purposes. We describe the anticipated terms of this facility in greater detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Debt Obligations” on page 77 of this Information Statement.

Summary Cash Flow Information

Our cash flows from operations are driven by net income adjusted for non-cash items such as depreciation, amortization, goodwill impairment, equity-based compensation expense and other activities impacting net income such as the gains and losses on the sale of assets or operating subsidiaries. Cash flows from investing activities consist primarily of the cash used in the acquisitions of various businesses as part of our strategy, proceeds received from the sale of assets or operating subsidiaries and cash used for capital expenditures. Cash flows from financing activities relate primarily to our distributions of cash to Time Warner as part of our historical cash management and treasury operations, as well as payments made on debt and capital lease obligations.

Operating Activities

The following table presents cash provided by operations for the periods presented ($ in millions):

 

     Years Ended December 31,     Six Months Ended
June 30,
 
     2008     2007     2006     2009    2008  

Net income (loss)

   $ (1,526.6   $ 1,395.4      $ 749.7      $ 173.2    $ 286.2   

Adjustments for non-cash and nonoperating items:

           

Non-cash cumulative effects of accounting change, net of tax

     —          —          (14.3     —        —     

Depreciation and amortization

     477.2        498.6        634.3        212.3      240.3   

Non-cash asset impairments

     2,240.0        16.2        52.2        6.6      4.1   

Gain on disposal of assets and consolidated businesses, net

     (0.3     (682.6     (770.6     —        —     

Non-cash equity-based compensation

     19.6        32.3        41.2        7.8      4.8   

Amounts related to securities litigation and government investigations, net of recoveries

     20.8        171.4        705.2        14.2      8.0   

Deferred income taxes

     (49.5     102.2        (14.7     9.7      —     

Adjustments relating to discontinued operations

     —          (186.7     12.6        —        —     

All other, net, including working capital changes

     (247.6     (330.2     (253.4     174.6      (75.7
                                       

Cash provided by operations

   $ 933.6      $ 1,016.6      $ 1,142.2      $ 598.4    $ 467.7   
                                       

Cash provided by operations decreased by $83.0 million to $933.6 million for the year ended December 31, 2008 as compared to the year ended December 31, 2007 driven by our decline in operating income. Our operating loss was $1,167.7 million for the year ended December 31, 2008, a decline of $3,021.5 million as compared to the year ended December 31, 2007. Excluding the declines in operating income related to the $2,207.0 million non-cash goodwill impairment charge in 2008 and the $668.2 million gain on the sale of our German access service business in 2007 (which is related to an investing cash flow), and excluding the $150.6 million increase in operating income related to securities litigation and government investigations (which were non-cash to us as Time Warner paid these amounts), operating income declined by $296.9 million, driving the decrease in cash provided by operations. This decline was mostly offset by changes in working capital, driven by a number of factors. First, a portion of our $222.2 million restructuring charge incurred in 2006 was paid in 2007, and the majority of our restructuring charge incurred in 2007 was also paid in 2007, reducing cash provided by operations in 2007. Second, the continued decline in domestic access subscribers and our strategic

 

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shift announced in 2006 led to a significant decline in deferred revenues (as we typically collect cash in advance of providing service to customers) from December 31, 2006 to December 31, 2007, resulting in lower cash from operations in 2007. Third, our advertising receivables increased in 2007 as our advertising business grew, and our advertising receivables declined in 2008 as a result of the weak economic conditions. As a result, our cash from operations in 2008 benefited from sales of advertising in 2007.

Cash provided by operations decreased by $125.6 million to $1,016.6 million for the year ended December 31, 2007, as compared to the year ended December 31, 2006. This decrease was due primarily to changes in working capital. As discussed above, a portion of the restructuring charges incurred in 2006 were paid in 2007 and the majority of our restructuring charge incurred in 2007 was also paid in 2007, reducing cash provided by operations in 2007. Further, our higher subscriber base in 2006 led to a larger amount of cash collected in 2006 for which the related revenue was recognized in 2007, which benefited cash from operations in 2006. While our operating income increased in 2007 as compared to 2006, the increase was due primarily to the amounts incurred in 2006 related to securities litigation and government investigations (which were non-cash to us as Time Warner paid these amounts), and excluding the effects of this non-cash charge, operating income was not a significant driver of the change in operating cash flows.

Cash provided by operations increased by $130.7 million to $598.4 million for the six months ended June 30, 2009, as compared to the six months ended June 30, 2008, due primarily to an increase in cash provided by working capital, which was partially offset by a decrease in net income and non-cash adjustments. The increase in cash provided by working capital was driven mainly by the change in accrued compensation and benefits and the change in our restructuring liability. Our decision not to pay annual bonuses to employees related to 2008 performance led to a significant increase in cash provided by operations for the six months ended June 30, 2009, as we paid such bonuses to employees related to 2007 performance in the first quarter of 2008. The increase in cash provided by working capital as a result of the restructuring liability activity was primarily due to payments made in the first half of 2008 for restructuring charges incurred in 2007 exceeding payments made for the comparable period in 2009 and the restructuring charges incurred in the first half of 2009 that have not yet been paid.

The components of working capital are subject to fluctuations based on the timing of cash transactions. The changes in working capital between periods primarily reflect changes in cash collected from subscribers and advertising customers and the timing of payments for accrued expenses and other liabilities.

Our cash paid for taxes (substantially all of which was paid to Time Warner under the tax matters agreement) was $516.6 million, $741.9 million and $312.6 million for the years ended December 31, 2008, 2007 and 2006, respectively, and $132.3 million and $387.5 million for the six months ended June 30, 2009 and 2008, respectively. The fluctuations in cash paid for taxes for the years ended December 31, 2008, 2007 and 2006 and the six months ended June 30, 2009 and 2008 were commensurate with the fluctuations in operating income for those periods (after excluding the effect of the non-deductible goodwill impairment charge in the fourth quarter of 2008).

 

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Investing Activities

The following table presents cash provided (used) by investing activities for the periods presented ($ in millions):

 

     Years Ended December 31,     Six Months Ended
June 30,
 
     2008     2007     2006     2009     2008  

Investments and acquisitions, net of cash acquired:

          

Bebo

   $ (852.0     —          —        $ (7.8   $ (849.1

buy.at

     (125.2     —          —          —          (125.2

Quigo

     —          (346.4     —          —          —     

TACODA

     —          (273.9     —          —          —     

ADTECH AG

     —          (105.9     —          —          —     

Third Screen Media

     —          (105.4     —          —          —     

All other

     (58.2     (49.8     (134.0     (7.9     (50.5

Capital expenditures and product development costs

     (172.2     (280.2     (387.1     (67.6     (100.3

Proceeds from disposal of assets and consolidated businesses, net:

          

German access service business

     —          849.6        —          —          —     

French access service business

     —          —          360.5        —          —     

United Kingdom access service business

     126.9        118.7        476.2        —          126.9   

All other

     —          66.5        —          —          —     

Investment activities from discontinued operations:

          

Proceeds from the sale of Tegic

     —          265.0        —          —          —     

All other

     —          (4.0     —          —          —     

Other investment proceeds

     8.4        8.0        5.1        0.7        6.8   
                                        

Cash provided (used) by investing activities

   $ (1,072.3   $ 142.2      $ 320.7      $ (82.6   $ (991.4
                                        

Cash used by investing activities for the year ended December 31, 2008 was $1,072.3 million, a decrease of $1,214.5 million as compared to cash provided by investing activities of $142.2 million for the year ended December 31, 2007. This decrease was due to a decrease in proceeds received from sold businesses and an increase in cash used for acquisitions, partially offset by reduced capital expenditures and product development costs. Cash provided by investing activities decreased by $178.5 million for the year ended December 31, 2007, as compared to the year ended December 31, 2006, due to an increase in cash used for acquisitions, partially offset by a $396.6 million increase in proceeds received from sold businesses and a decrease in capital expenditures and product development costs.

Cash used by investing activities decreased by $908.8 million to $82.6 million for the six months ended June 30, 2009, as compared to the six months ended June 30, 2008, due to a decrease in cash used for acquisitions and reduced capital expenditures and product development costs, partially offset by a decrease related to proceeds received in the first half of 2008 from the sale of our United Kingdom access service business.

Capital expenditures and product development costs are mainly for the purchase of computer hardware, software, network equipment, furniture, fixtures and other office equipment.

 

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Financing Activities

The following table presents cash provided (used) by financing activities for the periods presented ($ in millions):

 

     Years Ended December 31,     Six Months Ended
June 30,
 
     2008     2007     2006     2009     2008  

Debt repayments

   $ (54.0   $ (25.9   $ (502.2   $ —        $ (0.7

Principal payments on capital leases

     (25.1     (36.1     (66.3     (14.8     (11.3

Proceeds from sale of member interests

     —          —          1,000.0        —          —     

Excess tax benefits on stock options

     2.1        34.4        47.6        —          1.8   

Net contribution from (distribution to) Time Warner

     210.4        (1,390.3     (1,670.2     (554.6     695.5   

Other

     1.5        (7.4     (9.7     (10.3     5.4   
                                        

Cash provided (used) by financing activities

   $ 134.9      $ (1,425.3   $ (1,200.8   $ (579.7   $ 690.7   
                                        

Cash provided by financing activities for the year ended December 31, 2008 was $134.9 million, compared to cash used by financing activities of $1,425.3 million for the year ended December 31, 2007. This change was due to the $210.4 million of cash contributed by Time Warner in 2008, compared to $1,390.3 million of cash distributed to Time Warner in 2007. Cash was contributed by Time Warner in 2008 as a result of our significant acquisitions in 2008, which required cash in excess of the amount generated by operations. In 2007, we also spent cash on acquisitions in excess of the cash provided by operations; however, we received proceeds from the sales of Tegic and the German and United Kingdom access service businesses in that year, which allowed us to distribute cash to Time Warner. Cash used by financing activities was $1,425.3 million for the year ended December 31, 2007, compared to $1,200.8 million for the year ended December 31, 2006. The increase in cash used in financing activities in 2007 reflects the absence of the $1,000 million of proceeds from the sale of a 5% membership interest in AOL to Google in 2006.

Cash used by financing activities was $579.7 million for the six months ended June 30, 2009, compared to $690.7 million of cash provided by financing activities in the six months ended June 30, 2008, due to an increase in the amount distributed to Time Warner in the first six months of 2009 consistent with the increase in operating cash flows and reduction in cash used in investing activities.

Principal Debt Obligations

In connection with the separation, we intend to enter into a new senior secured revolving credit facility (which we refer to as the “Facility”). We intend to use the proceeds of the Facility, as necessary, to support our working capital needs and the growth of our business and for other general corporate purposes.

We currently expect to receive commitments from a syndicate of banks and financial institutions for a 364-day senior secured revolving credit facility with borrowing capacity of up to $250 million. The material terms of the Facility will include:

 

   

financial covenants which will require us to maintain a maximum consolidated leverage ratio (the ratio of total debt to EBITDA as defined in the agreement governing the Facility) of not greater than 1.5 to 1.0, and a minimum consolidated interest coverage ratio (the ratio of EBITDA as defined in the agreement governing the Facility to consolidated cash interest expense) of at least 4.0 to 1.0;

 

   

restrictive covenants which will limit our ability to, among other things: incur indebtedness (excluding, among other things, purchase money indebtedness and capital leases of up to $50 million, other indebtedness of up to $50 million of restricted subsidiaries that are not guarantors of the Facility, indebtedness of up to $100 million incurred to finance, or assumed in connection with, acquisitions and other indebtedness of up to $50 million incurred by us and the subsidiary guarantors of the Facility), create liens, dispose of assets outside of the ordinary course of business, pay dividends and similar

 

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restricted payments, engage in investments, make loans, advances, acquisitions and guarantees, engage in transactions with affiliates, enter into mergers and change our business, in each case subject to certain customary exceptions and baskets;

 

   

customary events of default, the occurrence of which will, among other things, give Time Warner the option to purchase all outstanding loans and commitments under the Facility;

 

   

collateral provisions providing that obligations under the Facility will be secured by a perfected first-priority security interest in substantially all of our assets and the assets of our material wholly owned domestic subsidiaries (excluding cash and real property, but including 100% of the stock of our domestic subsidiaries and 65% of the stock of our first-tier foreign subsidiaries); and

 

   

the option for us to prepay, terminate or reduce the commitments under the Facility at any time without penalty in minimum amounts of $5.0 million.

The effectiveness of the Facility will be conditioned upon, among other things, arrangements satisfactory to Bank of America, N.A. (in its capacity as the administrative agent) having been made for the completion of the spin-off within a reasonable period of time following the closing date of the Facility, the execution of definitive documentation with respect to the Facility and other customary conditions.

Our obligations under the Facility will be guaranteed by each of our material wholly owned domestic subsidiaries. In addition, we expect that Time Warner will guarantee our obligations under the Facility. As consideration for Time Warner providing a guarantee of the Facility, we expect to pay Time Warner an initial fee equal to             % of the aggregate principal amount of the commitments under the Facility, and an ongoing guarantee fee which will vary with the amount of undrawn commitments and the principal amount of our obligations outstanding under the Facility, as well as changes in Time Warner’s senior unsecured long-term debt credit ratings. The guarantee fee will be subject to prescribed periodic increases over the term of the Facility.

We will be restricted from extending, renewing or increasing our obligations under the Facility, and the documentation entered into in connection with the Facility may not be amended, modified, waived or released, in each case, without Time Warner’s prior consent. We do not anticipate that Time Warner will renew its guarantee of the Facility should the Facility be renewed or extended beyond its initial 364-day term.

We expect to enter into the Facility following the date on which the Registration Statement of which this Information Statement is a part is declared effective by the SEC, but prior to the spin-off. There can be no assurance that the actual terms of the Facility will not differ materially from those described above.

Contractual Obligations and Commitments

We have obligations under certain contractual arrangements to make future payments for goods and services. These contractual obligations secure the future rights to various assets and services to be used in the normal course of operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments, such as operating lease obligations and certain purchase obligations under contracts, are not reflected as assets or liabilities in the accompanying consolidated balance sheets.

The following table presents certain payments due under contractual obligations with minimum firm commitments as of December 31, 2008 ($ in millions):

 

     Total    2009    2010-2011    2012-2013    Thereafter

Capital lease obligations

   $ 63.3    $ 27.6    $ 32.6    $ 3.1    $ —  

Operating lease obligations

     487.1      67.2      123.1      81.7      215.1

Long-term obligations to Time Warner

     377.0      —        —        —        377.0

Purchase obligations(a)

     292.9      243.7      33.4      10.2      5.6
                                  

Total contractual obligations

   $ 1,220.3    $ 338.5    $ 189.1    $ 95.0    $ 597.7
                                  

 

(a) Purchase obligations include certain significant contractual relationships involving TAC payments that expire according to their terms in 2009, including $99 million related to a product distribution arrangement and $53 million related to arrangements requiring minimum guaranteed revenue share payments to the respective counterparties.

 

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The following is a description of our material contractual obligations at December 31, 2008:

 

   

Capital lease obligations represent the minimum lease payments under non-cancelable capital leases, primarily for network equipment financed under capital leases. See Note 4 to the accompanying audited consolidated financial statements for more information.

 

   

Operating lease obligations represent the minimum lease payments under non-cancelable operating leases, primarily for our real estate and operating equipment in various locations around the world. See Note 9 to the accompanying audited consolidated financial statements for more information.

 

   

Long-term obligations to Time Warner represent our reserve for uncertain tax positions which is reflected in the consolidated balance sheet and at December 31, 2008 totaled $377.0 million (which includes related accrued interest and penalties). The specific timing of any cash payments relating to these obligations cannot be projected with reasonable certainty. Upon the effectiveness of the Second Tax Matters Agreement, Time Warner will assume the obligation for certain tax positions taken by Time Warner in its consolidated, combined, unitary or similar tax returns with respect to AOL up to the date of the spin-off. As a result, at the date of the spin-off, AOL expects to reverse the recorded liability to Time Warner related to these tax positions, with an offsetting adjustment to equity. See Note 5 to the accompanying audited consolidated financial statements for more information.

 

   

Purchase obligations, as used herein, refer to a purchase obligation representing an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We expect to receive consideration (i.e., products or services) for these purchase obligations. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated. Examples of the types of obligations included within purchase obligations include narrowband network agreements, guaranteed royalty payments and toolbar and product distribution arrangements. Additionally, we also purchase products and services as needed with no firm commitment. For this reason, the amounts presented in the table above do not provide a reliable indicator of our expected future cash outflows. For purposes of identifying and accumulating purchase obligations, we have included all material contracts meeting the definition of a purchase obligation (e.g., legally binding for a fixed or minimum amount or quantity). For those contracts involving a fixed or minimum quantity but with variable pricing terms, we have estimated the contractual obligation based on our best estimate of the pricing that will be in effect at the time the obligation is incurred. Additionally, we have included only the obligations represented by those contracts as they existed at December 31, 2008, and did not assume renewal or replacement of the contracts at the end of their respective terms. See Note 9 to the accompanying audited consolidated financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2008, we did not have any relationships with unconsolidated special purpose entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements.

Indemnification Obligations

Currently, we indemnify Time Warner for certain tax positions related to AOL taken by Time Warner from April 13, 2006 up to the date of the spin-off in its consolidated tax return. In connection with the transactions entered into between AOL and Time Warner prior to the AOL-Google alliance, Time Warner retained the obligation with respect to tax positions related to AOL prior to April 13, 2006 in Time Warner’s consolidated tax return. In the event Time Warner makes payments to a taxing authority with respect to AOL-related tax positions taken from April 13, 2006 through the date of the spin-off, we would be required to make an equivalent payment to Time Warner. The aggregate amount of the reserve for uncertain tax positions underlying this indemnification obligation to Time Warner was $359.8 million (which includes estimated related accrued interest and penalties) at June 30, 2009. This liability is recorded as a long-term obligation to Time Warner in the consolidated balance sheet. This indemnification obligation relates to tax positions taken on Time Warner’s consolidated tax returns

 

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that are subject to U.S. Federal, state, local or foreign income tax examinations by taxing authorities. Upon the effectiveness of the Second Tax Matters Agreement, Time Warner will assume the obligation for certain tax positions taken by Time Warner in its consolidated, combined, unitary or similar tax returns with respect to AOL up to the date of the spin-off. As a result, at the date of the spin-off, AOL expects to reverse the recorded liability to Time Warner related to these tax positions, with an offsetting adjustment to equity.

In the ordinary course of business, we incur indemnification obligations of varying scope and terms to third parties, which could include customers, vendors, lessors, purchasers of assets or operating subsidiaries and other parties related to certain matters, including losses arising out of our breach of agreements or representations and warranties made by us, services to be provided by us, intellectual property infringement claims made by third parties or, with respect to the divestiture of assets or operating subsidiaries, matters related to our conduct of the business and tax matters prior to the sale. It is not possible to determine the aggregate maximum potential loss under such indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, we have not incurred material costs as a result of claims made in connection with indemnifications provided and, as of December 31, 2008, management concluded that the likelihood of any material amounts being paid by us under such indemnifications is not probable. As of December 31, 2008, amounts accrued in our financial statements related to indemnification obligations are not material.

Customer Credit Risk

Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet its agreed-upon contractual payment obligations. Credit risk originates from sales of advertising and subscription access service and is dispersed among many different counterparties.

We had gross accounts receivable of approximately $540 million and maintained reserves, including an allowance for uncollectible accounts, of $39.8 million at December 31, 2008. Our exposure to customer credit risk relates primarily to our advertising customers and individual subscribers to our access service, which represent $449 million and $47 million, respectively, of the outstanding accounts receivable balance at December 31, 2008. No single customer had a receivable balance at December 31, 2008 greater than 10% of total net receivables.

Customer credit risk is monitored on a company-wide basis. We maintain a comprehensive approval process prior to issuing credit to third-party customers. On an ongoing basis, we track customer exposure based on news reports, ratings agency information and direct dialogue with customers. Counterparties that are determined to be of a higher risk are evaluated to assess whether the payment terms previously granted to them should be modified. We also continuously monitor payment levels from customers, and a provision for estimated uncollectible amounts is maintained based on historical experience and any specific customer collection issues that have been identified. While such uncollectible amounts have historically been within our expectations and related reserve balances, if there is a significant change in uncollectible amounts in the future or the financial condition of our counterparties across various industries or geographies deteriorates further, additional reserves may be required.

Market Risk Management

Market risk is the potential gain or loss arising from changes in market rates and prices, which, for us, is associated primarily with changes in foreign currency exchange rates.

We use derivative instruments (principally foreign exchange forward contracts), which historically have been entered into by Time Warner on our behalf, to manage the risk associated with exchange rate volatility.

We use these derivative instruments to hedge various foreign exchange exposures, including variability in foreign-currency-denominated cash flows (such as foreign currency expenses expected to be incurred in the future) and currency risk associated with foreign-currency-denominated operating assets and liabilities (i.e., fair

 

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value hedges). As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we have historically hedged a portion of our foreign currency exposures anticipated over the calendar year. At December 31, 2008 and 2007, we had contracts for the sale of $91.4 million and $28.4 million, respectively, and the purchase of $210.2 million and $74.2 million, respectively, of foreign currencies at fixed rates. These contracts are primarily for the purchase and sale of the British Pound and Euro.

Based on the foreign exchange contracts outstanding at December 31, 2008, a 10% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at December 31, 2008 would result in approximately $12 million of net unrealized gains. Conversely, a 10% appreciation of the U.S. dollar would result in approximately $12 million of net unrealized losses. Such unrealized gains or losses largely would be offset by corresponding decreases or increases, respectively, in the dollar value of future cash expenditures within the hedging period.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, which require management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions. We consider the policies relating to the following matters to be critical accounting policies:

 

   

Gross versus net revenue recognition;

 

   

Impairment of goodwill; and

 

   

Income taxes.

Gross Versus Net Revenue Recognition

We generate a significant portion of our advertising revenues from our advertising offerings on the Third Party Network, which consist of sales of display advertising. In connection with our advertising offerings on the Third Party Network, we typically act as or use an intermediary or agent in executing transactions with third parties. The significant judgments made in accounting for these arrangements relate to determining whether we should report revenue based on the gross amount billed to the customer or on the net amount received from the customer after commissions and other payments to third parties. To the extent revenues are recorded on a gross basis, any commissions or other payments to third parties are recorded as expense so that the net amount (gross revenues less expense) is reflected in operating income. Accordingly, the impact on operating income is the same whether we record revenue on a gross or net basis.

The determination of whether revenue should be reported gross or net is based on an assessment of whether we are acting as the principal or an agent in the transaction. If we are acting as a principal in a transaction, we report revenue on a gross basis. If we are acting as an agent in a transaction, we report revenue on a net basis.  The determination of whether we are acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of an arrangement. In determining whether we act as the principal or an agent, we follow the guidance in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”). Pursuant to EITF 99-19, we recognize revenue on a gross basis in situations in which we believe we are the principal in transactions considering the indicators set forth in EITF 99-19. We consider all of the indicators in EITF 99-19 in making this determination. While none of the indicators individually are considered presumptive or determinative, in reaching our conclusions on gross versus net revenue recognition, we place the most weight on the analysis of whether or not we are the primary obligor in the arrangement.

 

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As an example of the judgments relating to recognizing revenue on a gross or net basis, we sell advertising on behalf of third parties on the Third Party Network. The determination of whether we should report our revenue based on the gross amount billed to our advertising customers, with the amounts paid to the Third Party Network website owner (for the advertising inventory acquired) reported as costs of revenues, requires a significant amount of judgment based on an analysis of several factors. In these arrangements, we are generally responsible for (i) identifying and contracting with third-party advertisers, (ii) establishing the selling prices of the inventory sold, (iii) serving the advertisements at our cost and expense, (iv) performing all billing and collection activities including retaining credit risk and (v) bearing sole liability for fulfillment of the advertising. Accordingly, in these arrangements, we generally believe we are the primary obligor and therefore report revenues earned and costs incurred related to these transactions on a gross basis. During 2008, we earned and reported gross advertising revenues of $646.0 million and incurred costs of revenues of $478.3 million related to providing advertising services on the Third Party Network.

Impairment of Goodwill

Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. FASB Statement No. 142, Goodwill and Intangible Assets (“FAS 142”), requires the testing of goodwill for impairment to be performed at the level referred to as the reporting unit. A reporting unit is either the “operating segment level” or one level below, which is referred to as a “component.” The level at which the impairment test is performed requires judgment as to whether the operations below the operating segment constitute a self-sustaining business. If the operations below the operating segment level are determined to be a self-sustaining business, testing is generally required to be performed at this level; however, if multiple self-sustaining business units exist within an operating segment, an evaluation would be performed to determine if the multiple business units share resources that support the overall goodwill balance. For purposes of our goodwill impairment test, we consider ourselves to be a single reporting unit. Different judgments relating to the determination of reporting units could significantly affect the testing of goodwill for impairment and the amount of any impairment recognized.

In accordance with FAS 142, goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, we determine the fair value of our single reporting unit using a discounted cash flow (“DCF”) analysis and, in certain cases, a combination of a DCF analysis and a market-based approach. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market-based approach. The cash flows employed in the DCF analyses are based on our most recent budgets, forecasts and business plans as well as various growth rate assumptions for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the reporting unit. In addition, when a DCF analysis is used as the primary method for determining fair value, we assess the reasonableness of its determined fair value by reference to other fair value indicators such as comparable company public trading values, research analyst estimates and, where available, values observed in private market transactions. As an example of the judgments made by us, in our 2008 goodwill impairment analysis, we increased the discount rates utilized in the DCF analysis to a range of 13% to 15% in 2008 from 12% in 2007, while the terminal growth rates for our advertising revenues were decreased to a range of 2.5% to 3% in 2008 from 4.5% in 2007.

If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying amount to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit

 

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(including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Significant changes in the estimates and assumptions described above could materially affect the determination of fair value for our reporting unit which could trigger future impairment.

As a result of the goodwill impairment charge recorded in 2008, the carrying value of our goodwill was reset to its estimated fair value as of December 31, 2008. To illustrate the magnitude of future potential goodwill impairment charges if the fair value of our reporting unit had been hypothetically lower by 30% as of December 31, 2008, the reporting unit’s book value would have exceeded fair value by $210 million. If this were to occur, the second step of the goodwill impairment test would be required to be performed to determine the ultimate amount of the goodwill impairment charge.

Income Taxes

Time Warner and its domestic subsidiaries, including AOL prior to the spin-off, file a consolidated U.S. Federal income tax return. Income taxes as presented in the consolidated financial statements attribute current and deferred income taxes of Time Warner to us in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB Statement No. 109, Accounting for Income Taxes (“FAS 109”). AOL’s income tax provision is prepared under the “separate return method.” The separate return method applies FAS 109 to the standalone financial statements as if AOL were a separate taxpayer and a standalone enterprise. Income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between GAAP and tax reporting. Deferred income taxes reflect the tax effect of net operating loss, capital loss and general business credit carryforwards and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines it is more likely than not that some portion or all of the deferred tax asset will not be realized. Significant judgment is required with respect to the determination of whether or not a valuation allowance is required for certain of our deferred tax assets.

We analyze uncertain tax positions under the provisions of FIN 48. This interpretation requires us to recognize in the consolidated financial statements those tax positions determined to be “more likely than not” of being sustained upon examination, based on the technical merits of the positions.

From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. Examples of such transactions include business acquisitions and dispositions, including dispositions designed to be tax-free, issues related to consideration paid or received and certain financing transactions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on interpretation of tax laws and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining our tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their technical merits. That is, for financial reporting purposes, we only recognize tax benefits taken on the tax return that we believe are “more likely than not” of being sustained. There is considerable judgment involved in determining whether positions taken on the tax return are “more likely than not” of being sustained. Actual results could differ from the judgments and estimates made, and we may be exposed to losses or gains that could be material. Further, to the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of the liability established, our effective income tax rate in a given financial statement period could be materially affected.

 

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Currently, we indemnify Time Warner for certain tax positions related to AOL taken by Time Warner from April 13, 2006 up to the date of the spin-off in its consolidated tax return. In connection with the transactions entered into between AOL and Time Warner prior to the AOL-Google alliance, Time Warner retained the obligation with respect to tax positions related to AOL prior to April 13, 2006 in Time Warner’s consolidated tax return. In the event Time Warner makes payments to a taxing authority with respect to AOL-related tax positions taken from April 13, 2006 through the date of the spin-off, we would be required to make an equivalent payment to Time Warner. The aggregate amount of the reserve for uncertain tax positions underlying this indemnification obligation to Time Warner was $359.8 million (which includes estimated related accrued interest and penalties) at June 30, 2009. This liability is recorded as a long-term obligation to Time Warner in the consolidated balance sheet. This indemnification obligation relates to tax positions taken on Time Warner’s consolidated tax returns that are subject to U.S. Federal, state, local or foreign income tax examinations by taxing authorities. Upon the effectiveness of the Second Tax Matters Agreement, Time Warner will assume the obligation for certain tax positions taken by Time Warner in its consolidated, combined, unitary or similar tax returns with respect to AOL up to the date of the spin-off. As a result, at the date of the spin-off, AOL expects to reverse the recorded liability to Time Warner related to these tax positions, with an offsetting adjustment to equity.

 

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MANAGEMENT

The following table sets forth certain information, as of October 22, 2009, concerning our directors and executive officers following the spin-off, including a five-year employment history and any directorships held in public companies.

 

Name

       Age       

Position with AOL

Mr. Tim Armstrong

   38    Chairman and Chief Executive Officer

Mr. Richard Dalzell

   52    Director

Ms. Karen Dykstra

   50    Director

Mr. William Hambrecht

   74    Director

Ms. Patricia Mitchell

   66    Director

Mr. Michael Powell

   46    Director

Mr. Fredric Reynolds

   59    Director

Mr. James Stengel

   54    Director

Mr. James Wiatt

   63    Director

Mr. Arthur Minson

   38    Executive Vice President and Chief Financial Officer

Mr. Ted Cahall

   50    Executive Vice President and Chief Technology Officer

Mr. Ira Parker

   52    Executive Vice President, Corporate Secretary and General Counsel

Ms. Tricia Primrose

   45    Executive Vice President, Corporate Communications

Mr. Tim Armstrong

Mr. Armstrong has served as Chairman and Chief Executive Officer of AOL since April 7, 2009. Prior to that, Mr. Armstrong was Google’s President of The Americas Operations. Mr. Armstrong joined Google in 2000 as Vice President, Advertising Sales, and in 2004 was promoted to Vice President, Advertising and Commerce and then in 2007 he was named President, Americas Operations and SVP Google, Inc. Before joining Google, Mr. Armstrong served as Vice President of Sales and Strategic Partnerships for Snowball.com from 1998 to 2000. Prior to that, he served as Director of Integrated Sales and Marketing at Starwave’s and Disney’s ABC/ESPN Internet Ventures. Mr. Armstrong started his career by co-founding and running a newspaper based in Boston, Massachusetts.

Mr. Richard L. Dalzell

Mr. Richard Dalzell was Senior Vice President and Chief Information Officer of Amazon.com, Inc. until 2007. Previously, Mr. Dalzell served in numerous other positions at Amazon, including Senior Vice President of Worldwide Architecture and Platform Software and Chief Information Officer from 2001 to 2007, Senior Vice President and Chief Information Officer from 2000 to 2001 and Vice President and Chief Information Officer from 1997 to 2000. Prior to Amazon, Mr. Dalzell was Vice President of the Information Systems Division at Wal-Mart from 1994 to 1997.

Ms. Karen E. Dykstra

Ms. Karen Dykstra is a partner at Plainfield Asset Management LLC, and has been Chief Operating Officer and Chief Financial Officer of Plainfield Direct Inc. since 2006. Plainfield Asset Management LLC manages investment capital for institutions and high net worth individuals based in the United States and abroad. Plainfield Direct Inc. is a business development company managed by Plainfield Asset Management. Prior to joining Plainfield, Ms. Dykstra was the Chief Financial Officer of Automatic Data Processing, Inc. from 2003 to 2006. Ms. Dykstra serves on the boards of Gartner, Inc. and Crane Co.

 

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Mr. William R. Hambrecht

Mr. William Hambrecht founded and has been Chairman and Chief Executive Officer of WR Hambrecht + Co since 1998. WR Hambrecht + Co is a financial services firm. Before that, Mr. Hambrecht co-founded Hambrecht & Quist. In 2007, Mr. Hambrecht co-founded the United Football League. Mr. Hambrecht serves on the board of Motorola, Inc.

Ms. Patricia E. Mitchell

Ms. Patricia Mitchell has served as President and Chief Executive Officer of The Paley Center for Media, a global non-profit cultural institution, since 2006. Before that, Ms. Mitchell was President and CEO of the Public Broadcasting Service from 2000 to 2006. For more than two decades, Ms. Mitchell was a journalist and producer, serving as reporter, anchor, talk show host, producer and executive for three broadcast networks and several cable channels. Ms. Mitchell serves on the board of Sun Microsystems, Inc.

Mr. Michael K. Powell

Mr. Michael Powell has served as a Senior Advisor to Providence Equity Partners, a private equity firm since 2005. Mr. Powell is also Chairman of the MK Powell Group, which focuses on strategic advice in the areas of technology, media and communications. Previously, Mr. Powell served as Chairman of the Federal Communications Commission from 2001 to 2005. He also served as the Chief of Staff of the Department of Justice’s Antitrust Division and was an associate with the law firm of O’Melveny & Myers LLP. Mr. Powell serves on the boards of Cisco Systems, Inc. and Education Management Corporation. He was also named Chairman of NTT DoCoMo’s 5th U.S. Advisory Board.

Mr. Fredric G. Reynolds

Mr. Fredric Reynolds was with CBS Corporation and its predecessor companies from 1994 until he retired in August 2009. Mr. Reynolds was Executive Vice President and Chief Financial Officer of CBS Corporation from 2005 to 2009. He also served as President and Chief Executive Officer of the Viacom Television Stations Group of Viacom, Inc., and President of the CBS Television Stations Division of CBS, Inc. Before that, he was Executive Vice President and Chief Financial Officer of Viacom, Inc., CBS Corporation and Westinghouse Electric Corporation. Mr. Reynolds joined Westinghouse from PepsiCo Inc. Mr. Reynolds serves on the board of Kraft Foods Inc.

Mr. James R. Stengel

Mr. James Stengel has been President and Chief Executive Officer of The Jim Stengel Company, LLC, a think tank and consulting firm, since 2008. Mr. Stengel is also currently an adjunct marketing professor at UCLA’s Anderson School of Management. Mr. Stengel worked at Procter & Gamble from 1983 to 2008, holding a variety of positions including Global Marketing Officer from 2001 to 2008. Mr. Stengel serves on the board of Motorola, Inc.

Mr. James A. Wiatt

Mr. Jim Wiatt has been an independent consultant since June 2009. Mr. Wiatt served as Chairman and Chief Executive Officer of the William Morris Agency from 1999 until 2009, overseeing all areas of the entertainment company. Before joining WMA, Mr. Wiatt was Co-Chairman and Co-CEO of International Creative Management, a talent management company.

Mr. Arthur Minson

Mr. Minson has served as Executive Vice President and Chief Financial Officer of AOL since September 8, 2009. Prior to that, Mr. Minson served as Executive Vice President and Deputy Chief Financial Officer at Time

 

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Warner Cable Inc. Prior to joining Time Warner Cable in February 2006, Mr. Minson was Senior Vice President, Corporate Finance and Development at AOL from December 2004 to February 2006. Prior to that, Mr. Minson was Senior Vice President, Finance for AOL’s Broadband and Premium Services division from April 2004 to December 2004. Mr. Minson has also held senior finance positions at Rainbow Media Holdings, Inc. and Time Warner Inc. Mr. Minson began his career in the audit practice of Ernst and Young LLP.

Mr. Ted Cahall

Mr. Cahall has served as Executive Vice President and Chief Technology Officer of AOL since July 2009. Prior to that, Mr. Cahall served as President, AOL Products & Technologies from January 2009. Mr. Cahall joined AOL in January 2007 as Executive Vice President, Platforms division and, beginning in August 2007, Mr. Cahall also served as Executive Vice President, Technologies division. Before joining AOL, Mr. Cahall was Executive Vice President and Chief Operating Officer of United Online Inc.’s Internet properties from August 2005 to January 2007. Prior to that, Mr. Cahall was Chief Information Officer and Senior Vice President of Engineering for CNET Networks from January 2000 to August 2005. Before that, Mr. Cahall served as a Vice President at Bank of America for six years. Mr. Cahall spent the first six years of his career at AT&T Bell Laboratories.

Mr. Ira Parker

Mr. Parker has served as Executive Vice President, General Counsel and Corporate Secretary of AOL since 2006. Mr. Parker has also served as Executive Vice President, Corporate Development from February 2009 to September 2009 and also, from January 2008 to June 2009, served as Executive Vice President, Business Development. Prior to joining AOL, Mr. Parker served as Vice President and General Counsel, Corporate Secretary, and Chief Compliance Officer at Polaroid Corp. Prior to joining Polaroid in February 2004, Mr. Parker served as President and Chief Executive Officer at Genuity, Inc. from February 2003 to December 2003. Prior to that, he was Executive Vice President, General Counsel, Corporate Secretary, and Chief Compliance Officer of Genuity. Prior to joining Genuity in June 2000, Mr. Parker was a Vice President and Deputy General Counsel at GTE Corp. for two years and was a partner in the Washington, D.C. law firm Alston & Bird for three years. Before that, Mr. Parker spent nearly 10 years with the Federal Deposit Insurance Corp. in Washington, D.C. in various legal positions including Vice President and Deputy General Counsel of the FDIC’s Resolution Trust Corporation.

Ms. Tricia Primrose

Ms. Primrose has served as Executive Vice President, Corporate Communications of AOL since January 2007. Prior to that, Ms. Primrose was Vice President, Corporate Communications at AOL from March 2005. Ms. Primrose joined AOL in 1999 and from 2001 to March 2005, Ms. Primrose was Vice President, Corporate Communications at Time Warner Inc. Prior to that, she served as an Executive Vice President for the strategic communications firm Robinson Lerer & Montgomery from January 1997 to October 1999.

 

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The Board of Directors Following the Separation and Director Independence

Immediately following the separation, our board of directors will be comprised of nine directors. New York Stock Exchange rules require that the board be comprised of a majority of independent directors. We expect that our board of directors will determine, in accordance with the listing standards of the New York Stock Exchange, that all of our directors (with the exception of Mr. Armstrong, Mr. Hambrecht and Mr. Powell) are independent.

Committees of the Board

Effective upon the completion of the separation, our board of directors will have the following committees, each of which will operate under a written charter that will be posted to our website prior to the separation.

Audit Committee

The Audit Committee will be established in accordance with Section 3(a)(58)(A) and Rule 10A-3 under the Exchange Act. The Audit Committee will, among other things:

 

   

oversee the integrity of regular financial reports and other financial information we provide to the SEC or the public;

 

   

select an independent registered public accounting firm, such selection to be ratified by shareholders at our annual meeting;

 

   

preapprove all services to be provided to us by our independent registered public accounting firm;

 

   

confer with our independent registered public accounting firm to review the plan and scope of their proposed audit as well as their findings and recommendations upon the completion of the audit;

 

   

review the independence of the registered public accounting firm;

 

   

meet with the independent registered public accounting firm and with our appropriate financial personnel and internal financial controllers regarding our internal controls, practices and procedures; and

 

   

oversee all of our compliance, internal controls and risk management policies.

The Audit Committee will be comprised of members such that it meets the independence requirements set forth in the listing standards of the New York Stock Exchange and in accordance with the Audit Committee charter. Each of the members of the Audit Committee will be financially literate and have accounting or related financial management expertise as such terms are interpreted by the board of directors in its business judgment. None of our Audit Committee members will simultaneously serve on more than two other public company audit committees unless the board of directors specifically determines that it would not impair the ability of an existing or prospective member to serve effectively on the Audit Committee. The initial members of the Audit Committee will be determined prior to the spin-off.

Compensation Committee

The Compensation Committee will, among other things, be responsible for:

 

   

setting and reviewing our general policy regarding executive compensation;

 

   

determining the compensation (including salary, bonus, equity-based grants and any other long-term cash compensation) of our Chief Executive Officer and other senior executives;

 

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overseeing our disclosure regarding executive compensation, including approving the report to be included in our annual proxy statement on Schedule 14A and included or incorporated by reference in our annual report on Form 10-K; and

 

   

approving any employment agreements for our Chief Executive Officer and other senior executives.

The Compensation Committee will be comprised of members such that it meets the independence requirements set forth in the listing standards of the New York Stock Exchange and in accordance with the Compensation Committee charter. The members of the Compensation Committee will be “non-employee directors” (within the meaning of Rule 16b-3 of the Exchange Act) and “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code). The initial members of the Compensation Committee will be determined prior to the spin-off.

Nominating and Governance Committee

The Nominating and Governance Committee will, among other things, be responsible for:

 

   

reviewing and recommending to our board of directors amendments to our by-laws, certificate of incorporation, committee charters and other governance policies;

 

   

identifying, reviewing and recommending to our board of directors individuals for election to the board;

 

   

overseeing the Chief Executive Officer succession planning process, including an emergency succession plan;

 

   

reviewing the compensation for non-employee directors and making recommendations to our board of directors;

 

   

overseeing the board of directors’ annual self-evaluation; and

 

   

overseeing and monitoring general governance matters including communications with shareholders, regulatory developments relating to corporate governance and our corporate social responsibility activities.

The Nominating and Governance Committee will be comprised of members such that it meets the independence requirements set forth in the listing standards of the New York Stock Exchange and in accordance with the Nominating and Governance Committee charter. The initial members of the Nominating and Governance Committee will be determined prior to the spin-off.

Code of Ethics

Prior to the completion of the separation, we will adopt a written code of ethics that is designed to deter wrongdoing and to promote:

 

   

honest and ethical conduct;

 

   

full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the SEC and in our other public communications;

 

   

compliance with applicable laws, rules and regulations, including insider trading compliance; and

 

   

accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices.

A copy of our code of ethics will be posted on our website immediately prior to the separation.

 

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Director Nomination Process

We retained an outside executive search firm, Spencer Stuart, to assist in the process of identifying and recruiting individuals to serve on our board of directors. The process involved, among other steps: developing criteria for selecting members of the board; identifying potential candidates; reviewing the potential candidates against the relevant criteria; interviewing the potential candidates; and exchanging relevant information between us and the potential candidates. The search process also involved senior management at both AOL and Time Warner, including executives involved in the areas of human resources, law, finance, governance and investor relations. The initial directors who will serve after the spin-off will be elected by our current directors prior to the separation, and will begin their terms at the time of the distribution, with the exception of one independent director who shall serve on our Audit Committee and begin his or her term prior to the date on which when-issued trading of our common stock commences on the New York Stock Exchange.

With regard to the criteria for our board members, we and Time Warner have sought to ensure that each director has the personal characteristics (such as integrity, business judgment, intellectual ability and capacity to work as part of a team), as well as the time and commitment, to serve effectively and contribute meaningfully as a director. In addition, we and Time Warner endeavored to provide that the board of directors, overall, has the appropriate set of professional skills, industry experience and diversity of perspectives to fulfill roles of the board and its committees. These include skills in the areas of finance, accounting, law, technology, marketing and general executive management, as well as experience in the areas of advertising, technology, media and government. Finally, we and Time Warner have sought to ensure that a majority of the board members are independent under applicable regulatory requirements and our governance documents, and that a majority of the board members have prior experience working closely with, or serving on, the board of a public company.

We intend to adopt corporate governance policies that will contain information concerning the responsibilities of the Nominating and Governance Committee with respect to identifying and evaluating future director candidates.

The Nominating and Governance Committee will evaluate future director candidates in accordance with the director membership criteria described in our corporate governance policies. The Nominating and Governance Committee will evaluate a candidate’s qualifications to serve as a member of our board of directors based on the skills and characteristics of individual directors as well as the composition of our board of directors as a whole. In addition, the Nominating and Governance Committee will evaluate a candidate’s professional skills and background, experience in relevant industries, age, diversity, geographic background, the number of other directorships, along with qualities expected of all directors, including integrity, judgment, acumen and the time and ability to make a constructive contribution to our board.

The Nominating and Governance Committee will consider director candidate recommendations by shareholders. Our amended and restated by-laws will provide that any shareholder of record entitled to vote for the election of directors at the applicable meeting of shareholders may nominate persons for election to our board of directors, if such shareholder complies with the applicable notice procedures.

Communications with Non-Management Members of the Board of Directors

Generally, it is the responsibility of management to speak for the Company in communications with outside parties, but we intend to adopt a Policy Statement Regarding Stockholder Communications with the Board of Directors, which sets forth the processes whereby shareholders and other interested third parties may communicate with non-management members of our board of directors.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Prior to the spin-off, the Company has been a subsidiary of Time Warner, and therefore, its historical compensation strategy has been primarily determined by the Company’s senior management, acting in consultation with Time Warner’s senior management and the Time Warner Compensation and Human Development Committee (the “TW Committee”) of the Time Warner Board of Directors (the “TW Board”). Since the information presented in the compensation tables of this Information Statement relates to the Company’s 2008 fiscal year, which ended on December 31, 2008, this Compensation Discussion and Analysis (“CD&A”) focuses primarily on the Company’s compensation programs and decisions with respect to 2008 and the processes for determining 2008 compensation. In connection with the spin-off, the board of directors of the Company (the “AOL Board”) will form its own compensation committee (the “AOL Committee”). Following the spin-off, the AOL Committee will determine the Company’s executive compensation.

The Company experienced significant changes to its senior management during 2009, including the departure of its former Chairman and Chief Executive Officer (the “Former CEO”), Randy Falco, its former President and Chief Operating Officer (the “Former President”), Ron Grant, and its former Executive Vice President and Chief Financial Officer (the “Former CFO”), Nisha Kumar, and the hiring of its current Chairman and Chief Executive Officer (the “Current CEO”), Timothy Armstrong, who was formerly a Senior Vice President of Google Inc., and its current Chief Financial Officer (the “Current CFO”), Arthur Minson. Mr. Armstrong was hired and commenced a review of the Company’s strategy, structure and operations at a time when Time Warner was evaluating structural alternatives for the Company, culminating in the ultimate decision to proceed with the separation of the Company from Time Warner, and Mr. Minson was hired in anticipation of the Company’s separation from Time Warner. In light of these recent changes, this CD&A includes a detailed discussion of the terms of Mr. Armstrong’s and Mr. Minson’s employment agreements, and this CD&A and the related compensation tables also include information about the 2008 compensation of the Former CEO, the Former President and the Former CFO, as well as the Company’s two other most highly compensated executive officers during 2008 who are still employed by the Company, Ira Parker and Tricia Primrose. For purposes of this CD&A, the Company refers to the Former CEO, the Former President, the Former CFO, Mr. Parker and Ms. Primrose as the Company’s Named Executive Officers. The Company expects Mr. Parker and Ms. Primrose to remain employed with the Company following the spin-off. The following table lists the name of each Named Executive Officer, each such executive’s position with the Company during 2008 and the executive’s years of service with the Company and its affiliates as of December 31, 2008:

 

Name

  

Position with the Company during 2008

   Years of Service at the Company
and/or its Affiliates

Randy Falco

   Chairman and Chief Executive Officer    Over 2 years

Ron Grant

   President and Chief Operating Officer    Over 12 years

Nisha Kumar

   Executive Vice President and Chief Financial Officer    Over 7 years

Ira Parker

   Executive Vice President, Business Development, Corporate Secretary and General Counsel    Over 2 years

Tricia Primrose

   Executive Vice President, Corporate Communications    Over 9 years

This CD&A first describes how the Company’s compensation program was structured in 2008 and the roles of the TW Committee, Time Warner’s management and the Company’s management with respect to the

 

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Company’s 2008 compensation program. This CD&A then explains the Company’s current executive compensation philosophy and describes the main elements of the Company’s compensation program applicable to the Named Executive Officers, with a focus on determinations regarding their 2008 compensation. Finally, this CD&A describes actions taken in 2009 in light of the global economic downturn and discussions regarding potential transactions involving the Company, including the employment agreements with Mr. Armstrong and Mr. Minson and the separation agreements with Mr. Falco, Mr. Grant and Ms. Kumar.

Executive Compensation Program Design

Role of the TW Committee

In 2008, the TW Committee, acting pursuant to authority delegated to it by the TW Board, was responsible for (i) reviewing and approving the compensation of the Former CEO and the Former President, (ii) reviewing the succession plan for the Company’s Chief Executive Officer and (iii) approving the annual grant pool and grant guidelines for long-term incentive awards, including stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”).

Grants of long-term incentive awards made to employees of Time Warner and the Time Warner divisions (other than executive officers of Time Warner and Chief Executive Officers of the Time Warner divisions, as well as the Company’s Former President) that are within the annual grant guidelines established by the TW Committee are approved in the manner described under “—Role of Time Warner’s Management” below. Grants that exceed such guidelines are approved by the TW Committee.

In 2006, the TW Committee approved the entry into an employment agreement with Mr. Falco, because the TW Committee is responsible for approving all agreements with Chief Executive Officers of the Time Warner divisions. In 2008, the TW Committee approved an amended and restated employment agreement with Mr. Falco, described under “—Agreements with Named Executive Officers” below. In 2006, the TW Committee approved Mr. Grant’s employment agreement, described under “—Agreements with Named Executive Officers” below, because the TW Committee is responsible for approving all agreements that provide for annual compensation in excess of a designated threshold. In 2009, the TW Committee approved the terms of the employment agreement with Mr. Armstrong, which is described under “—Actions Taken in 2009—Employment Agreement with Current Chairman and Chief Executive Officer” below.

In addition, in 2009, the TW Committee approved the terms of the separation agreements with Mr. Falco and Mr. Grant, which are described under “—Agreements with Named Executive Officers” below, and granted authority to Time Warner’s Chief Executive Officer, Time Warner’s Executive Vice President, Administration (“EVP, Administration”) and Time Warner’s Senior Vice President, Global Compensation and Benefits (“SVP, Global Compensation and Benefits”) to negotiate and approve those separation agreements within the guidelines established by the TW Committee.

Role of Time Warner’s Management

During 2008, Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration (i) approved the financial performance measures for the Company, which the Company included in its 2008 Annual Incentive Plan (the “2008 AIP”), (ii) approved a retention program established by the Company in 2008 for certain Executive Vice Presidents and (iii) generally reviewed the other aspects of the Company’s compensation program for its executive officers. Time Warner’s Chief Executive Officer, along with the TW Committee, reviewed the individual performance of Mr. Falco and Mr. Grant in connection with the annual review process as described under “—Annual Performance Review Process” below.

Time Warner’s Management Option Committee (the “TW Management Option Committee”), which consists of Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, approves stock option grants to Company employees, and Time Warner’s Chief Executive Officer, in his capacity as a

 

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member of the TW Board, approves awards of RSUs and PSUs to Company employees, in both cases, provided that the grants and awards are within annual guidelines established by the TW Committee, as described under “—Role of the TW Committee” above. However, the grants to Mr. Falco and Mr. Grant were approved by the TW Committee rather than the TW Management Option Committee, as described under “—Role of the TW Committee” above.

In addition, in connection with entering into the separation agreements with Mr. Falco and Mr. Grant in 2009, Time Warner’s Chief Executive Officer, EVP, Administration and SVP, Global Compensation and Benefits met with the TW Committee to review the obligations of the Company to these former executives under their existing employment agreements, propose terms of the separation agreements and request authority to negotiate and approve the separation agreements. Time Warner’s EVP, Administration and SVP, Global Compensation and Benefits also negotiated and approved the separation agreement with Ms. Kumar in 2009.

In 2009, Time Warner’s Chief Executive Officer, Chief Financial Officer, EVP, Administration, General Counsel and SVP, Global Compensation and Benefits consulted with and made recommendations to the TW Committee in connection with the hiring of, and entry into an employment agreement with, Mr. Armstrong to serve as the Current CEO. In addition, during 2009, Time Warner’s EVP, Administration and Time Warner’s SVP, Global Compensation and Benefits consulted with and made recommendations to Mr. Armstrong in connection with the hiring of Mr. Minson to serve as the Current CFO and the entry into an employment agreement with Mr. Minson, which is described under “—Actions Taken in 2009—Employment Agreement with Current Chief Financial Officer” below.

Role of the Company’s Management

Other than on matters relating to Mr. Falco’s and Mr. Grant’s compensation, for which the TW Committee was responsible, the Company’s Chief Executive Officer has primary responsibility for determining the compensation of the Company’s executive officers, including Ms. Kumar, Mr. Parker and Ms. Primrose. In connection with reviewing their compensation, the Company’s Chief Executive Officer frequently consults with David Harmon, the Company’s Executive Vice President, Human Resources (“EVP, HR”). The Company’s Chief Executive Officer also consults with the Company’s Chief Financial Officer on matters such as establishing financial performance metrics for incentive compensation and determining how executive pay fits within the Company’s budget parameters. Furthermore, as noted above, the Company’s Chief Executive Officer also consults with Time Warner management on certain matters, including events that are outside the ordinary course of business, such as executive promotions and the establishment of retention programs for executives. In the case of ordinary course compensation decisions regarding Ms. Kumar, Mr. Parker and Ms. Primrose, such as their regular base salary merit increases and the assessment of their individual performance for purposes of determining annual bonuses, the Company’s Chief Executive Officer is generally the principal decision-maker. In 2009, the Current CEO approved the separation agreement with Ms. Kumar that had been recommended, negotiated and approved by Time Warner’s management.

Annual Performance Review Process

The Company determines regular base salary merit increases and annual bonuses through an annual review of all employees, including the Named Executive Officers (other than Mr. Falco and Mr. Grant), to measure individual performance over the course of the performance year against pre-set financial, operational and individual goals. The system assists in ensuring that each employee’s compensation is tied to the financial and operating performance of the Company, the employee’s individual achievement and the employee’s demonstration of the Company’s strategic initiatives and values. The annual performance review process is generally conducted in the fourth quarter of the relevant performance year and continues into the first quarter of the following year. As part of the annual performance review process, each employee prepares a self-assessment of his or her performance against pre-set individual goals. Then, the employee’s manager conducts a performance assessment of the employee and makes recommendations concerning base salary merit increases and annual bonuses. The Company’s Chief Executive Officer, in consultation with the Company’s EVP, HR,

 

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conducts the performance assessment of each executive officer who reports directly to him, including Ms. Kumar, Mr. Parker and Ms. Primrose, with respect to their base salary merit increases, as described under “—Base Salary” below, and annual bonuses, as described under “—Annual Incentive Compensation” below.

In 2008, Time Warner’s Chief Executive Officer and the TW Committee conducted the performance assessments of Mr. Falco and Mr. Grant.

Philosophy, Review of Market Practices and Elements of Executive Compensation

Philosophy

In 2008, the Company was guided by the following philosophy in determining the compensation of the Named Executive Officers:

 

   

Competition. Compensation should reflect the competitive marketplace to enable the Company to attract, retain and motivate talented executive officers over the long term.

 

   

Accountability for Business Performance. Compensation should be tied in part to the Company’s financial and operating performance, so that executive officers are held accountable through their compensation for the performance of the business operations for which they are responsible.

 

   

Accountability for Individual Performance. Compensation should be tied in part to the executive officer’s individual performance to encourage and reflect individual contributions to the Company’s performance.

 

   

Retention. Compensation should be used to retain, motivate and eliminate distractions to executive officers during critical times of transition of the Company.

Use of Compensation Surveys and Other Comparative Data

In connection with the Company’s compensation planning process, it utilizes internal and external sources of information to determine appropriate levels and mixes of compensation. These sources include internal comparisons prepared by Time Warner reflecting information from its many subsidiaries and the Time Warner divisions. In addition, Time Warner has available extensive information on competitive market practices based on numerous compensation surveys of public and private technology companies and other multinational companies prepared by a variety of different compensation firms, including Radford Consulting, Mercer, SCHips, EmpSight, Towers Perrin, ICR, Altman Weil and Croner. In reviewing the external data, the Company typically focuses on companies in the technology industry and other multinational companies with annual revenues similar to the Company’s annual revenue. However, the Company generally does not focus on a specific peer group of companies. The Company believes that the internal data from other Time Warner divisions and the external survey data provide valuable information about the current market practices of a broad spectrum of companies.

When it determined the compensation for Mr. Falco, in addition to consulting internal sources of information from its other divisions, the TW Committee reviewed market data for compensation of Chief Executive Officers of six technology companies: Amazon.com, Inc., eBay, Inc., Google Inc., IAC/InterActive Corp., Microsoft Online Services and Yahoo! Inc., as well as Chief Executive Officers of companies in the Company’s general industry. The TW Committee reviewed similar market data for Chief Operating Officers in connection with entering into Mr. Grant’s employment agreement.

The Company typically targets total direct compensation, which is comprised of an executive officer’s base salary, annual cash bonus target and the estimated value of equity-based awards, at approximately the 75th percentile of the blended data from the internal and external sources it reviews in connection with the compensation planning process. In addition, the Company typically targets base salary at approximately the 50th percentile of the blended data. Although the Company has targeted the 75th percentile for total direct compensation, actual total direct compensation has been between the 50th and 75th percentiles for some

 

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executives due to the amount and value of Time Warner equity-based awards. For 2008, Ms. Kumar’s total direct compensation was between the 50th and 75th percentiles of the blended data, Mr. Parker’s total direct compensation was between the 50th and 75th percentiles of the blended data and Ms. Primrose’s total direct compensation was above the 75th percentile of the blended data. For 2008, Mr. Falco’s total direct compensation was between the 75th and 90th percentile of the compensation paid to Chief Executive Officers of companies in the Company’s general industry and also between the 75th and 90th percentiles of the compensation paid to Chief Executive Officers of the six technology companies listed above. At the time the Company entered into an employment agreement with Mr. Grant, Mr. Grant’s target total direct compensation was set at between the 75th and 90th percentiles of the compensation paid to Chief Operating Officers of companies in the Company’s general industry and between the 50th and 75th percentiles of the compensation paid to Chief Operating Officers of the six technology companies listed above. Mr. Grant’s annual compensation was not reviewed against market data for 2008.

Elements of Compensation for Executive Officers

The Company’s compensation philosophy is reflected in the elements of the Company’s executive compensation program, which includes the following key components:

 

   

annual base salary;

 

   

annual incentive compensation, including performance-based cash incentive compensation (i.e., bonus), based on the achievement of Company financial and operational goals and individual goals;

 

   

long-term equity incentive compensation, prior to the spin-off, in the form of Time Warner stock options, RSUs and PSUs;

 

   

cash retention bonuses provided to certain executives of the Company; and

 

   

retirement, health and welfare and other benefit programs provided generally to employees and some additional executive benefits, including post-termination compensation in the event of an involuntary termination of employment without cause.

In general, the elements of compensation reflect a focus on performance-driven compensation, a balance between short-term and long-term compensation and a combination of cash and equity-based compensation. All elements of executive compensation are generally reviewed by the Company’s Chief Executive Officer, Chief Financial Officer and EVP, HR, as well as Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, to maintain the amount and type of compensation within appropriate competitive parameters so that the program design encourages long-term growth in the Company’s value and an executive officer’s demonstration of the core values of the Company. However, the elements of Mr. Falco’s and Mr. Grant’s compensation were determined, reviewed and approved by the TW Committee. Each element of the Company’s 2008 executive compensation and the rationale for each element are described below.

Base Salary

The Company believes that including a competitive base salary in each executive officer’s compensation package is appropriate in order to attract, retain and motivate executive officers capable of leading its business in the complex and competitive business environment in which the Company operates. In reviewing annual base salary, the Company considers the nature and scope of each executive officer’s responsibilities, the executive officer’s prior compensation and performance in his or her job, the pay levels of similarly situated executive officers within the Company and the Time Warner divisions, the terms of employment letter agreements and published market survey data on compensation levels.

2008 Base Salaries. In 2008, the TW Committee approved the entry into an amended and restated employment agreement with Mr. Falco, described under “—Agreements with Named Executive Officers” below, and in 2006, the TW Committee approved the entry into Mr. Grant’s employment agreement, described under

 

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“—Agreements with Named Executive Officers” below. The base salaries for Mr. Falco and Mr. Grant were set forth in their employment agreements and did not change for 2008. Between December 2007 and February 2008, AOL LLC entered into a new employment letter agreement with each of Ms. Kumar, Mr. Parker and Ms. Primrose, which superseded the terms of their prior employment letter agreements and established their base salaries for 2008. These agreements are described in more detail under “—Agreements with Named Executive Officers” below. The base salaries for Ms. Kumar, Mr. Parker and Ms. Primrose were set by the Former CEO in consultation with the Company’s EVP, HR.

Pursuant to Mr. Falco’s and Mr. Grant’s employment agreements, their base salaries for 2008 were $1.0 million and $750,000, respectively. Mr. Falco’s and Mr. Grant’s base salaries were determined at the time their employment agreements were entered into based on the market data reviewed by the TW Committee described under “—Use of Compensation Surveys and Other Comparative Data” above. Ms. Kumar received a new employment letter agreement on January 9, 2008. After reviewing published market survey data along with internal comparisons across Time Warner and the Time Warner divisions, the Company increased Ms. Kumar’s base salary to $550,000, reflecting a 16% increase based on her performance. Mr. Parker received a new employment letter agreement on January 7, 2008, in connection with his promotion to include the position of the Company’s Executive Vice President, Business Development (“EVP, Business Development”). After reviewing published market survey data along with internal comparisons across Time Warner and the Time Warner divisions, the Company increased Mr. Parker’s base salary to $550,000 retroactive to the date of his promotion in 2007, reflecting a 22% increase based on his additional responsibilities and title and his performance. Ms. Primrose received a new employment letter agreement on December 7, 2007, with a base salary of $425,000, reflecting a 10.4% increase based on her performance. As a result of the global economic downturn and declining revenue and profits at the Company, Time Warner and the Former CEO, the Former CFO and the Company’s EVP, HR decided that none of the Company’s executive officers would receive a salary increase in 2009.

Annual Incentive Compensation

Mr. Falco and Mr. Grant Annual Bonuses. Mr. Falco’s and Mr. Grant’s employment agreements contained annual bonus provisions that were intended to provide each of Mr. Falco and Mr. Grant with a competitive level of compensation in the event that both the Company and the individual achieved satisfactory performance. Mr. Falco’s and Mr. Grant’s annual bonus awards for 2008 were designed to reward each individual for achieving financial and operational goals with respect to the Company and to reward individual performance. Mr. Falco and Mr. Grant did not participate in the 2008 AIP. The following is a description of the factors that were taken into account in determining 2008 annual bonuses under Mr. Falco’s and Mr. Grant’s employment agreements.

 

   

Bonus Targets. Mr. Falco’s and Mr. Grant’s bonus targets were expressed as stated dollar amounts in their employment agreements. As with the base salary, the bonus targets for Mr. Falco and Mr. Grant were set by the TW Committee. The bonus targets were determined taking into consideration the nature and scope of Mr. Falco’s and Mr. Grant’s responsibilities and were determined at the time their employment agreements were entered into based on the market data reviewed by the TW Committee described under “—Use of Compensation Surveys and Other Comparative Data” above.

 

   

Company Performance Goals. At the outset of the year, the TW Committee established goals for Mr. Falco and Mr. Grant based on the Company’s Adjusted OIBDA and Free Cash Flow. The calculation of the Company’s Adjusted OIBDA and Free Cash Flow for purposes of the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements is described under “—Annual Incentive Compensation—Adjusted OIBDA and Free Cash Flow” below.

 

   

Individual Performance Goals. Mr. Falco and Mr. Grant worked together to formulate their proposed individual performance goals and then submitted them to Time Warner’s Chief Executive Officer for review. The TW Committee subsequently approved the individual goals for Mr. Falco. The individual goals were intended not only to guide Mr. Falco’s and Mr. Grant’s actions, but also to assist the TW Committee at the end of the year in exercising discretion in determining the bonuses to be paid to Mr. Falco and Mr. Grant.

 

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Evaluation Against Goals and Determination of Bonuses. At the end of the year, the Company’s performance was evaluated by the Company’s Chief Executive Officer, Chief Financial Officer and EVP, HR, in consultation with Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, with respect to the Company’s achievement of its pre-set financial criteria. Time Warner’s Chief Executive Officer conducted individual performance evaluations of Mr. Falco and Mr. Grant and conferred with the TW Committee regarding such evaluations. Time Warner’s Chief Executive Officer then recommended to the TW Committee the amounts of Mr. Falco’s and Mr. Grant’s bonuses based on Company and individual performance, and the TW Committee approved such amounts.

The following is a description of the 2008 bonus targets, performance goals and the evaluation process for purposes of Mr. Falco’s and Mr. Grant’s annual bonuses under their employment agreements.

 

   

2008 Bonus Targets. For 2008, Mr. Falco’s annual bonus target was $3.0 million, and Mr. Grant’s annual bonus target was $1.5 million, as determined by the TW Committee and set forth in their employment agreements.

 

   

2008 Performance Goals. For Mr. Grant and Mr. Falco, 70% of their 2008 annual bonuses was based on Company financial metrics, which are set forth in the tables below, and 30% was based on their individual performance versus certain strategic metrics, which are described below. At the beginning of 2008, the TW Committee approved the 70% financial goal and 30% personal goal weighting for Mr. Falco and Mr. Grant because it emphasizes the importance of the Company’s financial performance and reinforces Mr. Falco’s and Mr. Grant’s accountability for the achievement of their individual goals for the year. The relative weighting of these goals advances the components of the Company’s compensation philosophy that individual executive officers be held accountable for both the performance of the business operations for which they are responsible and their personal performance.

 

   

2008 Company Performance Goals. Within the Company financial measures, the TW Committee assigned a weighting of 70% to Adjusted OIBDA and a weighting of 30% to Free Cash Flow, based on its view of the relative importance of these measures as indicators of the Company’s operating performance over both the short and long term. The financial measures were selected not only because they are important measures of the Company’s financial performance, but also because they are consistent with the measures Time Warner used through 2008 to provide its business outlook to its investors.

For 2008, the TW Committee approved the actual financial performance targets for the Company in the table below with respect to Mr. Falco’s and Mr. Grant’s annual bonuses. The financial criteria and the performance rating for 2008 associated with the Adjusted OIBDA and Free Cash Flow metrics for the Company are shown in the table below.

 

Financial Criteria

($ in millions)

   % of Financial
Component
    25%    50%    Target
100%
   Maximum
150%
   2008
Actual
   2008
Actual
Performance
Rating (%)
 

Adjusted OIBDA

   70   $ 1,300    $ 1,600    $ 1,900    $ 2,000    $ 1,558    47

Free Cash Flow

   30   $ 750    $ 1,000    $ 1,250    $ 1,440    $ 1,169    84

 

   

2008 Individual Goals. The individual goals established for Mr. Falco and Mr. Grant at the beginning of 2008 were tailored to their positions and focused on supporting the Company’s overall strategic initiatives and values, which included operating with integrity, working collaboratively, creating an inclusive work place, being outwardly focused and driving performance and innovation (the “Global AOL Values”). Mr. Falco and Mr. Grant had the same individual goals because Time Warner viewed them as working together to achieve common goals with respect to the Company. Their individual goals were proposed by Mr. Falco to Time Warner’s Chief Executive Officer, who then submitted the individual goals for approval by the TW Committee. The individual goals for 2008 for Mr. Falco and Mr. Grant are described immediately below.

 

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Separate the Company’s business operations into Platform-A (i.e., the Company division that integrated advertising sales for all of the Company’s websites), Publishing (i.e., the Company’s content business) and Access (i.e., the Company’s legacy subscription business).

 

   

Expand the Platform-A brand, including through acquisitions, and position it with advertisers as the leading display network.

 

   

Expand the Publishing business while reducing costs and increasing advertising revenue.

 

   

Continue to transition paid Access subscribers to the Company’s free offerings and evaluate divestiture opportunities.

 

   

Improve operating margins and reduce corporate costs.

 

   

Expand international advertising under Platform-A, social networking services, content on the Company’s website and the Company’s technological infrastructure.

 

   

Evaluation Against 2008 Goals and Determination of 2008 Bonuses. Mr. Falco and Mr. Grant either met or exceeded each of their personal objectives for 2008, which accounted for 30% of their bonuses. In determining bonuses for 2008, Time Warner’s Chief Executive Officer and the TW Committee considered the Company’s performance ratings (47% for Adjusted OIBDA and 84% for Free Cash Flow, or a blended rate of 58%) and the individual performance ratings for Mr. Grant and Mr. Falco (125% each). Accordingly, Mr. Falco received a bonus of $2.25 million and Mr. Grant received a bonus of $1.125 million. These amounts are reflected in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for Fiscal Year 2008.

2008 AIP. The annual bonuses for 2008 under the 2008 AIP were intended to provide each of Ms. Kumar, Mr. Parker and Ms. Primrose with a competitive level of compensation in the event that both the Company and the executive officer achieved satisfactory performance. As discussed above, Mr. Falco and Mr. Grant did not participate in the 2008 AIP. Annual bonus awards under the 2008 AIP were designed to reward participating executive officers for achieving financial and operational goals with respect to the Company and to reward individual performance, consistent with the Company’s pay-for-performance philosophy. The following is a description of the factors that were taken into account in determining 2008 annual bonuses for Ms. Kumar, Mr. Parker and Ms. Primrose.

 

   

2008 Bonus Targets. Each executive officer has a bonus target that represents the amount the Company expects to pay the executive officer for the year if both the Company and the individual achieve satisfactory performance. The pool for annual bonuses is based on the aggregate number of participants and the sum of each participant’s bonus target. An executive’s annual bonus target opportunity is generally expressed as a percentage of the executive officer’s base salary, and the bonus target is contained in the executive’s employment letter agreement and subject to the terms of the 2008 AIP. As with the base salary, the bonus targets for Ms. Kumar, Mr. Parker and Ms. Primrose were set by the Former CEO in consultation with the Company’s EVP, HR. Bonus targets were determined taking into consideration the nature and scope of each executive officer’s responsibilities, the bonus targets of similarly situated executives within the Company and the Time Warner divisions and data on market compensation levels based on published market surveys.

 

   

2008 Company Performance Goals. At the outset of each year, the Company’s Chief Executive Officer, Chief Financial Officer and EVP, HR, in consultation with Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, establish goals based on the Company’s Adjusted OIBDA and Free Cash Flow. The calculation of the Company’s Adjusted OIBDA and Free Cash Flow for purposes of the 2008 AIP is described under “—Annual Incentive Compensation—Adjusted OIBDA and Free Cash Flow” below. Over the course of the year, the level of funding of the bonus pool is adjusted based on the Company’s performance against the pre-set goals. Determination of the final funding under the annual bonus plan is at the discretion of the Company’s Chief Executive Officer, and must be approved by Time Warner.

 

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2008 Individual Performance Goals. The Company’s Chief Executive Officer and EVP, HR establish parameters for Ms. Kumar, Mr. Parker and Ms. Primrose to propose their own individual performance goals and then review the individual performance goals submitted by each executive to be used in determining the bonuses in connection with the Company’s annual performance review process. The individual goals are intended not only to guide the executive officers’ actions, but also to assist the Company and its Chief Executive Officer at the end of the year in exercising discretion in determining the bonuses to be paid to the executives, if the Company performance goals are met.

 

   

Evaluation Against Goals and Determination of Bonuses. At the end of the year, the Company’s performance is evaluated by the Company’s Chief Executive Officer, Chief Financial Officer and EVP, HR, in consultation with Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, with respect to the Company’s achievement of its pre-set financial criteria. The Company’s Chief Executive Officer conducts an individual performance evaluation of each executive officer who reports directly to him (other than the Former President), including Ms. Kumar, Mr. Parker and Ms. Primrose, and then determines in consultation with the Company’s EVP, HR whether annual bonuses should be paid to those executive officers based on Company and individual performance. Subject to the terms of the plan, if the Company performance goals are met, the Company’s Chief Executive Officer can exercise discretion in determining actual bonus amounts (if any) to executive officers.

The following is a description of the 2008 bonus targets, performance goals and the evaluation process for purposes of the 2008 AIP.

 

   

2008 Bonus Targets. In 2008, each of Ms. Kumar’s and Mr. Parker’s annual bonus target was 100% of the executive officer’s annual base salary, consistent with published market survey data on compensation levels for executives in comparable positions. Ms. Primrose’s annual bonus target was 75% of her annual base salary, consistent with published market survey data on compensation levels for executives in comparable positions.

 

   

2008 Performance Goals. For the executive officers of the Company, 70% of their 2008 annual bonus was based on Company financial metrics, which are set forth in the table below, and 30% was based on their individual performance versus certain strategic metrics, which are described below. At the beginning of 2008, the Former CEO, in consultation with the Former CFO and the Company’s EVP, HR and Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, approved the 70% financial goal and 30% personal goal weighting for Ms. Kumar, Mr. Parker and Ms. Primrose because it emphasizes the importance of the Company’s financial performance and reinforces individual accountability for the achievement of an executive officer’s goals for the year. The use of these goals advances the components of the Company’s compensation philosophy that individual executive officers be held accountable for both the performance of the business operations for which they are responsible and their personal performance.

 

   

2008 Company Performance Goals. Within the Company financial measures, the Former CEO, the Former CFO and the Company’s EVP, HR, in consultation with Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration, assigned a weighting of 70% to Adjusted OIBDA and a weighting of 30% to Free Cash Flow, based on their views of the relative importance of these measures as indicators of the Company’s operating performance over both the short and long term. The financial measures were selected not only because they are important measures of the Company’s financial performance, but also because they are consistent with the measures Time Warner used through 2008 to provide its business outlook to its investors. Additionally, the Former CEO, the Former CFO and the Company’s EVP, HR and Time Warner’s Chief Executive Officer, Chief Financial Officer and EVP, Administration also considered whether the goals and targets that were set supported sustained growth in the Company’s financial performance over the long term, without encouraging excessive risk-taking. In order to fund the bonus pool under the 2008 AIP, achievement at 90% of the performance target goal for each of Adjusted OIBDA and Free Cash Flow was required.

 

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After the financial criteria for the Company were approved, the Former CEO, the Former CFO and the Company’s EVP, HR approved the actual financial performance targets for the Company in the table below for Ms. Kumar, Mr. Parker and Ms. Primrose. The financial criteria and the performance rating associated with the Adjusted OIBDA and Free Cash Flow metrics for the Company are shown in the table below.

 

Financial Criteria

($ in millions)

  

% of Financial
Component

  

Threshold

50%

  

Target

100%

  

Maximum
150%

  

2008
Actual

  

2008

Actual
Performance
Rating (%)

 

Adjusted OIBDA

   70%    $ 1,700    $ 1,800    $ 2,000    $ 1,558    0

Free Cash Flow

   30%    $ 1,050    $ 1,150    $ 1,350    $ 1,169    102

 

   

2008 Individual Goals. The individual goals established for Ms. Kumar, Mr. Parker and Ms. Primrose at the beginning of 2008 were tailored to each individual’s position and focused on supporting the Global AOL Values. The individual goals for 2008 for each of Ms. Kumar, Mr. Parker and Ms. Primrose are described immediately below.

Ms. Kumar

 

   

Improve management reporting, analysis and forecasting and prepare detailed benchmarks for the 2009 budget process.

 

   

Implement global technology solutions for financial accounting, planning and forecasting to ensure consistency and efficiency with respect to preparation of the Company’s financial reports.

 

   

Maintain compliance with Sarbanes-Oxley requirements and reduce audit findings that require executive review.

 

   

Manage and achieve expense targets across the Company’s businesses to achieve the Company’s overall budget target.

Mr. Parker

 

   

Develop and execute overall cost reduction strategies, including decreasing costs incurred by using outside counsel, while continuing to provide superior client service.

 

   

Expand the Business Development Group with measurable goals in terms of value added to the Company, both in transactions consummated and costs saved.

Ms. Primrose

 

   

Continue to strengthen the communications team.

 

   

Effectively communicate both internally and externally through People Networks, the Company’s new social and media networking initiatives.

 

   

Support key product initiatives that highlight the Company’s web strategy and maximize revenue potential for the Company.

 

   

Evaluation Against 2008 Goals and Determination of 2008 Bonuses. Ms. Kumar, Mr. Parker and Ms. Primrose either met or exceeded each of their personal objectives for 2008, which would have accounted for 30% of their bonuses in the event that the financial thresholds of the 2008 AIP had been met. However, the Company did not meet the threshold performance level for 2008 under the terms of the 2008 AIP of at least 90% of target for each of Adjusted OIBDA and Free Cash Flow, which was a requirement for payments under the 2008 AIP. The threshold performance level for the Adjusted OIBDA metric was $1.70 billion for 2008, and the threshold performance level for the Free Cash Flow metric was $1.05 billion. The results for 2008 were Adjusted OIBDA of $1.558 billion and Free Cash Flow of $1.169 billion. Since the Company did not achieve the Adjusted OIBDA threshold target for 2008, pursuant to

 

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the terms of the 2008 AIP, no bonuses were paid under the 2008 AIP to Ms. Kumar, Mr. Parker and Ms. Primrose. Accordingly, the bonus amounts for 2008 in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for Fiscal Year 2008 are zero for Ms. Kumar, Mr. Parker and Ms. Primrose.

Transition Plan. Pursuant to their employment agreements, Mr. Falco and Mr. Grant participated in a special 2007 Transitional Cash Long-Term Incentive Program (the “Transition Plan”). The purpose of the Transition Plan was to motivate Mr. Falco and Mr. Grant based on the financial metrics that determined the Company’s performance over the two-year period that commenced on January 1, 2007. Mr. Falco’s annualized target under the Transition Plan was $2.0 million, and his maximum annualized amount under the Transition Plan was $4.0 million, as determined by the TW Committee. Mr. Grant’s annualized target was $1.5 million, and his maximum annualized amount under the Transition Plan was $3.0 million, as determined by the TW Committee. Although targets and maximum amounts were annualized, payments under the Transition Plan were not made until March 13, 2009, following the end of the 2007-2008 performance period. The entire amount of the bonuses under the Transition Plan was based on Company performance during this period relative to cumulative Adjusted OIBDA goals. The calculation of the Company’s Adjusted OIBDA for purposes of the Transition Plan is described under “—Annual Incentive Compensation—Adjusted OIBDA and Free Cash Flow” below. The cumulative Adjusted OIBDA measure was selected because it is an important measure of the Company’s financial performance that Time Warner used to gauge the executives’ performance during the transition period following their assumption of the roles as the Company’s Chief Executive Officer and President, respectively. In the beginning of 2008, the cumulative Adjusted OIBDA goals were adjusted to better reflect revised budget expectations for 2008. The revised financial criteria and the performance rating associated with the cumulative Adjusted OIBDA metric for the Company are shown in the table below.

 

Financial Criteria    Threshold         Target
   Budget
        Maximum
   2007-2008
   Performance  

($ in millions)

  

      0%      

  

50%

  

 100% 

  

 125% 

  

150%

  

    200%    

  

  Actual  

  

  Rating (%)  

 

2007-2008 Cumulative Adjusted OIBDA

   $ 3,515    $ 3,600    $ 3,695    $ 3,790    $ 3,837    $ 3,932    $ 3,520    3.2

The Company’s actual cumulative Adjusted OIBDA for the 2007-2008 period was $3.520 billion, which slightly exceeded the Threshold performance level and resulted in a performance rating of 3.2%. Accordingly, on March 13, 2009, the payout under the Transition Plan to Mr. Falco was $127,822 and to Mr. Grant was $95,866, which are reflected in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for Fiscal Year 2008.

Adjusted OIBDA and Free Cash Flow. For purposes of the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements, the 2008 AIP and the Transition Plan, “Adjusted OIBDA” is calculated based on the following formula: operating income (loss) before depreciation and amortization excluding the impact of non-cash impairments of goodwill, intangible and fixed assets, as well as gains and losses on sales of assets and consolidated businesses, certain restructuring costs incurred in 2007 and amounts related to securities litigation and government investigations. For purposes of the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements and the 2008 AIP, “Free Cash Flow” is calculated based on the following formula: cash provided by operations plus the cash flow attributable to transactions with Time Warner (principally cash paid to Time Warner for taxes) less cash flow attributable to capital expenditures, product development costs and principal payments on capital leases.

Adjusted OIBDA and Free Cash Flow are non-GAAP financial measures. Below are reconciliations of these non-GAAP financial measures to the most comparable GAAP measures from the Company’s audited consolidated financial statements.

 

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Reconciliation of 2008 Adjusted OIBDA to 2008 operating loss for purposes of the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements, the 2008 AIP and the Transition Plan, and reconciliation of 2007 Adjusted OIBDA to 2007 operating income for purposes of the Transition Plan ($ in millions) are as follows:

 

     Fiscal Year
Ended
December 31,
2008
    Fiscal Year
Ended
December 31,
2007
 

Adjusted OIBDA (1)

   $ 1,558.0      $ 1,962.0   

Asset impairments (2)

     (2,227.7     —     

Depreciation expense

     (311.0     (402.7

Amortization of intangible assets

     (166.2     (95.9

Gains on sale of assets and consolidated businesses (3)

     —          682.6   

Restructuring costs (4)

     —          (120.8

Amounts related to securities litigation and government investigations (5)

     (20.8     (171.4
                

Operating income (loss)

   $ (1,167.7   $ 1,853.8   
                

 

(1) Cumulative Adjusted OIBDA for the 2007-2008 performance period under the Transition Plan was $3,520.0 million.

 

(2) For the year ended December 31, 2008, the Company’s operating loss includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill and $20.7 million of non-cash impairments related to asset writedowns in connection with facility consolidations. These amounts are excluded from cumulative Adjusted OIBDA.

 

(3) For the year ended December 31, 2007, the Company’s operating income includes gains on the sale of assets and consolidated businesses of $682.6 million (primarily related to the Company’s sale of its German access service business) which are excluded from Adjusted OIBDA.

 

(4) Certain of the Company’s restructuring costs incurred in 2007 are excluded from Adjusted OIBDA.

 

(5) For the year ended December 31, 2008 and 2007, the Company’s operating income (loss) includes $20.8 million and $171.4, respectively, of legal and other professional fees incurred and paid by Time Warner related to the defense of various securities lawsuits involving the Company or former officers and employees but reflected as an expense in the Company’s consolidated financial statements. These amounts are excluded from Adjusted OIBDA.

Reconciliation of Free Cash Flow to 2008 cash provided by operations for purposes of the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements and the 2008 AIP ($ in millions):

 

     Fiscal Year
Ended
December 31,
2008
 

Cash provided by operations

   $ 933.6   

Add net transactions with Time Warner

     432.7   

Less capital expenditures and product development costs

     (172.2

Less principal payments on capital leases

     (25.1
        

Free Cash Flow

   $ 1,169.0   
        

Long-Term Incentives

In 2008, the long-term incentive awards provided to the Company’s Named Executive Officers were in the form of Time Warner equity-based awards. Long-term incentive awards are designed not only to provide

 

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executive officers with an opportunity to earn a competitive level of compensation, but also to advance the principle of pay-for-performance, to align the executive officers’ interests with those of Time Warner’s shareholders and to provide a significant retention tool. In 2008, executive officers were granted a combination of stock options, RSUs and PSUs. Stock options are granted to executive officers as an incentive to create and increase incremental shareholder value. RSUs are intended to reward and retain key talent, as well as to align executive officers’ interests with those of Time Warner’s shareholders even during periods of stock market fluctuations. PSUs are designed to reward executive officers based on the achievement of Time Warner’s total shareholder return (“TSR”) as compared to the TSR of other companies in the S&P 500 Index.

In connection with the spin-off, long-term incentive awards held by the Company’s Named Executive Officers who are employed by the Company at the time of the spin-off will be treated as provided in the equity compensation plan under which such awards were granted and the award agreements governing such awards, which will generally result in forfeiture of unvested stock options, vesting of a pro rata amount of RSUs that are scheduled to vest on the next vesting date and vesting of PSUs based on (i) the actual performance level achieved from the award date through the date of the spin-off and (ii) the target level of performance from the date of the spin-off through the last day of the performance period, plus all retained distributions relating thereto, as described under “—Potential Payments Upon a Termination of Employment or Change in Control—Termination without Cause” below and “—Potential Payments Upon a Termination of Employment or Change in Control—Change in Control or Spin-Off of the Company” below. However, the treatment of certain Time Warner equity awards granted to Mr. Armstrong will be treated as described under “—Actions Taken in 2009—Employment Agreement with Current Chairman and Chief Executive Officer” below, the treatment of certain Time Warner equity awards granted to Mr. Falco will be treated as described under “—Actions Taken in 2009—Separation Agreement with Former Chairman and Chief Executive Officer” below and the treatment of certain Time Warner equity awards granted to Mr. Grant will be treated as described under “—Actions Taken in 2009—Separation Agreement with Former President and Chief Operating Officer” below.

2008 Long-Term Incentives. During early 2008, the TW Committee determined the total estimated target value of annual compensation for Mr. Falco and Mr. Grant and the manner in which that total estimated target value would be delivered (including annual base salary, annual bonus and equity-based awards), and approved the equity-based awards to Mr. Falco and Mr. Grant.

In addition, the TW Committee approved the annual grant pool and grant guidelines for long-term incentive awards to be granted to employees of Time Warner and the Time Warner divisions, including stock options, RSUs and PSUs. The Former CEO and the Company’s EVP, HR determined the total estimated target value of annual compensation for Ms. Kumar, Mr. Parker and Ms. Primrose and the manner in which that total estimated target value would be delivered. Based on that review, the Former CEO then made recommendations to the TW Management Option Committee regarding the proposed 2008 stock option grants to Ms. Kumar, Mr. Parker and Ms. Primrose and to Time Warner’s Chief Executive Officer regarding their proposed 2008 RSU and PSU awards. All 2008 grants and awards to the Named Executive Officers were within the TW Committee’s grant guidelines. The TW Management Option Committee reviewed and approved the stock option grants to Ms. Kumar, Mr. Parker and Ms. Primrose, and Time Warner’s Chief Executive Officer, in his capacity as a member of the TW Board, reviewed and approved their awards of RSUs and PSUs. The value of equity-based awards granted to the Named Executive Officers for 2008 was intended to provide each executive with a competitive target level of compensation and to have a substantial portion of the executive’s compensation be performance-based and tied directly to Time Warner’s stock price.

The mix of equity awards (including stock options, RSUs and PSUs) granted to Mr. Falco and Mr. Grant was intended to deliver 40% of the aggregate award value through stock options and 60% of the aggregate award value through an equal amount of RSUs and PSUs. This mix reflected the determination by the TW Committee and Time Warner’s Chief Executive Officer and EVP, Administration of an appropriate mix of equity awards. The mix of equity awards granted to Ms. Kumar, Mr. Parker and Ms. Primrose in 2008 was intended to deliver one-third of the aggregate award value through each of stock options, RSUs and PSUs. This mix reflected market

 

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practices based on the published market surveys. All of the grants and awards took into account the relative retention value of each type of award and the dilutive impact of the awards. The Grants of Plan-Based Awards During 2008 table, below, reflects each Named Executive Officer’s 2008 equity awards.

Stock Options. Stock options represent the right to purchase shares of Time Warner common stock in the future at an exercise price determined on the grant date. Pursuant to provisions in Time Warner’s equity plans, stock options have exercise prices at fair market value, which, since October 2008, has been defined as the closing price of Time Warner’s common stock on the grant date as reported on the New York Stock Exchange Composite Tape. From January 2001 through September 2008, fair market value under Time Warner’s equity plans was defined as the average of the high and low sale prices of Time Warner’s common stock on the New York Stock Exchange on the grant date. The change to the current fair market value definition was approved in July 2008 and went into effect October 1, 2008 to bring Time Warner’s fair market value calculation in line with market practice and to make it easier to verify the fair market value. In a small number of countries other than the United States, the exercise price is established pursuant to local law requirements using another methodology, but the exercise price under that methodology will not be lower than what would be determined using the average of the high and low sale prices on the New York Stock Exchange on the grant date or the closing price of Time Warner’s common stock on the grant date, as applicable. The stock options vest in four equal installments on each of the first four anniversaries of the grant date.

Restricted Stock Units. The RSUs, which represent the right to receive a specified number of shares of Time Warner common stock upon vesting, vest in two equal installments on the third and fourth anniversaries of the award date.

Performance Stock Units. The PSUs awarded to the executive officers in 2008 have a performance measure of TSR of Time Warner’s common stock relative to that of the common stock of the companies in the S&P 500 Index (subject to certain adjustments) over the three-year period from January 1, 2008 through December 31, 2010. This performance measure is intended to align the participants’ interests with those of Time Warner’s shareholders. The PSUs provide for payment in shares of Time Warner common stock based on the performance achieved in amounts ranging from 0% to 200% of the target amounts awarded to the participants, with no payout if the relative TSR of Time Warner is below the 25th percentile of the comparison group and payout at 200% of the target amounts if the relative TSR of Time Warner is at the 100th percentile of the comparison group. The PSUs awarded on March 7, 2008 vest on the third anniversary of the award date based on achievement of the applicable performance measure.

Timing of Grants and Awards. The TW Committee approved the stock option grants and RSU and PSU awards for Mr. Falco on January 30, 2008 and for Mr. Grant on February 20, 2008, and the grants and awards were made on March 7, 2008, which was after (i) Time Warner’s earnings release was issued on February 6, 2008 and (ii) Time Warner’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 was filed on February 22, 2008. The TW Committee approved Mr. Falco’s stock option grants and RSU and PSU awards on the same date it approved grants and awards to other Chief Executive Officers of the Time Warner divisions, and it approved Mr. Grant’s stock option grants and RSU and PSU awards on the same date it approved grants to other senior executives of the Time Warner divisions. Pursuant to the TW Committee’s delegation of authority, on March 5, 2008, the TW Management Option Committee approved the stock option grants and Time Warner’s Chief Executive Officer approved the RSU and PSU awards made to Ms. Kumar, Mr. Parker and Ms. Primrose, and the grants and awards were made on March 7, 2008. This timing is consistent with Time Warner’s historic practice for equity grants and awards made to executive officers of Time Warner in connection with the TW Committee’s annual review of compensation matters. The TW Committee’s practice has been to approve grants and awards to Time Warner’s executive officers and other recipients whose proposed grants and awards are subject to its approval under the grant and award guidelines established by the TW Committee at a meeting early in the year and to establish a subsequent grant or award date at that time that (a) provides sufficient time for Time Warner to prepare communication materials for employees throughout Time Warner who receive equity-based grants or awards at the same time as Time Warner’s executive officers, and

 

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(b) is after the issuance of the earnings release for the prior fiscal year and the filing of Time Warner’s Annual Report on Form 10-K for the prior fiscal year.

2008 Retention Program

Due to the uncertainty of the future of the Company’s business in early 2008 in light of potential transactions involving the Company, the need for continuity of the Company’s business and the Company’s desire to retain certain executive officers and ensure that they remained focused on their job responsibilities, the Company adopted a one-year retention program covering certain Executive Vice Presidents of the Company, including Ms. Kumar, Mr. Parker and Ms. Primrose. Mr. Falco and Mr. Grant did not participate in the 2008 retention program because their employment agreements provided for other retention compensation. Time Warner’s Chief Executive Officer and EVP, Administration approved the retention program, and the Former CEO and the Company’s EVP, HR determined which executive officers, including Ms. Kumar, Mr. Parker and Ms. Primrose, would participate in the retention program. The potential retention payments were equal to Ms. Kumar’s, Mr. Parker’s and Ms. Primrose’s respective 2008 base salaries. The retention payments would be paid if the executive officer was performing at a satisfactory level and was still an active employee on April 30, 2009, or prior to that date, if as a result of a “change of control transaction” (defined to include a change in the ownership of the Company such that its financial statements were no longer consolidated with those of Time Warner), the Named Executive Officer no longer had a position with the Company or his or her job functions and responsibilities were substantially or materially diminished from what they had been immediately prior to the change of control transaction. Since each of these Named Executive Officers was an employee of the Company on April 30, 2009 and performed satisfactorily, the Company paid Ms. Kumar, Mr. Parker and Ms. Primrose their retention payments in the amount of $550,000, $550,000 and $425,000, respectively, on May 15, 2009.

Agreements with Named Executive Officers

Consistent with the Company’s goal of attracting and retaining executive officers in a competitive environment, AOL LLC has entered into employment arrangements with each of the Company’s Named Executive Officers. In late 2007 and early 2008, AOL LLC entered into new employment arrangements with each of the Company’s Named Executive Officers, other than Mr. Grant. Time Warner and AOL LLC entered into the new employment agreement with Mr. Falco to (i) provide that the vesting of future grants of stock options and RSUs would accelerate on termination of Mr. Falco’s employment without cause and (ii) address the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Company entered into the new arrangements with Ms. Kumar, Mr. Parker and Ms. Primrose in order to (i) standardize the terms of their employment, including severance eligibility, (ii) address the requirements of Section 409A of the Code and (iii) in the cases of Ms. Kumar and Mr. Parker, reflect their promotions. Each of the employment letter agreements with the Company’s Named Executive Officers is described below.

Randy Falco (amended and restated agreement with Time Warner and AOL LLC to continue to serve as Chairman and CEO of the Company, effective March 7, 2008). The employment agreement’s term began on March 7, 2008 and, but for Mr. Falco’s separation from service, would have remained in effect through December 31, 2010, and then would have continued on a month-to-month basis until either party provided the other party with 60-days’ written notice of termination. The TW Committee set Mr. Falco’s total target compensation at a level appropriate for his position as Chairman and Chief Executive Officer of the Company, including a minimum base salary of $1.0 million and a discretionary annual cash bonus with a target amount of $3 million and a maximum amount of $4.5 million. Mr. Falco’s agreement provided for annual long-term incentive compensation with a target value of approximately $4.5 million, consisting of a combination of stock options, RSUs or other equity-based awards, cash-based plans, including the Transition Plan, or other components, as determined by the TW Committee. In addition, Mr. Falco’s agreement provided for participation in the Company’s savings and welfare benefit plans and perquisite programs, including $50,000 of group life insurance. Mr. Falco’s agreement also provided for an annual cash payment to him equal to twice the premium he would have to pay under the Group Universal Life insurance program made available by the Company to

 

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obtain life insurance in an amount equal to $4 million, regardless of whether Mr. Falco actually purchased life insurance. During the first year of the agreement, the Company provided Mr. Falco with transition housing in the Dulles, Virginia metropolitan area. The Company also paid Mr. Falco a monthly automobile allowance of $2,000 during the term of his employment agreement. In addition, Mr. Falco’s agreement provided for participation in the Transition Plan as well as the establishment of a deferred compensation arrangement on his behalf and the credit of $7,325,000 to the arrangement on the effective date of his employment agreement (as described under “—Non-Qualified Deferred Compensation for Fiscal Year 2008” below).

Ron Grant (agreement to serve as President and Chief Operating Officer of the Company, effective November 27, 2006, amended February 18, 2009). The employment agreement’s term began on November 27, 2006 and, but for Mr. Grant’s separation from service, would have remained in effect through December 31, 2010, and then would have continued on a month-to-month basis until either party provided the other party with 60-days’ written notice of termination. The TW Committee set Mr. Grant’s total target compensation at a level appropriate for his position as President and Chief Operating Officer of the Company, including a minimum base salary of $750,000 and a discretionary annual cash bonus with a target amount of $1.5 million and a maximum amount of $2.25 million. Mr. Grant’s agreement provided for annual long-term incentive compensation with a target value of approximately $2.75 million, consisting of a combination of stock options, restricted stock or other equity-based awards, cash-based plans, including the Transition Plan, or other components, as determined by the TW Committee. In addition, Mr. Grant’s agreement provided for participation in the Company’s savings and welfare benefit plans and perquisite programs, including $50,000 of group life insurance. Mr. Grant’s agreement also provided for an annual cash payment to him equal to twice the premium he would have to pay under the Group Universal Life insurance program made available by the Company to obtain life insurance in an amount equal to $3.0 million, regardless of whether Mr. Grant actually purchased life insurance. During the first year of the agreement, the Company provided Mr. Grant with transition housing in the Dulles, Virginia metropolitan area. The Company also paid Mr. Grant a monthly automobile allowance of $2,000 during the term of his employment agreement. In addition, Mr. Grant’s agreement provided for participation in the Transition Plan.

Nisha Kumar (letter agreement to continue to serve as Chief Financial Officer, Executive Vice President, effective December 1, 2007). The employment letter agreement’s term began on December 1, 2007 and, but for Ms. Kumar’s separation from service, would have remained in effect through November 30, 2010, and then would have continued on a month-to-month basis until either party provided the other party with 30-days’ written notice of termination. The initial term for Ms. Kumar was set at three years to reflect the Company’s normal practice and the industry practice for technology companies as well as for retention purposes. Ms. Kumar’s total target compensation included a base salary of $550,000, and a discretionary annual bonus with a target amount of 100% of her base salary. The Former CEO consulted with the Company’s EVP, HR to set total target compensation for Ms. Kumar at a level appropriate for her position of Chief Financial Officer and consistent with internal Time Warner benchmarks. The Former CEO approved the $150,000 increase in Ms. Kumar’s target annual cash compensation to $1.1 million. Consistent with the Company’s pay-for-performance compensation philosophy, $75,000 of the increase was attributable to target annual bonus (which was increased to 100% of Ms. Kumar’s base salary from 75%), while the remaining $75,000 was reflected in base salary (which was increased to $550,000 from $475,000). Ms. Kumar’s base salary increase became effective December 1, 2007. Therefore, she received a supplemental base salary payment in February 2008 equal to the difference between her prior rate of base salary and her increased rate of base salary for December 2007.

Ira Parker (agreement to continue to serve as Corporate Secretary and General Counsel and to serve as EVP, Business Development, effective December 1, 2007). The employment letter agreement’s term is from December 1, 2007 to November 30, 2010, and then continues on a month-to-month basis until either party provides the other party with 30-days’ written notice of termination. The initial term for Mr. Parker was set at three years to reflect the Company’s normal practice and the industry practice for technology companies as well as for retention purposes. The Former CEO consulted with the Company’s EVP, HR to set total target compensation for Mr. Parker at a level appropriate for his promotion to include the position of EVP, Business Development and consistent with internal Time Warner benchmarks for general counsels of the Time Warner

 

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divisions. The Former CEO then approved the increase in compensation. Target annual cash compensation for Mr. Parker was increased by $312,500 to $1.1 million. Consistent with the Company’s pay-for-performance compensation philosophy, $212,500 of the increase was attributable to target annual bonus (which was increased to 100% of Mr. Parker’s base salary from 75%), while the remaining $100,000 was reflected in base salary (which was increased to $550,000 from $450,000). Mr. Parker’s base salary increase became effective December 1, 2007. Therefore, he received a supplemental base salary payment in February 2008 equal to the difference between his prior rate of base salary and his increased rate of base salary for December 2007. In addition, Mr. Parker received a payment on April 15, 2008 in the amount of $120,000 for commuting expenses to cover travel between Boston, Virginia and New York during the period of April 1, 2008 through March 31, 2009, in lieu of the Company requiring Mr. Parker to relocate, given the uncertainty of the future location of the Company’s headquarters in anticipation of a potential transaction.

Tricia Primrose (agreement to continue to serve as EVP, Corporate Communications, effective December 1, 2007). The employment letter agreement’s term is the same as the term in Mr. Parker’s employment letter agreement. The Former CEO set total target compensation at a level appropriate for Ms. Primrose’s responsibilities as EVP, Corporate Communications, including base salary of $425,000 and target annual bonus of 75% of her base salary. Target annual cash compensation for Ms. Primrose was increased by $69,986 to $743,750. Consistent with the Company’s pay-for-performance compensation philosophy, $29,994 of the increase was attributable to target annual bonus, while the remaining $39,992 was reflected in base salary. Ms. Primrose’s base salary increase became effective December 1, 2007. Therefore, she received a supplemental base salary payment in February 2008 equal to the difference between her prior rate of base salary and her increased rate of base salary for December 2007.

For a more detailed description of these employment letter agreements, see “—Narrative to Summary Compensation Table and the Grants of Plan-Based Awards Table—Agreements with Named Executive Officers” below.

Termination and Severance Packages

The Company has determined the size and features of the termination and severance packages that executive officers would receive in the event of an involuntary termination of employment without “cause” (generally defined in the employment letter agreements with Ms. Kumar, Mr. Parker and Ms. Primrose as the executive’s (i) conviction of, or no contest or guilty plea to, a felony, (ii) failure to satisfactorily perform his duties and responsibilities for the Company, (iii) fraud, embezzlement, misappropriation or material destruction of Company property, (iv) breach of any duty of loyalty to the Company, (v) violation of any applicable restrictive covenant agreement to which he is subject or the Company’s standards of business conduct, (vi) improper conduct substantially prejudicial to the Company’s business or (vii) failure to cooperate with an investigation involving the Company) primarily in connection with the entry into employment agreements. The severance payment amounts and other post-termination provisions of the employment letter agreements generally reflect the Company’s practice for executive officers at a particular level within the Company, and the Company’s belief that the terms are appropriate under the circumstances based on the significance of the executive officer’s position to the Company, the Company’s ability to attract and retain talent as a result of frequent executive management changes at the Company and the amount of time it would take the executive to locate another position. The Company believes that the provisions in the employment letter agreements with Ms. Kumar, Mr. Parker and Ms. Primrose governing termination and severance arrangements are consistent with the Company’s compensation objectives to attract, motivate and retain highly talented executive officers in a competitive environment. Additionally, the Company believes that the termination and severance arrangements in the employment letter agreements are generally consistent with those arrangements being offered by other companies in the technology industry to similarly situated executives. Upon a termination of employment without cause, subject to the execution of a release of claims, Mr. Parker and Ms. Primrose would receive an amount equal to 18 months of base salary in a lump-sum severance payment, a pro rata annual target bonus for the year of termination in a lump sum and, beginning on the first day of the calendar month following

 

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termination, Company-paid medical, dental and vision benefit coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for 12 months. Ms. Kumar would have received the same amounts under her employment letter agreement. However, in connection with her termination of employment in 2009, the Company entered into a separation agreement with her, which was negotiated and approved by Time Warner’s EVP, Administration and SVP, Global Compensation and Benefits and was also approved by the Current CEO, that contained different severance provisions.

The treatment of the executive officers’ outstanding equity awards upon various employment termination events is generally governed by Time Warner’s equity compensation programs and equity award agreements, which were developed and considered by the TW Committee or the TW Board.

The Company generally has not considered a Named Executive Officer’s rights to receive payments and benefits upon an involuntary termination of employment as a factor in its decisions regarding overall compensation objectives or the elements of compensation for the executive officer, because the Company does not view the post-termination benefits as additional elements of compensation due to the fact that a termination without cause or another triggering event may never occur during the applicable Named Executive Officer’s term of employment.

For a more detailed description of these termination and severance packages, including the terms of the agreements with Mr. Falco, Mr. Grant and Ms. Kumar, see “—Potential Payments Upon a Termination of Employment or Change in Control” below. In addition, for a description of the amounts actually payable pursuant to the termination and severance packages with respect to Mr. Falco, Mr. Grant and Ms. Kumar, see “—Actions Taken in 2009—Separation Agreement with Former Chairman and Chief Executive Officer”, “—Actions Taken in 2009—Separation Agreement with Former President and Chief Operating Officer” and “—Actions Taken in 2009—Separation Agreement and Release of Claims with Former Chief Financial Officer”, respectively, below.

Retirement Programs

The Company participates in a tax-qualified savings plan maintained by Time Warner in which almost all of the U.S. employees of Time Warner and the Time Warner divisions are eligible to participate. In connection with Mr. Grant’s, Ms. Kumar’s and Ms. Primrose’s service at Time Warner, where they worked for several years, they participated in Time Warner’s tax-qualified and non-qualified defined benefit pension plans. Each of Mr. Grant, Ms. Kumar and Ms. Primrose is currently vested in his or her pension benefits based on his or her combined years of service at the Company and Time Warner but stopped accruing any new benefits under the pension plans when he or she became employed by the Company. Mr. Grant and Ms. Kumar are treated as vested terminated employees and, upon the spin-off, Ms. Primrose will also be treated as a vested terminated employee under the pension plans. These programs are discussed in more detail under “—Pension Benefits for Fiscal Year 2008” below.

Health and Welfare Programs

The Company’s Named Executive Officers participate in health and welfare programs that are generally available to all U.S. employees of Time Warner and the Time Warner divisions. These include medical coverage, dental coverage, flexible spending account programs and similar benefit programs. In offering these programs to its employees, Time Warner’s goal is to provide benefit programs that are competitive and that promote the hiring and retention of qualified employees.

Perquisites and Personal Benefits

Except as described below, the Company does not provide perquisites or personal benefits to its Named Executive Officers that are not available to employees of the Company. During 2008, Mr. Falco was eligible to

 

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receive reimbursement for country club dues, and Mr. Falco and Mr. Grant were eligible to receive reimbursement for financial planning services (including tax planning and investment advisory services) and transportation-related benefits (including car allowances and personal use of the corporate aircraft in accordance with Time Warner policies). In addition, in lieu of requiring Mr. Parker to relocate in anticipation of a potential transaction, on April 15, 2008, the Company paid Mr. Parker an amount equal to $120,000 for commuting expenses to cover travel between Boston, Virginia and New York during the period of April 1, 2008 through March 31, 2009. During 2009, Mr. Parker received additional payments totaling $120,000 to cover commuting expenses during the period of April 1, 2009 through March 31, 2010. In addition, the Company has also allowed Mr. Parker certain occasional personal use of a car service, which has been reimbursed by the Company.

Overall 2008 Compensation

Each Named Executive Officer’s salary for 2008 is disclosed under the “Salary” column in the Summary Compensation Table for Fiscal Year 2008. The “Non-Equity Incentive Plan Compensation” column in that table reflects the annual bonus and Transition Plan payments to Mr. Falco and Mr. Grant pursuant to their employment agreements and the absence of any payouts under the 2008 AIP to the other Named Executive Officers due to the Company’s failure to achieve its threshold Adjusted OIBDA performance goal. The grant-date fair value of each Named Executive Officer’s 2008 equity awards is disclosed under the “Grant Date Fair Value of Stock and Option Awards” column of the Grants of Plan-Based Awards During 2008 table.

The TW Committee and the Company believe the 2008 compensation package for each of the Named Executive Officers was appropriate in view of his or her performance and duties. Further, as reflected in the Summary Compensation Table for Fiscal Year 2008 and the Grants of Plan-Based Awards During 2008 table, a substantial portion of each executive officer’s 2008 target compensation was performance-based.

Section 162(m) Considerations

During 2008, none of the compensation paid to the Named Executive Officers was subject to the limitations on the deductibility of compensation in excess of $1 million under Section 162(m) of the Code. This is because the Company’s Named Executive Officers were not executive officers of Time Warner and, accordingly, were not subject to 162(m) of the Code. Once the Company is an independent, publicly-traded company after the spin-off, Section 162(m) of the Code will generally limit the Company’s ability to deduct compensation over $1 million to the Company’s Chief Executive Officer and the Company’s other Named Executive Officers, other than the Chief Financial Officer, unless the compensation qualifies as “performance-based” compensation, as defined in Section 162(m) of the Code.

The compensation arrangements that are currently in effect for Mr. Parker and Ms. Primrose generally do not qualify as performance-based compensation for a number of reasons, including because the grants and awards to these Named Executive Officers were not approved by the TW Committee. In the case of Mr. Armstrong, the Time Warner stock options that have been granted to him should qualify as performance-based compensation, because they were approved by the TW Committee and they should satisfy the other requirements of Section 162(m), but his other compensation (including his base salary, his 2009 bonus and the Time Warner and Company RSUs that he has received or will receive) will not be considered performance-based compensation, because such compensation does not satisfy certain requirements of Section 162(m). In structuring the compensation programs that will apply after the spin-off, the Company and the AOL Committee will consider the requirements and consequences of Section 162(m).

Actions Taken in 2009

Mr. Armstrong was hired and commenced a review of the Company’s strategy, structure and operations at a time when Time Warner was evaluating structural alternatives for the Company, culminating in the ultimate decision to proceed with the separation of the Company from Time Warner, and Mr. Minson was hired in

 

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anticipation of the Company’s separation from Time Warner. In addition, in light of the uncertainty with respect to a potential transaction, the Company implemented a new retention program for certain employees, suspended the Annual Incentive Plan and instituted a transition bonus plan, the Global Bonus Plan. The Company also entered into separation agreements with Mr. Falco, Mr. Grant and Ms. Kumar in connection with the termination of their employment with the Company. In addition, outstanding Time Warner equity awards were adjusted in connection with the separation of Time Warner Cable Inc. from Time Warner on March 12, 2009 (the “Cable Separation”), and the one-for-three reverse stock split of Time Warner’s common stock, effective on March 27, 2009 (the “Reverse Stock Split”). Each of these actions is described below.

Employment Agreement with Current Chairman and Chief Executive Officer

General. On March 12, 2009, AOL LLC and Time Warner entered into an employment agreement with Mr. Armstrong, which became effective on April 7, 2009. The agreement, pursuant to which Mr. Armstrong serves as Chairman and Chief Executive Officer of the Company, has an initial term through April 7, 2012, and then continues on a month-to-month basis until either party provides the other party with 60-days’ written notice of termination. Mr. Armstrong’s employment agreement provides for a minimum annual base salary of $1.0 million, a discretionary annual cash bonus with a target amount of $2.0 million and a maximum amount of $4.0 million (except that his 2009 bonus is guaranteed to be at least $1.5 million) and participation in the Company’s savings and welfare benefit plans and perquisite programs, including $50,000 of group life insurance. Mr. Armstrong’s employment agreement also provides for an annual cash payment to him equal to twice the premium he would have to pay to obtain life insurance under the Group Universal Life insurance program made available by the Company in an amount equal to $4.0 million. Further, the employment agreement provides for fringe benefits and perquisites that are generally available to all of the Chief Executive Officers of the Time Warner divisions. The employment agreement will be assigned by AOL LLC and Time Warner to the Company in connection with the spin-off.

Replacement Restricted Stock Units and Stock Options. In order to compensate Mr. Armstrong for the equity-based awards that he forfeited when he ceased employment with Google Inc., Time Warner agreed to provide Mr. Armstrong with Time Warner equity-based awards with an aggregate grant-date value equal to $10 million in each of 2009 and 2010. Accordingly, on April 15, 2009, Mr. Armstrong was awarded 253,037 Time Warner RSUs (all of which will vest on the first anniversary of the grant date) and granted 590,418 Time Warner stock options (which will vest and become exercisable in four equal quarterly installments, to be fully vested and exercisable on the first anniversary of the award date).

Mr. Armstrong’s employment agreement provides that, on the first date in 2010 that Time Warner makes a regular grant of equity-based awards, Mr. Armstrong will receive an award of 269,058 Time Warner RSUs (which will vest 50% on each of the first and second anniversaries of the award date) and a grant of 627,802 Time Warner stock options (which will vest and become exercisable in eight equal quarterly installments, to be fully vested and exercisable on the second anniversary of the grant date), except that the number of the Time Warner RSUs awarded and stock options granted will be reduced if the aggregate grant-date value of such awards and grants would exceed $10.0 million. Conversely, the agreement provides that if their aggregate grant-date value is less than $10.0 million, Mr. Armstrong will receive a lump-sum cash payment from the Company to make up for the shortfall. Mr. Armstrong’s employment agreement provides that, following the spin-off. Time Warner will have no further obligations under the employment agreement.

Spin-Off. Upon the spin-off, all Time Warner equity-based awards that Mr. Armstrong then holds will be converted, with appropriate adjustments, into equity-based awards of the Company under the same terms and conditions (including vesting) as were applicable to his Time Warner equity-based awards immediately prior to the spin-off. In addition, upon the spin-off, Mr. Armstrong will receive an award under the AOL Inc. Stock Incentive Plan of Company RSUs (which will vest on the first anniversary of the spin-off) with an aggregate award-date value equal to 1% of the increase in the value of the Company during the period beginning on April 7, 2009 (which is the date that Mr. Armstrong began to serve as Chairman and Chief Executive Officer of

 

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the Company) and ending immediately upon the spin-off. However, the agreement provides that, if Mr. Armstrong remains employed by the Company through the spin-off but ceases to be employed immediately following the spin-off, in lieu of such Company RSUs, Mr. Armstrong will be entitled to receive a lump-sum cash payment equal to the award-date value of the Company RSUs that he would otherwise receive. Furthermore, the agreement provides that, at such time, provided that Mr. Armstrong remains employed by the Company immediately following the spin-off, he will be entitled to receive a grant of Company stock options (which will vest and become exercisable one-third on each of the first, second and third anniversaries of the spin-off) under the AOL Inc. Stock Incentive Plan with an exercise price equal to the Company’s per share fair market value (determined as provided in the employment agreement) and an aggregate exercise price equal to 1.5% of the aggregate value of the Company’s common stock outstanding at the time of the spin-off, subject to a maximum aggregate exercise price of $50.0 million. Mr. Armstrong will not receive the Company stock options described immediately above, or any replacement value for such stock options, if Mr. Armstrong is not employed by the Company immediately following the spin-off.

Termination of Employment by the Company for Cause. In the event that Mr. Armstrong’s employment is terminated by the Company for “cause” (generally defined as Mr. Armstrong’s (i) conviction of, or no contest plea to, a felony, (ii) willful failure or refusal to perform his duties for the Company, (iii) misappropriation, embezzlement or reckless or willful destruction of Company property, (iv) breach of any duty of loyalty to the Company, (v) intentional and improper conduct materially prejudicial to the business of the Company or (vi) violation of the restrictive covenants under his employment agreement), he will receive his base salary through the effective date of termination and any bonus for any prior year that has not been paid as of termination and will also retain any rights pursuant to any insurance and other benefit plans of the Company.

Termination of Employment by Mr. Armstrong due to Material Breach by the Company or Time Warner and Termination of Employment by the Company without Cause. In the event that Mr. Armstrong terminates the term of his employment under his employment agreement due to the Company’s or, prior to the spin-off, Time Warner’s material breach of its obligations under his employment agreement (which includes, but is not limited to, (i) the Company’s violation of Mr. Armstrong’s rights under his employment agreement with respect to authority, title, reporting lines, duties or place of employment, (ii) the Company’s failure to cause any successor to expressly assume the obligations of the Company under Mr. Armstrong’s employment agreement, (iii) a failure by Time Warner to publicly announce, prior to September 13, 2010, its intention to spin off the Company and (iv) Time Warner’s retention of the right to appoint a majority of the Company’s board of directors following a spin-off), or if the Company terminates the term of the employment agreement on or after April 7, 2012 or terminates Mr. Armstrong’s employment without cause upon 60 days’ notice, he will receive the payments and retain the rights described under “—Termination of Employment by the Company for Cause” above, and also will receive the following additional payments and benefits:

Pro Rata Average Annual Bonus. Mr. Armstrong will receive a lump-sum cash payment equal to the pro rata portion of the average of his two largest annual bonus amounts received in the three most recent calendar years through the effective date of termination of his employment (the “Armstrong Average Annual Bonus”). However, if Mr. Armstrong’s employment is terminated prior to receiving any annual bonus, then the Armstrong Average Annual Bonus will equal his target annual bonus.

Cash Severance. Mr. Armstrong will receive a lump-sum cash payment equal to the value of the base salary and annual bonus (based on the Armstrong Average Annual Bonus) he would have received if he had continued to serve as an employee of the Company until the later of the expiration of the employment agreement and the second anniversary of the effective date of his termination (the “Armstrong Severance Term Date”).

Group Benefits Continuation. Between the effective date of his termination and the Armstrong Severance Term Date, Mr. Armstrong will continue to be eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), but will not be

 

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eligible to contribute to any retirement plans or receive any additional awards or grants of Time Warner or Company equity-based awards.

Equity Awards. The Time Warner RSUs and stock options described under “—Replacement Restricted Stock Units and Stock Options” above, that Mr. Armstrong then holds, which will be converted into Company RSUs and stock options upon the spin-off, will become immediately vested on the effective date of termination, and such stock options will remain exercisable until the earlier of the date Mr. Armstrong commences employment with another employer, other than with a not-for-profit or governmental entity (the “Armstrong Equity Cessation Date”), and the third anniversary of the date his employment terminates.

The Time Warner RSUs that Mr. Armstrong then holds (other than the Time Warner RSUs described under “—Replacement Restricted Stock Units and Stock Options” above), which will also be converted into Company RSUs upon the spin-off (the “regular RSUs”), will either (i) if Mr. Armstrong is retirement eligible at the time of termination, vest and be settled following termination of employment, or (ii) if he is not yet retirement eligible, be treated at the earlier of the Armstrong Severance Term Date and the Armstrong Equity Cessation Date, in accordance with the terms of the applicable award agreement, but in either case, the Time Warner shares will not be delivered until the next regular vesting date. The Time Warner stock options that Mr. Armstrong then holds (other than the Time Warner stock options described under “—Replacement Restricted Stock Units and Stock Options” above) that would have vested on or before the Armstrong Severance Term Date will vest on the earlier of that date and the Armstrong Equity Cessation Date and will remain exercisable for up to three years, unless Mr. Armstrong is retirement eligible at such date, in which case the terms of the applicable stock option agreement will prevail if they would provide for more favorable treatment.

If the termination of employment occurs after the spin-off, any Company equity-based awards that Mr. Armstrong then holds, other than the Company equity-based awards that resulted from the conversion of Time Warner equity-based awards in connection with the spin-off, as described above, will be treated as determined by the AOL Board, except that any Company RSUs will vest no more than 90 days following the effective date of termination, and any Company stock options will be treated no less favorably than the stock options described in the immediately preceding paragraph would be treated.

Limitations on Payments and Benefits. If Mr. Armstrong accepts full-time employment with any affiliate of the Company following termination of his employment, he will be required to repay the Company a pro rata portion of his cash severance. Mr. Armstrong may elect to reduce the amounts payable to him as a result of termination of employment to the extent such payments would be subject to the excise tax imposed under Section 4999 of the Code and would exceed the “safe harbor” amount under Section 280G of the Code. In addition, certain payments following termination of Mr. Armstrong’s employment may need to be delayed for six months to address the requirements of Section 409A of the Code.

Release of Claims. Receipt of the foregoing payments and benefits is conditioned on Mr. Armstrong’s execution of a release of claims against the Company. If Mr. Armstrong does not execute a release of claims, he will receive a severance payment determined in accordance with the Company’s policies relating to notice and severance, if any such policies exist at the time of termination, and he will receive his base salary through the effective date of his termination and a pro rata portion of the Armstrong Average Annual Bonus.

 

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Disability. If Mr. Armstrong becomes disabled during the term of his employment agreement, he will receive his full base salary for six months and a pro rata bonus for the year in which the disability occurred (which will be calculated based on the Armstrong Average Annual Bonus). Thereafter, he will remain on the Company’s payroll, and the Company will pay him disability benefits equal to the following:

Bonus and Salary Continuation. After the six-month period described immediately above, Mr. Armstrong will have a disability period ending on the later of the expiration of the employment agreement and the date that is 12 months following the end of the six-month period described immediately above and will receive during his disability period an annual amount equal to 75% of his base salary in effect immediately prior to termination of his employment and 75% of the Armstrong Average Annual Bonus. Any such payments will be reduced by amounts received from workers’ compensation, Social Security and disability insurance policies maintained by the Company.

Group Benefits Continuation. During the disability period, Mr. Armstrong will also continue to be eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), but will not be eligible to contribute to any retirement plans or receive any additional grants or awards of Time Warner or Company equity-based awards.

Death. Under Mr. Armstrong’s employment agreement, if he dies during the term of his employment agreement, the employment agreement and all of the Company’s obligations to make any payments under the agreement will terminate, except that his estate or designated beneficiary will receive his base salary until the last day of the month in which his death occurs and a pro rata bonus for the year in which the death occurs (which will be calculated based on the Armstrong Average Annual Bonus).

Restrictive Covenants. Mr. Armstrong’s employment agreement provides that he is subject to restrictive covenants that obligate him not to disclose any of the Company’s confidential matters at any time. During his employment with the Company and during any disability period, Mr. Armstrong is not permitted to compete with the Company by providing services to, serving in any capacity for or owning certain interests in, any person or entity that engages in any line of business that is substantially the same as either (i) any line of business that the Company engages in, conducts or, to his knowledge, has definitive plans to engage in or conduct, and has not ceased to engage in or conduct, or (ii) any operating business that is engaged in or conducted by the Company as to which, to his knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business. However, Mr. Armstrong is permitted to retain investments in certain competing entities that were disclosed by Mr. Armstrong prior to entering into the employment agreement. In addition, for one year following termination of his employment for any reason other than death or disability, Mr. Armstrong is not permitted to compete with the Company by providing services to, serving in any capacity for or owning certain interests in, (x) if termination occurs prior to the spin-off, AT&T Corporation, Bertelsmann A.G., CBS Corporation, Comcast Corporation, The Walt Disney Company, General Electric Corporation, Google Inc., Microsoft Corporation, The News Corporation Ltd., Sony Corporation, Viacom Inc. or Yahoo! Inc., or any of their respective affiliates, Internet-service subsidiaries or certain successors, or (y) if termination occurs following the spin-off, Google Inc., Microsoft Corporation, Yahoo! Inc., or their respective affiliates, Internet-service subsidiaries or certain successors, or any other entity that competes substantially with the Company. Further, for one year following termination of his employment for any reason other than death or disability, Mr. Armstrong is not permitted to employ, or cause any entity affiliated with him to employ, any person who was a Company employee at, or within six months prior to, the effective date of such termination, other than Mr. Armstrong’s secretary or executive assistant and any other employee eligible to receive overtime pay.

Employment Agreement with Current Chief Financial Officer

General. On August 24, 2009, AOL LLC entered into an employment agreement with Mr. Minson, which became effective on September 8, 2009. The agreement, pursuant to which Mr. Minson serves as an Executive Vice President and the Chief Financial Officer of the Company, has an initial term through September 7, 2012,

 

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and then continues on a month-to-month basis until either party provides the other party with 60-days’ written notice of termination. Mr. Minson’s employment agreement provides for a minimum annual base salary of $750,000, a discretionary annual cash bonus with a target amount equal to 200% of base salary and a maximum amount equal to 300% of base salary (except that his 2009 bonus is guaranteed to be not less than $1.0 million) and participation in the Company’s savings and welfare benefit plans. The employment agreement will be assigned by AOL LLC to the Company in connection with the spin-off.

Make-Whole Payment and Restricted Stock Units. In order to compensate Mr. Minson for the benefits and payments that he forfeited when he ceased employment with his former employer, on September 15, 2009, Mr. Minson received a lump-sum cash payment equal to $675,000 (the “Make-Whole Payment”). If, however, Mr. Minson voluntarily terminates his employment with the Company, other than due to the Company’s “material breach” of its obligations under his employment agreement (described under “—Termination of Employment by Mr. Minson due to Material Breach by the Company and Termination of Employment by the Company without Cause” below) on or prior to September 8, 2010, Mr. Minson must repay the Make-Whole Payment to the Company in full. If Mr. Minson voluntarily terminates his employment with the Company, other than due to the Company’s material breach of its obligations under his employment agreement, after September 8, 2010 but on or prior to September 8, 2011, Mr. Minson must repay 50% of the Make-Whole Payment to the Company.

In order to compensate Mr. Minson for the equity-based awards that he forfeited when he ceased employment with his former employer, as long as Mr. Minson remains employed by the Company on the grant date, the Company will make an award of Company RSUs to Mr. Minson under the AOL Inc. Stock Incentive Plan at the time of the spin-off with a grant-date value equal to $1.0 million (which will vest 50% on each of the first and second anniversaries of the grant date) (the “Make-Whole RSUs”). If, after the spin-off, the Company experiences a change in control, as will be defined by the AOL Board, the Make-Whole RSUs will vest in full and be settled upon the earliest of (i) the first anniversary of the change in control, as long as Mr. Minson remains employed by the Company through such date, (ii) the original vesting date of each portion of the Make-Whole RSUs and (iii) termination of Mr. Minson’s employment by the Company without cause or due to the Company’s material breach of its obligations under his employment agreement. Further, if, prior to a spin-off, all or substantially all the Company’s assets or membership interests are sold to an unaffiliated third-party acquiror, Mr. Minson will receive a lump-sum cash payment equal to $1.0 million at the time of such sale in lieu of the award of the Make-Whole RSUs.

Pre-Spin-Off Long-Term Cash Incentive Awards. If the spin-off does not occur by any March 31 during 2010, 2011 and 2012, provided that Mr. Minson remains employed by the Company through such March 31, Mr. Minson will receive a long-term cash incentive grant with a target value of $1.5 million not later than such March 31 (which will vest in full, subject to the achievement of certain performance goals as will be determined by AOL LLC’s Board of Directors, on the second anniversary of the grant date, provided that Mr. Minson remains continuously employed by the Company through the applicable vesting date). The pre-spin-off long-term cash incentive awards will be made in lieu of the long-term equity-based awards with respect to the Company described under “—Long-Term Equity-Based Awards” below.

Sale of the Company Prior to March 31, 2010. If all or substantially all the Company’s assets or membership interests are sold to an unaffiliated third-party acquiror prior to the spin-off and prior to March 31, 2010, Mr. Minson will receive a lump-sum cash payment, at the time of such sale, equal to $1.5 million, as long as Mr. Minson does not become employed by the acquiror. The cash payment will be in lieu of any long-term equity-based awards and any pre-spin-off long-term incentive cash awards Mr. Minson would otherwise have received pursuant to his employment agreement. However, if Mr. Minson accepts employment with the acquiror in connection with a sale described immediately above, Mr. Minson will receive a long-term incentive grant from the acquiror with a target value of $1.5 million, in a manner mutually agreed to by Mr. Minson and the acquiror.

Long-Term Equity-Based Awards. During Mr. Minson’s term of employment, he will receive annual grants of long-term equity-based awards with respect to the Company under the AOL Inc. Stock Incentive Plan with a

 

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grant-date value equal to $1.5 million annually, in a manner determined by the AOL Board (which will vest as determined by the AOL Board consistent with the vesting schedule generally applicable to the annual long-term equity-based awards granted to other senior executives of the Company). However, the value of the first annual long-term equity-based award will be comprised of 60% Company stock options and 40% Company RSUs. Mr. Minson will not receive the long-term equity-based awards described immediately above if Mr. Minson is not employed by the Company through the applicable grant dates. The value of any annual long-term equity-based awards and any pre-spin-off long-term cash incentive awards (based on target value), described under “—Pre-Spin-Off Long-Term Cash Incentive Awards” above, that Mr. Minson’s employment agreement provides that he is entitled to receive prior to September 7, 2012 will equal no less than $4.5 million in the aggregate, provided that the AOL Board is permitted to make one or more combined equity-based grants to Mr. Minson in an earlier year that is intended to cover the annual grants for the current year and one or more later years. In the event that the AOL Board decides to combine some or all of Mr. Minson’s annual long-term equity-based awards, Mr. Minson will not receive another annual award for the year or years covered by the combined grant.

Termination of Employment by the Company for Cause. In the event that Mr. Minson’s employment is terminated by the Company for “cause” (generally defined as Mr. Minson’s (i) conviction of, or no contest plea to, a felony, (ii) willful failure or refusal to perform his duties for the Company, (iii) misappropriation, embezzlement or reckless or willful destruction of Company property, (iv) breach of any duty of loyalty to the Company, (v) intentional and improper conduct materially prejudicial to the business of the Company or (vi) violation of the restrictive covenants under his employment agreement), he will receive his base salary through the effective date of termination and any bonus for any prior year that has not been paid as of termination and will also retain any rights pursuant to any insurance and other benefit plans of the Company.

Termination of Employment by Mr. Minson due to Material Breach by the Company and Termination of Employment by the Company without Cause. In the event that Mr. Minson terminates the term of his employment under his employment agreement due to the Company’s material breach of its obligations under his employment agreement (which means (i) the Company’s violation of Mr. Minson’s rights under his employment agreement with respect to authority, reporting lines, duties or place of employment, (ii) the Company’s violation of Mr. Minson’s rights under his employment agreement with respect to compensation payable to him, (iii) upon the spin-off, the failure of the Company to expressly assume the obligations of AOL LLC under Mr. Minson’s employment agreement or (iv) prior to a spin-off, the sale of all or substantially all the Company’s assets or membership interests to an entity that is not an affiliate of Time Warner), or if the Company terminates the term of the employment agreement on or after September 7, 2012 or terminates Mr. Minson’s employment without cause upon 60 days’ notice, he will receive the payments and retain the rights described under “—Termination of Employment by the Company for Cause” above, and also will receive the following additional payments and benefits:

Pro Rata Target Annual Bonus. Mr. Minson will receive a lump-sum cash payment equal to the pro rata portion of his target annual bonus in effect immediately prior to termination of his employment (which will not be less than 200% of his base salary in effect immediately prior to such termination) through the effective date of termination of his employment.

Cash Severance. Mr. Minson will receive a lump-sum cash payment equal to two times the sum of his base salary in effect immediately prior to termination of his employment and target annual bonus in effect immediately prior to termination of his employment (which will not be less than 200% of his base salary in effect immediately prior to such termination). Further, in the event that Mr. Minson terminates his employment due to the Company’s material breach of its obligations under the employment agreement or if the Company terminates Mr. Minson’s employment without cause, in each case prior to the spin-off, Mr. Minson will receive a lump-sum cash payment equal to $1.0 million, which is in lieu of the award of the Make-Whole RSUs described under “—Make-Whole Payment and Restricted Stock Units” above.

Group Benefits Continuation. Between the effective date of his termination and the second anniversary of the effective date of his termination (the “Minson Severance Term Date”), Mr. Minson will continue to

 

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be eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), but will not be eligible to contribute to any retirement plans or receive any additional grants or awards of Company equity-based awards.

Equity Awards. The Company stock options described under “—Long-Term Equity-Based Awards” above, that Mr. Minson then holds, will continue to vest through the Minson Severance Term Date, and such stock options will remain exercisable for the period set forth in the relevant stock option award agreement. The Company RSUs described under “—Long-Term Equity-Based Awards” above, that Mr. Minson then holds, and any Make-Whole RSUs described under “—Make-Whole Payment and Restricted Stock Units” above, that Mr. Minson then holds, which would have vested on or before the Minson Severance Term Date, will become immediately vested on the effective date of termination, and such RSUs will be settled in shares of the Company’s common stock.

Pre-Spin-Off Long-Term Cash Incentive Awards. Mr. Minson will receive a lump-sum cash payment equal to the target value of any pre-spin-off long-term cash incentive awards described under “—Pre-Spin-Off Long-Term Cash Incentive Awards” above, that Mr. Minson holds as of the effective date of such termination.

Limitations on Payments and Benefits. If Mr. Minson accepts full-time employment with any affiliate of the Company prior to the Minson Severance Term Date, he will be required to repay the Company a pro rata portion of the cash severance payment comprised of two times the sum of his base salary and target annual bonus. The amounts payable to Mr. Minson as a result of a termination of employment are subject to reduction to the extent such payments are subject to the excise tax imposed under Section 4999 of the Code, except that those amounts payable will not be reduced if the Company determines that without the reduction, Mr. Minson would receive and retain a greater net after tax portion of those payments. In addition, certain payments following termination of Mr. Minson’s employment may need to be delayed for six months to address the requirements of Section 409A of the Code.

Release of Claims. Receipt of the foregoing payments and benefits is conditioned on Mr. Minson’s execution of a release of claims against the Company. If Mr. Minson does not execute a release of claims, he will receive a severance payment determined in accordance with the Company’s policies relating to notice and severance, if any such policies exist at the time of termination, and he will receive his base salary through the effective date of his termination and a pro rata portion of his target annual bonus.

Disability. If Mr. Minson becomes disabled during the term of his employment agreement, he will receive his full base salary for six months and a pro rata bonus for the year in which the disability occurred (which will be calculated based on Mr. Minson’s target annual bonus). Thereafter, he will remain on the Company’s payroll, and the Company will pay him disability benefits equal to the following:

Bonus and Salary Continuation. After the six-month period described immediately above, Mr. Minson will have a disability period ending on the later of the expiration of the employment agreement and the date that is 12 months following the end of the six-month period described immediately above and will receive during his disability period an annual amount equal to 75% of his base salary in effect immediately prior to termination of his employment and 75% of his target annual bonus in effect immediately prior to termination of his employment. Any such payments will be reduced by amounts received from workers’ compensation, Social Security and disability insurance policies maintained by the Company.

Group Benefits Continuation. During the disability period, Mr. Minson will also continue to be eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), but will not be eligible to contribute to any retirement plans or receive any additional grants or awards of Company equity-based awards.

 

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Further, upon Mr. Minson’s termination of employment due to disability, he also will receive a lump-sum cash payment equal to the target value of any pre-spin-off long-term cash incentive awards described under “—Pre-Spin-Off Long-Term Cash Incentive Awards” above that Mr. Minson holds as of the effective date of such termination.

Death. Under Mr. Minson’s employment agreement, if he dies during the term of his employment agreement, the employment agreement and all of the Company’s obligations to make any payments under the agreement will terminate, except that his estate or designated beneficiary will receive his base salary until the last day of the month in which his death occurs, a pro rata bonus for the year in which the death occurs (which will be calculated based on Mr. Minson’s target annual bonus) and a lump-sum cash payment equal to the target value of any pre-spin-off long-term cash incentive awards described under “—Pre-Spin-Off Long-Term Cash Incentive Awards” above that Mr. Minson holds as of the date of his death.

Restrictive Covenants. Mr. Minson’s employment agreement provides that he is subject to restrictive covenants that obligate him not to disclose any of the Company’s confidential matters at any time. During his employment with the Company and during any disability period, Mr. Minson is not permitted to compete with the Company by providing services to, serving in any capacity for or owning certain interests in, any person or entity that engages in any line of business that is substantially the same as either (i) any line of business that the Company engages in, conducts or, to his knowledge, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company as to which, to his knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business. In addition, for one year following termination of his employment for any reason other than death or disability, Mr. Minson is not permitted to compete with the Company by providing services to, serving in any capacity for or owning certain interests in, Google Inc., IAC/InterActiveCorp., Microsoft Corporation or Yahoo! Inc., or any of their respective subsidiaries or affiliates, or any successor thereto, or any other pure play Internet company that, during the one-year period preceding the effective date of such termination, derived a majority of its revenues from online advertising. Further, for one year following termination of his employment for any reason other than death or disability, Mr. Minson is not permitted to employ, or cause any entity affiliated with him to employ, any person who was a Company employee at, or within six months prior to, the effective date of such termination, other than Mr. Minson’s secretary or executive assistant and any other employee eligible to receive overtime pay.

Separation Agreement with Former Chairman and Chief Executive Officer

General. In connection with the termination of Mr. Falco’s employment effective as of March 13, 2009, Time Warner and AOL LLC entered into a separation agreement and release of claims with Mr. Falco dated May 13, 2009, which was negotiated and approved within the guidelines established by the TW Committee by Time Warner’s Chief Executive Officer, EVP, Administration and SVP, Global Compensation and Benefits and was also approved by the TW Committee. The separation agreement modifies the severance provisions set forth in Mr. Falco’s employment agreement.

Transition Services. Mr. Falco’s separation agreement states that, from March 13, 2009 through June 1, 2009, he would provide transition services to the Company, including cooperating with the Company in providing for an orderly transition and giving assistance as reasonably requested by the Company or Time Warner.

Cash Severance. The separation agreement provides that Mr. Falco will receive his base salary of $1 million per year on the Company’s normal payroll payment dates through December 31, 2010. In addition, the agreement provides that Mr. Falco will receive annual bonus payments with respect to each of 2009 and 2010 equal to the average of his two largest annual bonus amounts received in the five most recent calendar years (the “Falco Average Annual Bonus”). Mr. Falco’s separation agreement stipulates that the Falco Average Annual Bonus equals $3.25 million. The agreement provides that such annual bonus payments will be made on the Company’s normal bonus payment dates in 2010 and 2011.

 

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Group Benefits Continuation. Mr. Falco is eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), through December 31, 2010, to the extent such plans are maintained by the Company for its executives. As of March 13, 2009, Mr. Falco was not eligible to contribute to, or accrue additional benefits under, any retirement plans of the Company or Time Warner.

Deferred Compensation. Amounts credited to Mr. Falco’s deferred compensation arrangement are payable to him in 10 annual installment payments beginning on April 1, 2010.

Equity Awards. The separation agreement provides that Mr. Falco will not receive any Time Warner equity award grants after March 13, 2009. The Time Warner stock options granted to Mr. Falco on March 2, 2007 will continue to vest through the earlier of December 31, 2010 and the date Mr. Falco commences employment with another employer, other than with a not-for-profit or governmental entity (the “Falco Equity Cessation Date”), and any such stock options that are unvested as of the earlier of such dates will be forfeited as of such date. The Time Warner stock options granted to Mr. Falco on March 7, 2008 fully vested on March 13, 2009. All options that are vested as of the earlier of December 31, 2010 and the Falco Equity Cessation Date will remain exercisable for a period of up to three years following the earlier of such dates.

The Time Warner RSUs that were awarded to Mr. Falco on November 27, 2006, March 7, 2008 and February 20, 2009 fully vested on March 13, 2009, but were not to be released before six months following such vesting date. A pro rata portion (based on the period of time from the award date until the earlier of December 31, 2010 and the Falco Equity Cessation Date) of all other RSU awards will vest on the earlier of December 31, 2010 and the Falco Equity Cessation Date in accordance with the terms of the applicable award agreements, but the Time Warner shares underlying any vested RSUs will not be delivered to Mr. Falco until promptly following the next regular vesting date for such RSUs.

With regard to the PSUs Mr. Falco held on March 13, 2009, following the end of the applicable three-year performance periods, the performance achieved by Time Warner will be determined and the number of shares of Time Warner stock to be delivered to Mr. Falco will be determined in accordance with the terms of the applicable award agreement. However, a pro rata number (based on the period of time from the award date until the earlier of December 31, 2010 and the Falco Equity Cessation Date) of Time Warner shares will be delivered if December 31, 2010 or the Falco Equity Cessation Date occurs prior to the end of the performance period for an award of PSUs.

Limitations on Payments and Benefits. The amounts payable to Mr. Falco as a result of termination of employment are subject to reduction to the extent such payments are subject to the excise tax imposed under Section 4999 of the Code. In addition, certain payments following termination of Mr. Falco’s employment are subject to a six-month delay to address the requirements of Section 409A of the Code.

Release of Claims. Receipt of the foregoing payments and benefits was conditioned on Mr. Falco’s execution of a release of claims against the Company.

Restrictive Covenants. Mr. Falco is subject to restrictive covenants that obligate him not to disclose any of the Company’s confidential matters at any time. Through March 13, 2010, Mr. Falco is not permitted to compete with the Company by providing services to, acting in any capacity for or owning certain interests in, (x) eBay, Inc., MySpace, Interactive Corp., EarthLink, Inc., Google Inc., Microsoft Corporation or Yahoo! Inc. or any of their respective subsidiaries or any successors to the applicable internet service provider, or (y) any internet access, service or portal company or any other company that directly competes with the Company. Further, for one year following termination of his employment, Mr. Falco is not permitted to employ, or cause any entity affiliated with him to employ, any person who was a Company employee at, or within six months prior to, March 13, 2009, other than Mr. Falco’s secretary or executive assistant and any other employee eligible to receive overtime pay.

 

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Separation Agreement with Former President and Chief Operating Officer

General. In connection with the termination of Mr. Grant’s employment effective as of March 13, 2009, AOL LLC entered into a separation agreement and release of claims with Mr. Grant dated May 26, 2009, which was negotiated and approved by Time Warner’s Chief Executive Officer, EVP, Administration and SVP, Global Compensation and Benefits and was also approved by the TW Committee. The separation agreement modifies the severance provisions set forth in Mr. Grant’s employment agreement.

Transition Services. Mr. Grant’s separation agreement states that, from March 13, 2009 through June 1, 2009, he would provide transition services to the Company, including cooperating with the Company in providing for an orderly transition and giving assistance as reasonably requested by the Company or Time Warner. Mr. Grant was paid $200,000 on July 6, 2009 for his transition services.

Cash Severance. Similar to Mr. Falco’s separation agreement, Mr. Grant’s separation agreement provides that Mr. Grant will receive his base salary of $750,000 per year on the Company’s normal payroll payment dates through December 31, 2010. In addition, the agreement provides that Mr. Grant will receive annual bonus payments with respect to each of 2009 and 2010 equal to the average of his two largest annual bonus amounts received in the five most recent calendar years (the “Grant Average Annual Bonus”). Mr. Grant’s separation agreement stipulates that the Grant Average Annual Bonus equals $1,662,500. The agreement provides that such annual bonus payments will be made on the Company’s normal bonus payment dates in 2010 and 2011.

Group Benefits Continuation. Mr. Grant is eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), through December 31, 2010, to the extent such plans are maintained by the Company for its executives. As of March 13, 2009, Mr. Grant was not eligible to contribute to, or accrue additional benefits under, any retirement plans of the Company or Time Warner.

Deferred Compensation. Amounts credited to Mr. Grant’s deferred compensation arrangement are payable to him in 10 annual installment payments beginning on April 1, 2010.

Outplacement. The separation agreement provides that Mr. Grant will receive reimbursement for up to $50,000 in career counseling and outplacement services, which must be used by March 15, 2010.

Equity Awards. The separation agreement provides that Mr. Grant will not receive any Time Warner equity award grants after March 13, 2009. All Time Warner stock options Mr. Grant held on March 13, 2009 will continue to vest through the earlier of December 31, 2010 and the date Mr. Grant commences employment with another employer, other than with a not-for-profit or governmental entity (the “Grant Equity Cessation Date”), and any such stock options that are unvested as of the earlier of such dates will be forfeited as of such date. All Time Warner stock options that were granted to Mr. Grant after November 27, 2006 and prior to February 18, 2009 that would have vested on or before December 31, 2010 will vest on the earlier of December 31, 2010 and the Grant Equity Cessation Date. Mr. Grant’s Time Warner stock options granted prior to November 27, 2006 will remain exercisable for one year following the earlier of December 31, 2010 and the Grant Equity Cessation Date, and Mr. Grant’s Time Warner stock options granted after November 27, 2006 will remain exercisable for three years following the earlier of such dates, in each case to the extent vested as of such earlier date. In addition, all Time Warner stock options that were granted to Mr. Grant on or after February 18, 2009 will fully vest on the earlier of December 31, 2010 and the Grant Equity Cessation Date and will remain exercisable for a period of up to three years following such date.

The Time Warner RSUs that were awarded to Mr. Grant on February 20, 2009 fully vested on March 13, 2009, but were not to be released before six months following such vesting date. A pro rata portion (based on the period of time from the award date until the earlier of December 31, 2010 and the Grant Equity Cessation Date) of all other RSU awards will vest on the earlier of December 31, 2010 and the Grant Equity Cessation Date in accordance with the terms of the applicable award agreements, but the Time Warner shares underlying any vested RSUs will not be delivered to Mr. Grant until promptly following the next regular vesting date for such RSUs.

 

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Limitations on Payments and Benefits. The amounts payable to Mr. Grant as a result of termination of employment are subject to reduction to the extent such payments are subject to the excise tax imposed under Section 4999 of the Code. In addition, certain payments following termination of Mr. Grant’s employment are subject to a six-month delay to address the requirements of Section 409A of the Code.

Release of Claims. Receipt of the foregoing payments and benefits was conditioned on Mr. Grant’s execution of a release of claims against the Company.

Restrictive Covenants. Until the latest of (i) the six-month anniversary of the date of the spin-off, (ii) December 31, 2010 or (iii) the Grant Equity Cessation Date, Mr. Grant is not permitted to compete with the Company by providing services to, acting in any capacity for, or acquiring certain interests in, any of MySpace, Interactive Corp., EarthLink, Inc., Facebook, Google Inc., Microsoft Corporation, or Yahoo! Inc., or any of their respective subsidiaries or any successors to the applicable internet service provider.

Separation Agreement and Release of Claims with Former Chief Financial Officer

General. In connection with the termination of Ms. Kumar’s employment, AOL LLC entered into a separation agreement and release of claims with Ms. Kumar, effective July 1, 2009, which was negotiated and approved by Time Warner’s EVP, Administration and SVP, Global Compensation and Benefits and was also approved by the Current CEO. The separation agreement contained different provisions than those set forth in Ms. Kumar’s employment letter agreement.

Pro Rata 2009 Bonus. The separation agreement provided that Ms. Kumar would receive a cash payment equal to $275,000. This payment, which was made on July 15, 2009, represents the pro rata portion of her annual bonus target ($550,000) through the effective date of her termination of employment.

Cash Severance. The separation agreement provided that Ms. Kumar would receive a lump-sum cash payment equal to $2.2 million, payable in a lump sum within 60 days following the effective date of her termination of employment. This amount was paid to Ms. Kumar on July 15, 2009.

2009 Cash Retention Program. The separation agreement provided that Ms. Kumar would receive a cash payment equal to $220,000. This payment, which was made on July 15, 2009, represents the entire amount for which Ms. Kumar was eligible under the 2009 cash retention program.

Group Benefits Continuation. The separation agreement provided that, if Ms. Kumar elected to enroll in COBRA benefits continuation, the Company would pay for the full cost of continued medical, dental and vision benefit coverage under COBRA for Ms. Kumar and her qualified beneficiaries for 18 months beginning the first day of the calendar month following the termination of her employment.

Equity Awards. Ms. Kumar’s rights under any stock option, RSU and PSU awards will be determined in accordance with the terms and provisions of the relevant equity plans and award agreements. The agreements that govern stock options generally do not provide for any vesting following termination of employment without cause, the agreements that govern RSUs generally provide for the vesting of a pro rata amount (based on the period of time from the award date until the date of termination) of RSUs that were scheduled to vest at the next vesting date, and the agreements that govern PSUs generally provide for payment of a pro rata portion (based on the period of time from the award date until the date of termination) of the number of shares underlying the PSUs that would have vested based on the actual performance level achieved for the full performance period. In addition, to resolve a discrepancy in Ms. Kumar’s May 2007 grant of PSU awards, the Company agreed to provide her with a pro-rata cash payment (based on the period of time from the award date until her termination on July 1, 2009) in March 2010 with respect to a target number of 167 PSUs based on the actual performance achieved for the 2007-2009 performance period and the closing price of Time Warner common stock on March 2, 2010, the vesting date of the PSUs.

 

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Release of Claims. Receipt of the foregoing payments and benefits was conditioned on Ms. Kumar’s execution of a general release of claims.

Restrictive Covenants. Ms. Kumar’s separation agreement provides that, during the six-month period following her termination of employment, she is not permitted to compete with the Company by participating in the ownership of certain interests in, or the control or management of, or be employed by, Yahoo!, Inc., Google Inc., Microsoft Corporation, IAC/InterActive Corp., News Corp., Viacom Inc. or Disney, or their respective affiliates, subsidiaries or successors.

2009 Cash Retention Program

In connection with the decision by Time Warner not to grant equity-based awards to the Company’s employees (other than Mr. Falco and Mr. Grant) in 2009 and due to the uncertainty of the Company’s continued status as a subsidiary of Time Warner, the Company instituted a transitional cash retention program for the benefit of certain Company employees at the director level and above. The purpose of the cash retention program was to provide additional incentive compensation in order to retain the services of these employees during a transition period for the Company, determined by the allocated budget relating to this program.

If, prior to the end of the bonus period, the Company terminates the executive officer’s employment without “cause” (generally defined in the same manner as under the employment letter agreements with Ms. Kumar, Mr. Parker and Ms. Primrose, which is summarized under “—Termination and Severance Packages” above), the executive officer will receive any unpaid bonus under the program in exchange for execution of a separation agreement with the Company that contains, among other obligations, a release of claims against the Company. If, prior to the end of the bonus period and as a result of a “change of control transaction” (defined to include a change in the ownership of the Company such that its financial statements are no longer consolidated with those of Time Warner), the executive officer no longer has a position with the Company, other than due to a termination for cause, then the Company will treat such termination as a termination without cause for purposes of the program.

Ms. Kumar, Mr. Parker and Ms. Primrose were eligible to participate in the 2009 retention program, which is in effect from April 1, 2009 through March 31, 2010. Mr. Parker is eligible for a one-time payment equal to $220,000 and Ms. Primrose is eligible for a one-time payment equal to $190,000, provided that each individual remains a full-time active employee of the Company and maintains a satisfactory performance level during the bonus period. Ms. Kumar received a payment with respect to the cash retention program in connection with her termination of employment, as described under “—Separation Agreement and Release of Claims with Former Chief Financial Officer” above.

Global Bonus Plan

For 2009, in light of the uncertainty with respect to a potential transaction, the Company suspended the Annual Incentive Plan and instituted a transitional bonus plan, the 2009 Global Bonus Plan (the “GBP”). The GBP is a cash-based incentive plan in which the Company’s full-time employees (other than the Company’s Chief Executive Officer) may participate. However, employees eligible to participate in any other Company incentive plan, such as a sales or commission plan, are not eligible to participate in the GBP. The annual target incentive under the GBP is reflected as a percentage of base salary. The target incentive percentage under the GBP, as determined by the Former CEO and the Company’s EVP, HR, was set at approximately 75% of a participant’s target bonus under the 2008 AIP. Accordingly, the target incentive percentage is 75% of base salary for Mr. Parker and 56% of base salary for Ms. Primrose.

The target incentive under the GBP is paid out over two separate bonus periods. The first bonus period, which accounts for 50% of the total target award, ran from January 1, 2009 through June 30, 2009, with a payout on July 15, 2009. The first bonus was paid to employees who performed at a satisfactory level and were still active employees on July 15, 2009. Mr. Parker received $206,250 and Ms. Primrose received $119,000 for the first bonus period under the GBP.

 

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The second bonus period, which accounts for the remaining 50% of the total target award, runs from July 1, 2009 through December 31, 2009, with a payout made by March 15, 2010. Payout for the second bonus period is determined by the Company’s financial and operating performance with a distribution based on individual performance. Within the financial measures, which were chosen to closely align the GBP with the 2008 AIP, the Former CEO, the Former CFO and the Company’s EVP, HR assigned a weighting of 70% to the Company’s Adjusted OIBDA and a weighting of 30% to the Company’s Free Cash Flow, which corresponded to the weighting of these financial measures under the 2008 AIP.

Final funding of the GBP’s second bonus period is at the discretion of the Company’s Chief Executive Officer, with approval from Time Warner (if funding is determined prior to the spin-off), and will be based on achievement of the 2009 Adjusted OIBDA and Free Cash Flow goals. The Company’s Chief Executive Officer has final discretion, with approval from Time Warner (if funding is determined prior to the spin-off), to determine any payout under the GBP for actual performance below threshold or above maximum. The Company’s Chief Executive Officer may also elect not to make any payout if he determines either that business results do not warrant a payout or that the Adjusted OIBDA or Free Cash Flow achievement threshold is not met.

Participants (including the Named Executive Officers) must be actively employed by the Company or another Time Warner division at the time of payout to be eligible to receive a payout. In the event of a participant’s death, the participant’s beneficiaries will receive a pro rata payout based on the number of days the participant spent in a GBP eligible position during the applicable bonus period.

Adjustments to Time Warner Equity Awards in Connection with the Cable Separation and Reverse Stock Split

In connection with the Cable Separation and as provided for in Time Warner’s equity plans, outstanding equity-based awards granted to directors and employees of Time Warner and the Time Warner divisions, including the Named Executive Officers, were adjusted to reflect the impact of the distribution of the shares of Time Warner Cable Inc. previously held by Time Warner as a pro rata dividend to its shareholders. Specifically, the number of stock options, shares of restricted stock, RSUs and target PSUs outstanding at the time of the Cable Separation and the exercise prices of such stock options were adjusted to maintain the fair value of those awards. In addition, the outstanding Time Warner equity awards were also adjusted to reflect the Reverse Stock Split. Except as otherwise specifically noted, throughout this Information Statement, amounts with respect to outstanding Time Warner equity awards and shares of Time Warner common stock are presented on a post-Cable Separation and post-Reverse Stock Split basis.

2010 AOL Inc. Stock Incentive Plan

In connection with the spin-off, the Company will adopt the 2010 AOL Inc. Stock Incentive Plan, an equity incentive plan that will provide for awards with respect to the Company’s common stock.

AOL Inc. Annual Incentive Plan for Executive Officers

In connection with the spin-off, the Company will adopt the AOL Inc. Annual Incentive Plan for Executive Officers, which will provide for the payment of annual bonuses to certain executive officers of the Company that qualify as performance-based compensation under Section 162(m) of the Code.

 

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SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2008

The following table presents information concerning total compensation paid to each of the Named Executive Officers for the fiscal year ended December 31, 2008. For additional information regarding salary, incentive compensation and other components of the Named Executive Officers’ total compensation, see “—Compensation Discussion and Analysis.”

 

Name and Principal
Position

  Year   Salary
(1)
  Bonus   Stock
Awards
(2)
  Option
Awards
(3)
  Non-Equity
Incentive

Plan
Compensation
(4)
  Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings

(5)
  All Other
Compensation
(6)
  Total

Randy Falco

Chairman and Chief Executive Officer

  2008   $ 1,000,000     $ 1,728,539   $ 364,736   $ 2,377,822       $ 216,505   $ 5,687,602

Nisha Kumar

Executive Vice President and Chief Financial Officer

  2008   $ 556,250     $ 320,962   $ 184,492       $ 1,660   $ 10,549   $ 1,073,913

Ron Grant

President and Chief Operating Officer

  2008   $ 750,000     $ 621,356   $ 268,850   $ 1,220,866   $ 2,030   $ 199,645   $ 3,062,747

Ira Parker

Executive Vice President, Business Development, Corporate Secretary and General Counsel

  2008   $ 558,333     $ 250,016   $ 149,955           $ 129,957   $ 1,088,261

Tricia Primrose

Executive Vice President, Communications

  2008   $ 428,333     $ 182,466   $ 109,368       $ 2,620   $ 6,900   $ 729,687

 

(1) The amounts set forth in the Salary column for Ms. Kumar, Mr. Parker and Ms. Primrose include base salary payments of $6,250, $8,333 and $3,333, respectively, made to Ms. Kumar, Mr. Parker and Ms. Primrose in early 2008 to reflect the increase in compensation for Ms. Kumar, Mr. Parker’s promotion to include EVP, Business Development and the increase in his compensation, and the increase in compensation for Ms. Primrose, each effective December 1, 2007.

 

(2) The amounts set forth in the Stock Awards column do not reflect compensation actually received by the Named Executive Officers. Instead, the amounts represent the value of RSU and PSU awards recognized by Time Warner for financial statement reporting purposes for the applicable year, as computed in accordance with FAS 123R, disregarding estimates of forfeitures related to service-based vesting conditions. The 2008 compensation costs reflect stock awards granted during and prior to 2008. The fair value of the RSU awards represents the average of the high and low sale prices of the Time Warner common stock on the New York Stock Exchange on the date of grant. The amounts for the PSUs were determined using a Monte Carlo analysis to estimate the total shareholder return ranking of Time Warner among the S&P 500 Index companies on the award date over the performance period. The amounts set forth in the Stock Awards column reflect the Company’s accounting expense for these awards, and do not represent the actual value that may be realized by the Named Executive Officers. Differences in the amounts recognized among the Named Executive Officers are due to differences in the number of outstanding awards granted to each of the Named Executive Officers, including awards granted prior to 2008.

 

(3)

The amounts set forth in the Option Awards column do not reflect compensation actually received by the Named Executive Officers. Instead, the amounts represent the value of stock option grants recognized by Time Warner for financial statement reporting purposes for 2008, as computed in accordance with FAS

 

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123R, disregarding estimates of forfeitures related to service-based vesting conditions. The 2008 compensation costs reflect options granted during and prior to 2008. Differences in the amounts recognized among the Named Executive Officers are due to differences in the number of outstanding awards granted to each of the Named Executive Officers, including awards granted prior to 2008.

The assumptions presented in the table below reflect the weighted-average value of the applicable assumption on a combined basis for retirement-eligible and non-retirement eligible employees and non-employee directors used to value stock options at their grant date.

 

     Fiscal Year
Ended
December 31,
2008
  Fiscal Year
Ended
December 31,
2007
  Fiscal Year
Ended
December 31,
2006
  Fiscal Year
Ended
December 31,
2005
  Fiscal Year
Ended
December 31,
2004

Expected volatility

   28.5%   22.1%   22.2%   24.4%   34.8%

Expected term to exercise from grant date

   5.73 years   5.16 years   4.87 years   4.80 years   3.50 years

Risk-free rate

   3.1%   4.4%   4.6%   3.9%   3.1%

Expected dividend yield

   1.7%   1.1%   1.1%   0.04%   0%

The actual value, if any, that may be realized by a Named Executive Officer from any option will depend on the extent to which the market value of the Time Warner common stock exceeds the exercise price of the option on the date the option is exercised. Accordingly, there is no assurance that the value realized by a Named Executive Officer will be at or near the value estimated above. These amounts should not be used to predict stock performance. None of the stock options was awarded with tandem stock appreciation rights.

 

(4) The amount set forth in the Non-Equity Incentive Plan column for Mr. Falco includes $2,250,000 as the annual bonus he received pursuant to his employment agreement and $127,822 as his annualized payment pursuant to the Transition Plan. The amount set forth in the Non-Equity Incentive Plan column for Mr. Grant includes $1,125,000 as the annual bonus he received pursuant to his employment agreement and $95,866 as his annualized payment pursuant to the Transition Plan. Ms. Kumar, Mr. Parker and Ms. Primrose did not receive bonuses with respect to their participation in the 2008 AIP.

 

(5) The amount set forth in the Change in Pension Value and Non-qualified Deferred Compensation Earnings column represents the aggregate annual change in the actuarial present value of Ms. Kumar’s, Mr. Grant’s and Ms. Primrose’s accumulated pension benefits under the Time Warner Pension Plan and the Time Warner Excess Benefit Pension Plan.

 

(6) The amounts shown in the All Other Compensation column for 2008 include the following:

 

  (a) Pursuant to the Time Warner Savings Plan (a defined contribution plan available generally to U.S. employees of Time Warner) for the 2008 plan year, each of the Named Executive Officers deferred a portion of his or her annual compensation. The Company contributed $6,900 to each Named Executive Officer’s account for 2008 as a matching contribution on the amount deferred by each executive officer.

 

  (b) The amount set forth in this column with respect to Mr. Falco includes $24,000 as a car allowance, $44,158 for his personal use of an aircraft owned (based on fuel, landing, repositioning and catering costs and crew travel expenses) or leased (based on hourly fees) by Time Warner, $4,420 for reimbursement for financial services (which services include tax planning and preparation), $13,344 for reimbursement for premiums under the Company’s Group Universal Life insurance program, $12,571 for reimbursement for club memberships, $7,415 for his personal use of a car service, $69,708 for transition housing and $33,989 for a tax gross-up on his transition housing benefit.

 

  (c) The amount set forth in this column with respect to Ms. Kumar includes $3,585 for her personal use of a car service and $64 for dining service benefits.

 

  (d) The amount set forth in this column with respect to Mr. Grant includes $2,592 for reimbursement for premiums under the Company’s Group Universal Life insurance program, $128 for reimbursement for club memberships, $51,987 for his personal use of a car service, $91,732 for transition housing and $46,306 for a tax gross-up on his transition housing benefit.

 

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  (e) The amount set forth in this column with respect to Mr. Parker includes a payment of $120,000 to cover commuting expenses while traveling between Boston, Virginia and New York during the period of April 1, 2008 through March 31, 2009 and reimbursements of $3,057 for his personal use of a car service.

GRANTS OF PLAN-BASED AWARDS DURING 2008

The following table presents information with respect to each award of plan-based compensation to each Named Executive Officer in 2008. All share amounts and exercise prices have been adjusted to reflect the Reverse Stock Split and the impact of the Cable Separation.

 

            Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards (1)
  Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)
  All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(3)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options
  Exercise
or Base
Price of
Option
Awards
(4)
  Grant
Date Fair
Value of
Stock
and
Option
Awards

(5)

Name

  Grant
Date
  Approval
Date
  Threshold   Target   Maximum   Threshold   Target   Maximum        

Mr. Falco

  N/A   N/A   —     $ 3,000,000   $ 4,500,000              
  3/7/2008   1/30/2008         10,807   21,614   43,228         $ 1,584,790
  3/7/2008   1/30/2008               21,614       $ 719,132
  3/7/2008   1/30/2008                 89,507   $ 33.27   $ 805,017

Ms. Kumar

  N/A   N/A   —     $ 550,000   $ 825,000              
  3/7/2008   3/5/2008         3,967   7,934   15,868         $ 581,740
  3/7/2008   3/5/2008               8,509       $ 283,108
  3/7/2008   3/5/2008                 34,019   $ 33.27   $ 305,963

Mr. Grant

  N/A   N/A   —     $ 1,500,000   $ 2,250,000              
  3/7/2008   2/20/2008         5,351   10,701   21,402         $ 784,623
  3/7/2008   2/20/2008               11,077       $ 368,550
  3/7/2008   2/20/2008                 44,260   $ 33.27   $ 398,070

Mr. Parker

  N/A   N/A   —     $ 550,000   $ 825,000              
  3/7/2008   3/5/2008         3,131   6,262   12,524         $ 459,144
  3/7/2008   3/5/2008               6,717       $ 223,485
  3/7/2008   3/5/2008                 24,664   $ 33.27   $ 221,826

Ms. Primrose

  N/A   N/A   —     $ 318,750   $ 478,125              
  3/7/2008   3/5/2008         2,243   4,485   8,970         $ 328,850
  3/7/2008   3/5/2008               4,810       $ 160,036
  3/7/2008   3/5/2008                 19,231   $ 33.27   $ 172,962

 

(1) The amounts shown in the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards column for Mr. Falco and Mr. Grant reflect the bonus awards under their employment agreements. The target payout amounts and maximum payout amounts for Mr. Falco and Mr. Grant reflect the target amounts and maximum payout amounts set forth in their employment agreements. There are no threshold payout amounts specified under the annual bonus provisions of Mr. Falco’s and Mr. Grant’s employment agreements. See “—Compensation Discussion and Analysis—Annual Incentive Compensation” above. The bonus payments Mr. Falco and Mr. Grant received in 2008 are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

The amounts shown in the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards column for Ms. Kumar, Mr. Parker and Ms. Primrose reflect amounts under the 2008 AIP. The target payout amount for each of Ms. Kumar, Mr. Parker and Ms. Primrose reflects the target amount set forth in his or her employment letter agreement and pursuant to the terms of the 2008 AIP. There are no threshold payout amounts specified under the 2008 AIP. The maximum payout under the 2008 AIP is 150% of the bonus target. See “—Compensation Discussion and Analysis—Annual Incentive Compensation” above. As disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, Ms. Kumar, Mr. Parker and Ms. Primrose did not receive any non-equity incentive plan payments in 2008.

 

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(2) Reflects the number of shares of Time Warner common stock that may be earned upon vesting of PSUs awarded in 2008, assuming the achievement of threshold, target and maximum performance levels at the end of the applicable performance period.

 

(3) Reflects awards of Time Warner RSUs.

 

(4) The exercise price for the grants of Time Warner stock options under the Time Warner Inc. 1999 Stock Plan was determined based on the average of the high and low sale prices of the Time Warner common stock on the New York Stock Exchange on the date of grant, as adjusted to reflect the Reverse Stock Split and the impact of the Cable Separation.

 

(5) The grant date fair value of each PSU award was determined assuming the achievement of the maximum level of performance.

Narrative to the Summary Compensation Table and the Grants of Plan-Based Awards Table

In 2008, the grants of options to purchase Time Warner common stock were made under the Time Warner Inc. 1999 Stock Plan, the awards of RSUs were made under the Time Warner Inc. 2003 Stock Incentive Plan and the awards of PSUs were made under the Time Warner Inc. 2006 Stock Incentive Plan. See “—Potential Payments Upon Termination of Employment or Change in Control” for a description of the treatment of the equity awards granted to the Named Executive Officers in connection with a termination of their employment, a change in control of Time Warner or a change in control or spin-off of the Company.

 

   

The stock options granted in 2008 become exercisable, or vest, in installments of 25% per year over a four-year period, assuming continued employment, and expire 10 years from the grant date. The stock options are subject to accelerated vesting upon the occurrence of certain events such as retirement, death or disability. The exercise price of the stock options cannot be less than the fair market value of the Time Warner common stock on the date of grant. In addition, holders of the stock options do not receive dividends or dividend equivalents or have any voting rights with respect to the shares of Time Warner common stock underlying the stock options.

 

   

The awards of RSUs awarded in 2008 vest in equal installments on each of the third and fourth anniversaries of the award date, assuming continued employment and subject to accelerated vesting upon the occurrence of certain events such as retirement, death or disability. Holders of the RSUs are eligible to receive dividend equivalents on unvested RSUs, if and when regular cash dividends are paid on outstanding shares of Time Warner common stock and at the same rate. The awards of RSUs confer no voting rights on holders and are subject to restrictions on transfer and forfeiture prior to vesting.

 

   

The awards of PSUs awarded in 2008 vest on the third anniversary of the award date, assuming continued employment and the achievement of specified performance criteria. The PSUs have a performance measure of TSR of the Time Warner common stock relative to the TSR for the common stock of the companies in the S&P 500 Index over a three-year period beginning on January 1, 2008. The PSUs awarded in 2008 will be paid out in shares of Time Warner common stock in amounts ranging from 0% to 200% of the target amounts awarded to the holders, based on the performance achieved, with no payout if the relative TSR is below the 25th percentile of the comparison group and payout at 200% of the target amount if the relative TSR is at the 100th percentile of the comparison group. Other than with respect to special dividends or distributions, holders of the PSUs do not receive any dividend equivalent payments to reflect any regular cash dividends on the Time Warner common stock. The PSUs confer no voting rights on holders.

See “—Compensation Discussion and Analysis—Annual Incentive Compensation” above for a description of the material terms of the non-equity incentive plan awards under Mr. Falco’s and Mr. Grant’s employment agreements and under the 2008 AIP.

Agreements with Named Executive Officers

On November 22, 2006, Time Warner and AOL LLC entered into an employment agreement with Mr. Falco, pursuant to which he served as the Company’s Chairman and Chief Executive Officer. Mr. Falco’s employment agreement was amended and restated on March 7, 2008. On November 27, 2006, AOL LLC entered into an employment agreement with Mr. Grant, pursuant to which he served as the Company’s President and

 

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Chief Operating Officer. But for Mr. Falco’s and Mr. Grant’s separation from service, their employment agreements would have remained in effect through December 31, 2010, and then would have continued on a month-to-month basis until either party provided the other party with 60-days’ written notice of termination.

The employment agreements with Mr. Falco and Mr. Grant provided for a minimum annual salary of $1.0 million and $750,000, respectively, and eligibility for an annual bonus with a target amount equal to $3.0 million for Mr. Falco and $1.5 million for Mr. Grant. Both employment agreements provided for eligibility to receive grants of Time Warner stock options (subject to approval of the TW Board and provided that the relevant executive officer remained employed by the Company on the date of grant), and participation in any group life insurance, medical, dental, disability or other benefit plan or program of the Company.

Mr. Falco’s and Mr. Grant’s employment agreements provided for annual long term incentive compensation with a target value of approximately $4.5 million and $2.75 million, respectively, consisting of a combination of stock options, RSUs or other equity-based awards, cash-based plans, including the Transition Plan, or other components, as determined by the TW Committee. In addition, the employment agreements with Mr. Falco and Mr. Grant provided for participation in the Company’s savings and welfare benefit plans and perquisite programs, including $50,000 of group life insurance, and an annual cash payment equal to twice the premium the executive officer would have had to pay under the Group Universal Life insurance program made available by the Company to obtain life insurance in an amount equal to $4.0 million for Mr. Falco and $3.0 million for Mr. Grant, regardless of whether the executive officer actually purchased life insurance. During the first year of the employment agreements with Mr. Falco and Mr. Grant, the Company provided both of the executive officers with transition housing in the Dulles, Virginia metropolitan area. The Company also paid Mr. Falco and Mr. Grant monthly automobile allowances of $2,000 during the terms of their respective employment agreements.

Following termination of Mr. Falco’s or Mr. Grant’s employment without “cause” (as summarized under “—Potential Payments Upon Termination of Employment or Change in Control—Termination without Cause—Employment Agreements with Mr. Falco and Mr. Grant” below) or the executive officer’s resignation due to the Company’s “material breach” of the employment agreement (as summarized under “—Potential Payments Upon Termination of Employment or Change in Control—Termination for Material Breach or Good Reason” below), subject to the executive officer executing a release of claims, he would have received a lump-sum cash payment equal to a pro rata portion of the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable. In addition, the executive officer would have received his base salary on the Company’s normal payroll dates through the Falco Severance Term Date or the Grant Severance Term Date (as defined under “—Potential Payments Upon Termination of Employment or Change in Control—Termination without Cause—Employment Agreements with Mr. Falco and Mr. Grant” below), as applicable, and a lump-sum payment in each calendar year during such period equal to the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable. Mr. Falco and Mr. Grant would have been eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), through the Falco Severance Term Date or the Grant Severance Term Date, as applicable, to the extent such plans were maintained by the Company for its executives. Finally, the vesting of certain equity awards held by Mr. Falco and Mr. Grant would have accelerated at the time of termination (as summarized under “—Potential Payments Upon Termination of Employment or Change in Control—Termination without Cause—Employment Agreements with Mr. Falco and Mr. Grant—Equity Awards” below).

On January 9, 2008, AOL LLC entered into an employment letter agreement with Ms. Kumar, pursuant to which Ms. Kumar served as the Company’s Chief Financial Officer. Ms. Kumar’s employment letter agreement was effective as of December 1, 2007 and superseded any prior agreements or offer letters with Time Warner. The employment letter agreement with Ms. Kumar had an initial term through November 30, 2010, and then would have continued on a month-to-month basis following the end of the initial term until either party provided the other party with 30-days’ written notice of termination.

The employment letter agreement with Ms. Kumar provided for a minimum base salary of $550,000, and participation in a Company discretionary annual bonus plan with a target amount of 100% of her base salary.

 

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Ms. Kumar’s employment letter agreement provided for eligibility to receive grants of Time Warner stock options and awards of RSUs (subject to approval of the TW Board and provided that Ms. Kumar remained employed by the Company on the date of grant or award and her performance remained satisfactory), and participation in any group life insurance, medical, dental, disability or other benefit plan or program of the Company.

Ms. Kumar’s employment letter agreement provided that, following termination of Ms. Kumar’s employment without “cause” (as defined under her employment letter agreement, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above) or her resignation for “good reason” (as summarized under “—Potential Payments Upon Termination of Employment or Change in Control—Termination for Material Breach or Good Reason” below), she would have received a lump-sum payment equal to 18 months of her current base salary and a pro rata amount of her bonus for the year of termination, payable at the target level. In addition, the Company would have paid the cost of medical, dental and vision benefit coverage under COBRA for 12 months. These payments and benefits would have been subject to Ms. Kumar’s execution of a release of claims against the Company.

On January 7, 2008 and December 7, 2007, AOL LLC entered into an employment letter agreement with each of Mr. Parker and Ms. Primrose, respectively. The employment letter agreement with Mr. Parker, pursuant to which he serves as EVP, Business Development, Corporate Secretary and General Counsel of the Company, became effective as of December 1, 2007 and superseded his offer letter dated September 25, 2006. The employment letter agreement with Ms. Primrose, pursuant to which she serves as EVP, Corporate Communications of the Company, became effective as of December 1, 2007 and superseded her offer letter dated February 4, 2005. The employment letter agreements with Mr. Parker and Ms. Primrose each have an initial term through November 30, 2010. Both of the employment letter agreements continue on a month-to-month basis following the end of the relevant initial term until either party provides the other party with 30-days’ written notice of termination.

The employment letter agreements with Mr. Parker and Ms. Primrose provide for a minimum annual salary of $550,000 and $425,000, respectively, and participation in a Company discretionary annual cash bonus plan with a target amount equal to 100% of base salary for Mr. Parker and 75% of base salary for Ms. Primrose. Both of the employment letter agreements provide for eligibility to receive grants of Time Warner stock options and awards of RSUs (subject to approval of the TW Board and provided that the relevant executive officer remains employed by the Company on the date of grant or award and his or her performance remains satisfactory), and participation in any group life insurance, medical, dental, disability or other benefit plan or program of the Company.

The employment letter agreement with Mr. Parker provides for a payment in the amount of $120,000, which was paid on April 15, 2008, to cover commuting expenses while traveling between Boston, Virginia and New York during the period of April 1, 2008 through March 31, 2009 in lieu of requiring Mr. Parker to relocate in anticipation of a potential transaction. During 2009, Mr. Parker received two $60,000 payments to cover commuting expenses during the period of April 1, 2009 through March 31, 2010. If Mr. Parker voluntarily resigns on or prior to April 1, 2010, he will be required to repay the Company a pro rata amount of the second $60,000 payment, at the rate of $10,000 for each month that remains from his termination date until April 1, 2010.

Following termination of Mr. Parker’s or Ms. Primrose’s employment without “cause” (as defined under their employment letter agreements, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above), the executive officer will receive a lump-sum payment equal to 18 months of his or her current base salary and a pro rata amount of his or her bonus for the year of termination, payable at the target level. In addition, the Company will pay the cost of medical, dental and vision benefit coverage under COBRA for 12 months. These payments and benefits are subject to the relevant executive officer’s execution of a release of claims against the Company.

 

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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008

All shares reflected below are shares of Time Warner common stock, and all share amounts and exercise prices below have been adjusted to reflect the Reverse Stock Split and the impact of the Cable Separation. The market or payout value of shares, units or other rights was calculated using the New York Stock Exchange Composite Tape closing price of $10.06 per share of Time Warner common stock on December 31, 2008, which does not reflect an adjustment for the Reverse Stock Split or the impact of the Cable Separation.

 

    Option Awards(1)   Stock Awards

Name

  Date of
Grant
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
  Option
Exercise
Price
  Option
Expiration
Date
  Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(2)
  Market
Value

of Shares
or Units
of Stock
That

Have Not
Vested
  Equity
Incentive
Plan
Awards:
Number
of Unearned
Shares,
Units

or Other
Rights That
Have Not
Vested

(3)
  Equity
Incentive
Plan
Awards:
Market

or Payout
Value

of Unearned
Shares,
Units

or Other
Rights That
Have Not
Vested

Randy Falco

            121,412   $ 2,723,272   37,802   $847,899
  3/2/2007   17,702   53,106   $ 44.53   3/1/2017        
  3/7/2008     89,507   $ 33.27   3/6/2018        

Nisha Kumar

            20,814   $ 466,858   11,211   $251,463
  9/24/2001   8,969     $ 71.81   9/24/2011        
  2/15/2002   1,794     $ 59.43   2/14/2012        
  2/14/2003   4,933     $ 23.01   2/13/2013        
  2/13/2004   4,933     $ 38.53   2/12/2014        
  2/18/2005   3,534   1,175   $ 40.07   2/17/2015        
  3/3/2006   5,830   5,830   $ 38.80   3/2/2016        
  3/2/2007   1,911   5,731   $ 44.53   3/1/2017        
  5/1/2007   5,377   16,130   $ 45.98   4/30/2017        
  3/7/2008     34,019   $ 33.27   3/6/2018        

Ron Grant

            42,217   $ 946,927   18,805   $421,796
  8/19/1999   22,422     $ 106.91   8/19/2009        
  9/1/2000   78,476     $ 127.96   9/1/2010        
  1/18/2001   100,897     $ 109.18   1/18/2011        
  2/15/2002   44,844     $ 59.43   2/14/2012        
  2/14/2003   33,633     $ 23.01   2/13/2013        
  2/13/2004   17,938     $ 38.53   2/12/2014        
  2/18/2005   16,482   5,492   $ 40.07   2/17/2005        
  3/3/2006   13,118   13,116   $ 38.80   3/2/2016        
  3/2/2007   8,851   26,552   $ 44.53   3/1/2017        
  3/7/2008     44,260   $ 33.27   3/6/2018        

Ira Parker

            14,935   $ 334,992   9,744   $218,558
  10/16/2006   11,212   11,210   $ 42.75   10/15/2016        
  3/2/2007   3,804   11,412   $ 44.53   3/1/2017        
  3/7/2008     24,664   $ 33.27   3/6/2018        

Tricia Primrose

            9,613   $ 215,620   7,967   $178,700
  11/1/1999   44,844     $ 149.21   11/1/2009        
  9/1/2000   22,422     $ 127.96   9/1/2010        
  1/18/2001   22,422     $ 109.18   1/18/2011        
  6/1/2001   822     $ 117.72   6/1/2011        
  2/15/2002   17,938     $ 59.43   2/14/2012        
  2/14/2003   11,660     $ 23.01   2/13/2013        
  2/13/2004   10,763     $ 38.53   2/12/2014        
  2/18/2005   6,123   2,039   $ 40.07   2/17/2015        
  3/3/2006   4,486   4,483   $ 38.80   3/2/2016        
  3/2/2007   3,804   11,412   $ 44.53   3/1/2017        
  3/7/2008     19,231   $ 33.27   3/6/2018        

 

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(1) The dates of grant of each Named Executive Officer’s Time Warner stock options outstanding as of December 31, 2008 are set forth in the table, and the vesting dates for each award can be determined based on the vesting schedules described in this footnote. The grants of stock options become exercisable in installments of 25% on each of the first four anniversaries of the grant date, assuming continued employment and subject to accelerated vesting upon the occurrence of certain events.

 

(2) This column presents the number of shares of Time Warner common stock represented by unvested RSU awards at December 31, 2008. The awards of RSUs vest equally on each of the third and fourth anniversaries of the award date. The vesting schedules for the awards of RSUs assume continued employment and are subject to acceleration upon the occurrence of certain events. The vesting dates for these unvested RSU awards are as follows:

 

Name

   Number of Shares
or Units of Stock
That Have Not
Vested
   Date of Award    Vesting Dates

Randy Falco

   82,399    11/27/2006    11/27/2009 and 11/27/2010
   17,399    3/2/2007    3/2/2010 and 3/2/2011
   21,614    3/7/2008    3/7/2011 and 3/7/2012

Nisha Kumar

   617    2/18/2005    2/18/2009
   2,720    3/3/2006    3/3/2009 and 3/3/2010
   3,751    3/2/2007    3/2/2010 and 3/2/2011
   5,217    5/1/2007    5/1/2010 and 5/1/2011
   8,509    3/7/2008    3/7/2011 and 3/7/2012

Ron Grant

   2,877    2/18/2005    2/18/2009
   19,573    3/3/2006    3/3/2009 and 3/3/2010
   8,690    3/2/2007    3/2/2010 and 3/2/2011
   11,077    3/7/2008    3/7/2011 and 3/7/2012

Ira Parker

   4,484    11/1/2006    11/1/2009 and 11/1/2010
   3,734    3/2/2007    3/2/2010 and 3/2/2011
   6,717    3/7/2008    3/7/2011 and 3/7/2012

Tricia Primrose

   1,069    2/18/2005    2/18/2009
   3,734    3/2/2007    3/2/2010 and 3/2/2011
   4,810    3/7/2008    3/7/2011 and 3/7/2012

 

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(3) This column presents the number of shares of Time Warner common stock that would be issued upon the vesting of PSUs if the performance period had ended on December 31, 2008 and the target performance level had been achieved. Time Warner’s actual performance as of December 31, 2008 was above threshold but below the target performance level. The vesting dates for these unvested PSU awards are as follows:

 

Name

   Number of
Performance
Stock Units
That Have Not
Vested
   Date of Award    Performance Period    Vesting Dates

Randy Falco

   16,188    3/2/2007    1/1/2007 to 12/31/2009    3/2/2010
   21,614    3/7/2008    1/1/2008 to 12/31/2010    3/7/2011

Nisha Kumar

   3,277    5/1/2007    1/1/2007 to 12/31/2009    3/2/2010
   7,934    3/7/2008    1/1/2008 to 12/31/2010    3/7/2011

Ron Grant

   8,104    3/2/2007    1/1/2007 to 12/31/2009    3/2/2010
   10,701    3/7/2008    1/1/2008 to 12/31/2010    3/7/2011

Ira Parker

   3,482    3/2/2007    1/1/2007 to 12/31/2009    3/2/2010
   6,262    3/7/2008    1/1/2008 to 12/31/2010    3/7/2011

Tricia Primrose

   3,482    3/2/2007    1/1/2007 to 12/31/2009    3/2/2010
   4,485    3/7/2008    1/1/2008 to 12/31/2010    3/7/2011

OPTION EXERCISES AND STOCK VESTED DURING 2008

The following table sets forth as to each of the Named Executive Officers information regarding exercises of stock options and the vesting of RSU awards during 2008, including: (i) the number of shares of Time Warner common stock underlying stock options exercised in 2008, (ii) the aggregate dollar value realized upon exercise of such options, (iii) the number of shares of Time Warner common stock received from the vesting of awards of RSUs during 2008 and (iv) the aggregate dollar value realized upon such vesting on February 18, 2008, which is the vesting date of the RSU awards reflected in the table. No PSUs held by the Named Executive Officers vested during 2008.

Each number of shares acquired on vesting reflected in the following table has been adjusted to reflect the Reverse Stock Split.

 

     Option Awards    Stock Awards

Name

   Number of
Shares
Acquired on
Exercise
   Value
Realized
on
Exercise(1)
   Number of
Shares
Acquired on
Vesting(2)
   Value
Realized on
Vesting(3)

Randy Falco

               

Nisha Kumar

           458    $ 22,825

Ron Grant

   25,695    $ 265,121    2,138    $ 106,506

Ira Parker

               

Tricia Primrose

           794    $ 39,558
(1) The value realized upon exercise was calculated based on the difference between the exercise price of the stock options and the sale price of the underlying shares of Time Warner common stock that were sold. The sale price of the shares of Time Warner common stock received upon exercise of Mr. Grant’s stock options on August 22, 2008 was $35.41 per share.

 

(2)

The RSU awards that vested on February 18, 2008 reflect the vesting of the first 50% installment of the RSUs awarded on February 18, 2005 to Ms. Kumar, Mr. Grant and Ms. Primrose. The RSUs vest equally on

 

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each of the third and fourth anniversaries of the award date, subject to acceleration upon the occurrence of certain events, such as death or disability. The payment of tax withholdings due upon vesting of the RSUs generally may be made in cash or by having full shares of Time Warner common stock withheld from the number of shares delivered to the individual. As a result of shares being withheld for the payment of taxes, the actual number of shares delivered to Ms. Kumar was 282 shares, the actual number of shares delivered to Mr. Grant was 1,135 shares and the actual number of shares delivered to Ms. Primrose was 489 shares. Each of the Named Executive Officers is eligible to receive dividend equivalents on unvested RSUs, if and when regular cash dividends are paid on outstanding shares of Time Warner common stock and at the same rate. The awards of RSUs confer no voting rights on holders and are subject to restrictions on transfer and forfeiture prior to vesting.

 

(3) With respect to RSU awards, the value realized on vesting was calculated using $16.60 per share with respect to the February 18, 2008 vesting date, which is based on an average of: (i) the average of the high and low sale prices of Time Warner common stock on the New York Stock Exchange on February 15, 2008 (the trading day immediately preceding the vesting date) ($16.51); and (ii) the average of the high and low sale prices of Time Warner common stock on the New York Stock Exchange on February 19, 2008 (the trading day immediately following the vesting date) ($16.68). These per share values do not reflect an adjustment for the Reverse Stock Split.

PENSION BENEFITS FOR FISCAL YEAR 2008

Eligibility Requirements and Benefits Under the Pension Plans

The Time Warner Employees’ Pension Plan, as amended (the “Old Pension Plan”), which provides benefits to eligible employees of Time Warner and certain of its subsidiaries, was amended effective as of January 1, 2000, as described below, and was assumed by Time Warner in connection with the January 2001 merger of America Online, Inc. (now known as AOL LLC) and the former Time Warner Inc. (now known as Historic TW Inc.) and has since been renamed the Time Warner Pension Plan (the “2000 Amended Pension Plan”). The 2000 Amended Pension Plan was further amended, effective July 1, 2008 (the “2008 Amended Pension Plan” and, together with the Old Pension Plan and the 2000 Amended Pension Plan, the “Pension Plans”). Company employees do not participate in the Time Warner Pension Plans.

Ms. Kumar, Mr. Grant and Ms. Primrose are the only Named Executive Officers who participate in the Pension Plans. Ms. Kumar, Mr. Grant and Ms. Primrose participated in the 2000 Amended Pension Plan while employed at Time Warner. Other than vesting credits, the executive officers did not accrue any new benefits under the 2000 Amended Pension Plan after they became employed by the Company. Ms. Kumar, Mr. Grant and Ms. Primrose are currently vested in their pension benefits based on their service at the Company and Time Warner. Ms. Kumar and Mr. Grant are treated as vested terminated employees and, upon the spin-off of the Company, Ms. Primrose will also be treated as a vested terminated employee under the Pension Plans.

 

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The table below summarizes the formula for benefits payable following normal retirement and early retirement under the 2000 Amended Pension Plan:

 

    

2000 Amended Pension Plan

Normal Retirement Age    Amounts accrued payable generally at age 65 with five years of service.
Vesting    Eligible employees of Time Warner and its subsidiaries become vested in all benefits under the Pension Plans on the earlier of five years of service or certain other events.

Formula for Benefits Payable

at Normal Retirement Age

   Benefits earned by a participant before July 1, 2008 are calculated based on a formula that expresses the participant’s benefits as a lifetime monthly annuity. The monthly annuity would be equal to the sum of: (i) 1.25% of the participant’s “average annual compensation” up to his or her applicable average Social Security wage base and (ii) 1.67% of the participant’s “average annual compensation” above such average Social Security wage base, multiplied by his or her years of benefit service up to 30 years, and divided by 12.
Calculation of “Average Annual Compensation”    Defined as the highest average annual compensation for any five consecutive full calendar years of employment, which includes regular salary, overtime and shift differential payments and non-deferred bonuses paid according to a regular program.
Early Retirement    Employees of Time Warner who are at least age 62 with at least 10 years of service may elect early retirement and receive the full amount of their annual pension (calculated as described above).

Eligibility Requirements and Benefits Under the Excess Benefit Plan

Federal law limits both the amount of compensation that is eligible for the calculation of benefits and the amount of benefits derived from employer contributions that may be paid to participants under the Pension Plans. However, as permitted by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), Time Warner has adopted the Time Warner Excess Benefit Pension Plan (the “Excess Benefit Plan”). The Excess Benefit Plan provides for payments by Time Warner of certain amounts that eligible employees of Time Warner would have received under the Pension Plans if eligible compensation (including deferred bonuses) were limited to $250,000 in 1994 increased 5% per year thereafter, to a maximum of $350,000 and there were no payment restrictions. Ms. Kumar, Mr. Grant and Ms. Primrose participate in both the 2000 Amended Pension Plan and the Excess Benefit Plan. The formula used to calculate the participant’s benefit under the 2000 Amended Pension Plan will also apply to the Excess Benefit Plan.

Form of Benefit Payment

Distribution of Ms. Kumar’s, Mr. Grant’s and Ms. Primrose’s pension benefits is governed by the terms of the 2000 Amended Pension Plan. The benefits under the Pension Plans are payable as (i) a single life annuity, (ii) a 50%, 75% or 100% joint and survivor annuity, (iii) a life annuity that is guaranteed for 10 years or (iv) a lump sum, provided that spousal consent is required with respect to the election of payment forms under (i), (iii) and (iv). The participant may elect the form of benefit payment at the time of retirement. In the case of a single life annuity, the amount of the annuity is based on the formulas described above for the Pension Plans. In the case of a joint and survivor annuity, the amount of the annuity is based on the single life annuity amount but is reduced to take into account (i) the ages of the participant and the beneficiary at the time the annuity payments begin and (ii) the percentage of the monthly benefit that the beneficiary would receive as elected by the participant. In the case of a life annuity that is guaranteed for 10 years, the amount of the annuity is based on the single life annuity amount but is reduced to take into account the 10-year guaranteed period.

 

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The benefits under the Excess Benefit Plan are payable only as a lump sum, unless the participant has elected to receive monthly installments over 10 years by the applicable deadline. Effective May 1, 2008, any distribution from the Excess Benefit Plan will be paid generally the first of the month following six calendar months after the participant separates from service, subject to the requirements of Section 409A of the Code.

Pension Benefits Table

Set forth in the table below is Ms. Kumar’s, Mr. Grant’s and Ms. Primrose’s years of credited service and the present value of the accumulated benefits of each such officer under the 2000 Amended Pension Plan and the Excess Pension Plan, in each case, computed as of December 31, 2008, which is the same pension plan measurement date used for financial statement reporting purposes with respect to Time Warner’s audited financial statements for the year ended December 31, 2008.

 

Name

  

Plan Name

   Number of
Years of
Credited
Service(1)
   Present
Value of
Accumulated
Benefit
   Payments
During 2008

Ms. Kumar

   Time Warner Pension Plan    4.4167    $ 32,720   
   Time Warner Excess Benefit Pension Plan    4.4167    $ 24,560   

Mr. Grant

   Time Warner Pension Plan    3.9167    $35,790   
   Time Warner Excess Benefit Pension Plan    3.9167    $27,120   

Ms. Primrose

   Time Warner Pension Plan    4.1667    $43,380   
   Time Warner Excess Benefit Pension Plan    4.1667    $34,180   

 

(1) Consists of the number of years of service for benefit accrual purposes credited to Ms. Kumar, Mr. Grant and Ms. Primrose as of December 31, 2008 for the purpose of determining benefit service under the applicable pension plan.

Present Value Calculation

The present values of accumulated benefits reflected in the table above were calculated based on the terms of the Pension Plans and Excess Benefit Plan in effect on December 31, 2008. The present values also reflect the assumptions that (i) the benefits under the Pension Plans and Excess Benefit Plan will be payable at the earliest retirement age at which unreduced benefits are payable (which, for Ms. Kumar, Mr. Grant and Ms. Primrose, is at age 65), (ii) the benefits are payable as a lump sum, (iii) the maximum annual covered compensation is $350,000 and (iv) no joint and survivor annuity will be payable (which would, on an actuarial basis, reduce benefits to Ms. Kumar, Mr. Grant and Ms. Primrose but provide benefits to a surviving beneficiary). Amounts calculated under the pension formula that exceed ERISA limits, which will be paid under the Excess Benefit Plan, are included in the present values shown in the table above. The present values of accumulated benefits under the Pension Plans and the Excess Benefit Plan were calculated using a 6.09% discount rate, a 6.09% lump-sum rate and the RP-2000 Mortality Table. The foregoing assumptions are consistent with the assumptions used for calculating Time Warner’s benefit obligations for financial reporting purposes as of December 31, 2008. The lump-sum rate is updated annually in accordance with the provisions under the Pension Plans and the Excess Benefit Plan.

 

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NON-QUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2008

Set forth in the table below is information about: (i) the contributions and earnings, if any, credited to the accounts maintained by certain Named Executive Officers under non-qualified deferred compensation arrangements, (ii) any withdrawals or distributions from the accounts during 2008 and (iii) the account balances on December 31, 2008.

 

Name

 

Deferred Compensation

Arrangement

  Executive
Contributions
in 2008(1)
  Registrant
Contributions
in 2008
  Aggregate
Earnings
(Loss)
in 2008(1)
  Aggregate
Withdrawals/
Distributions(2)
    Aggregate
Balance at
December 31,
2008

Mr. Falco

  Deferral Arrangement under Mr. Falco’s Employment Agreement(3)       $ (1,912,308)          $ 5,796,731

Ms. Kumar

 

Time Warner Inc. Deferred

Compensation Plan

      $ (11,388)          $ 17,022

Ms. Primrose

 

Time Warner Inc.

Deferred

Compensation Plan

      $ 1,384   $ (110,877    

 

(1) None of the amounts reported in these columns is required to be reported as compensation in the Summary Compensation Table for Fiscal Year 2008 because Time Warner does not pay above-market interest rates on deferred compensation. No Named Executive Officer elected to defer any portion of his or her 2008 compensation.

 

(2) Reflects an in-service distribution pursuant to a deferral election Ms. Primrose made on June 30, 2003.

 

(3) Mr. Falco’s employment agreement provides for the establishment of a deferred compensation arrangement on his behalf and the credit of $7,325,000 to the arrangement on the effective date of his employment agreement. The amount credited to the arrangement would increase and decrease for gains, losses and earnings based on crediting elections made by Mr. Falco from choices that are consistent with those available for amounts deferred under the Time Warner Inc. Deferred Compensation Plan. No further amounts would be deferred pursuant to or in connection with the deferral arrangement.

 

  If, prior to December 31, 2010, (i) the Company terminated Mr. Falco’s employment other than for cause (as described under “—Potential Payments Upon Termination of Employment or Change in Control—Termination without Cause—Employment Agreements with Mr. Falco and Mr. Grant” below), (ii) Mr. Falco terminated his employment due to the Company’s material breach of his employment agreement (as described under “—Potential Payments Upon Termination of Employment or Change in Control — Termination for Material Breach or Good Reason” below) or (iii) Mr. Falco’s employment terminated due to death (as described under “—Potential Payments Upon Termination of Employment or Change in Control — Death” below) or disability (as described under “—Potential Payments Upon Termination of Employment or Change in Control — Disability” below), the amounts credited to the deferral arrangement would be payable to Mr. Falco in 10 annual installment payments beginning on April 1 of the year after his termination. Mr. Falco would forfeit his rights to the amounts credited to the deferral arrangement if he voluntarily resigned (other than a termination on account of his death or disability or due to the Company’s material breach of his employment agreement) or if his employment was terminated by the Company for cause prior to December 31, 2010. If Mr. Falco’s employment did not terminate prior to December 31, 2010, the amounts credited to the deferral arrangement would have been payable to Mr. Falco in 10 annual installments beginning on April 1 of the year after his termination for any reason. Pursuant to the separation agreement with Mr. Falco (as described under “—Compensation Discussion and Analysis—Actions Taken in 2009—Separation Agreement with Former Chairman and Chief Executive Officer”), the amounts credited to Mr. Falco’s deferral arrangement are payable to him in 10 annual installment payments beginning on April 1, 2010.

 

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Time Warner Inc. Deferred Compensation Plan

The Time Warner Inc. Deferred Compensation Plan (the “TW Deferred Compensation Plan”) generally permits employees of Time Warner and participating subsidiaries, including the Company, whose annual cash compensation exceeds certain dollar thresholds to defer receipt of all or a portion of their annual bonus until a specified future date. A participant may choose to defer either a percentage (in multiples of 10%) or a specific dollar amount (in whole dollars) of the annual bonus, provided that the amount to be deferred is at least $5,000. During the deferral period, the participant selects a crediting rate or rates to be applied to the deferred amount from the asset allocation options and core options that are offered as investment vehicles under the Time Warner Savings Plan. Investment crediting rates are the performance rates the participant would earn if the deferred funds were actually invested in one of the third-party investment vehicles. Deferred amounts are credited with earnings or losses based on the performance of the applicable investment crediting rates. The participant may change his or her crediting rate selection once during any fiscal quarter through a third-party administrator’s website or by phone.

A participant may choose to receive either (i) an “in-service distribution” in the form of a lump sum during a specified calendar year that is at least three years from the year the deferred compensation would have been payable or (ii) a “termination distribution” (subject to the restrictions of Section 409A of the Code), in the form of a lump sum or two to 10 annual installments commencing in the year following the participant’s termination of employment with the Company.

An in-service distribution may be re-deferred to a later in-service distribution year or to a termination distribution, subject to plan limits on such re-deferrals and timing restrictions on electing them. A participant may elect an early withdrawal, subject to a 10% penalty, only with respect to deferred amounts that are not subject to the restrictions of Section 409A of the Code.

With respect to payments not subject to Section 409A, “termination” refers to the last day of the period during which a former employee is entitled to receive post-termination severance payments. With respect to payments subject to Section 409A, “termination” refers to an employee’s separation from service with the Company. Any payments upon termination of employment other than in cases of death or disability that are not subject to Section 409A, shall, unless the participant has elected otherwise, be distributed in 10 annual installments beginning as soon as practicable on or after April 1 of the year following such termination, unless the amount is less than $50,000, in which case the amount will be paid in a lump sum. Any payments upon such termination that are subject to Section 409A, shall, unless the participant has elected otherwise, be distributed in 10 annual installments beginning as soon as practicable on or after April 1 of the year following such termination, unless the amount (together with any amounts deferred under any other non-qualified compensation plan that is aggregated with the TW Deferred Compensation Plan) is not greater than the applicable dollar limit provided in Section 402(g)(1)(B) of the Code ($16,500 in 2009), in which case the amount will be paid in a lump sum. In the event of the disability of a participant, payments commence in April following the year the disability occurred and will be made on the same payment schedules as those described above regarding payments upon termination, except that any installment payments will be made over a period of five years instead of 10. In the event of the death of a participant, payments in the form of a lump sum will be made to the participant’s named beneficiary or estate as soon as practicable following receipt by Time Warner of proof of death.

In 2008, Ms. Primrose received an in-service distribution equal to $110,877 pursuant to a deferral election she made on June 30, 2003.

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL

The following summaries and tables describe and quantify the estimated dollar value of potential additional payments and other benefits that would be provided to the Company’s Named Executive Officers (or, in the case of death, to their respective estates or beneficiaries) under the executive officers’ respective employment

 

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agreements, employment letter agreements, retention agreements and equity agreements and the Company’s compensation plans following a termination of their employment or a change in control of Time Warner or the Company, in each case, assumed to have occurred on December 31, 2008.

The calculations exclude payments and benefits to the extent they do not discriminate in scope, terms or operation in favor of the Company’s Named Executive Officers and are available generally to all salaried employees of the Company, including any (i) accrued vacation pay, (ii) balances under the Time Warner Savings Plan and (iii) medical and other group insurance coverage following disability. The calculations also exclude Ms. Kumar’s, Mr. Grant’s and Ms. Primrose’s accrued benefits under the Pension Plans, which are provided in the Pension Benefits Table above, and Mr. Falco’s deferred compensation arrangement, which is provided in the Non-Qualified Deferred Compensation For Fiscal Year 2008 Table above.

Certain payments following a termination of employment without cause are subject to suspension of payment for six months following separation from service if required under Section 409A of the Code. In addition, receipt of the payments and benefits upon a termination without cause is conditioned on the executive officer’s execution of a release of claims against the Company. If the executive officer does not execute a release of claims, he or she would not receive a severance payment.

Termination for Cause. With respect to Mr. Falco and Mr. Grant, in the event that the executive officer’s employment was terminated by the Company for “cause” (generally defined as the executive officer’s (i) conviction of, or no contest plea to, a felony, (ii) willful failure or refusal to perform his material duties for the Company, (iii) willful misappropriation, embezzlement or reckless or willful destruction of Company property, (iv) willful and material breach of any duty of loyalty to the Company, (v) intentional and improper conduct materially prejudicial to the business of the Company or (vi) willful and material violation of the restrictive covenants under his employment agreement), the executive officer would have (a) received his base salary through the effective date of termination, (b) received his bonus for any year prior to the year in which such termination occurred and that had not yet been paid as of the date of termination and (c) retained any rights pursuant to any insurance or other benefit plans of the Company. Mr. Falco and Mr. Grant would not have received any additional payments or other benefits under his employment agreement or otherwise, and, thus, this termination scenario is not included in the tables below.

With respect to Ms. Kumar, in the event that her employment had been terminated by the Company for “cause” (as defined under her employment letter agreement, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above), she would have (i) received her base salary through the effective date of termination and (ii) retained any rights pursuant to any insurance or other benefit plans of the Company. Ms. Kumar would not have received any additional payments or other benefits under her employment letter agreement or otherwise, and, thus, this termination scenario is not included in the tables below.

With respect to each of Mr. Parker and Ms. Primrose, in the event that the executive officer’s employment is terminated by the Company for “cause” (as defined under their employment letter agreements, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above), the executive officer would (i) receive his or her base salary through the effective date of termination and (ii) retain any rights pursuant to any insurance or other benefit plans of the Company. The executive officers would not receive any additional payments or other benefits under their respective employment letter agreements or otherwise, and, thus, this termination scenario is not included in the tables below.

Termination without Cause.

Employment Agreements with Mr. Falco and Mr. Grant. With respect to Mr. Falco and Mr. Grant, in the event of a termination of the executive officer’s employment without “cause” (as summarized under “—Termination for Cause” above), the executive officer would have received the payments and retained the

 

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rights described under “—Termination for Cause” above, and also would have received the following additional payments and benefits, subject to the executive officer’s execution of a release of claims:

Pro Rata Average Annual Bonus. Mr. Falco and Mr. Grant would have received a lump-sum cash payment equal to the pro rata portion of the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable, through the effective date of their termination.

Cash Severance. Mr. Falco and Mr. Grant would have received the executive officer’s base salary on the Company’s normal payroll payment dates through the later of December 31, 2010 and the first anniversary of the effective date of the executive officer’s termination (the “Falco Severance Term Date” or the “Grant Severance Term Date”, as applicable). In addition, Mr. Falco and Mr. Grant would have received a lump-sum payment for each calendar year through the Falco Severance Term Date or the Grant Severance Term Date, as applicable, equal to the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable, except that the bonuses in respect of a partial calendar year would be a pro rata bonus based on the period from the effective date of their termination through December 31 of such year.

Group Benefits Continuation. Mr. Falco and Mr. Grant would have been eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), through the Falco Severance Term Date or the Grant Severance Term Date, as applicable, to the extent such plans are maintained by the Company for its executives.

Deferred Compensation. Amounts credited to Mr. Falco’s deferred compensation arrangement (as described under “—Non-Qualified Deferred Compensation For Fiscal Year 2008” above) would have been payable to him in 10 annual installment payments beginning on April 1 of the year following his termination.

Equity Awards. In general, the Time Warner stock options Mr. Falco and Mr. Grant held on their termination would have continued to vest through the Falco Equity Cessation Date or the Grant Equity Cessation Date, as applicable. All Time Warner stock options that were granted to Mr. Falco prior to March 7, 2008 (the “Falco Term Options”) that would have vested on or before the Falco Severance Term Date would have vested on the earlier of the Falco Severance Term Date and the Falco Equity Cessation Date, and any vested Falco Term Options would have remained exercisable for up to three years following such date, and all Time Warner stock options that were granted to Mr. Grant prior to November 27, 2006 and prior to February 18, 2009 (the “Grant Term Options”) that would have vested on or before the Grant Severance Term Date would have vested on the earlier of the Grant Severance Term Date and the Grant Equity Cessation Date, and any vested Grant Term Options would have remained exercisable for up to three years following such date. All Time Warner stock options that were granted to Mr. Falco and Mr. Grant on or after the applicable effective date of the executive officer’s employment agreement would have vested on the earlier of (i) the Falco Severance Term Date or the Grant Severance Term Date, as applicable, and (ii) the Falco Equity Cessation Date or the Grant Equity Cessation Date, as applicable, and would have remained exercisable for a period of up to three years following such date.

A pro-rata amount of the Time Warner RSUs that were granted to Mr. Falco prior to the effective date of his employment agreement that were scheduled to vest at the next vesting date would vest on the date of separation, but the Time Warner shares underlying any vested RSUs would not be paid to Mr. Falco until promptly following the next regular vesting date for such RSUs. In addition, except if Mr. Falco then qualified for retirement under the terms of the applicable RSU agreement, the vesting of any RSUs granted to Mr. Falco on or after the effective date of his employment agreement would fully vest and be paid to Mr. Falco promptly following the effective date of his termination.

Mr. Grant’s employment agreement did not provide for the treatment of the Time Warner RSUs he held as of the date of his termination.

 

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Employment Letter Agreements with Ms. Kumar, Mr. Parker and Ms. Primrose. With respect to Ms. Kumar, Mr. Parker and Ms. Primrose, in the event of a termination of the executive officer’s employment without “cause” (as defined in their employment letter agreements, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above), the executive officer would have received his or her base salary through the effective date of termination and, in exchange for a release of claims against the Company, the executive officer would have received following payments and benefits:

Cash Severance. After the effective date of termination of employment, the executive officer would have received, in a lump sum, a payment equal to 18 months of his or her base salary in effect immediately prior to his or her termination of employment.

Pro Rata Annual Bonus. The executive officer would have received a pro rata portion of his or her annual bonus, payable at target in a lump sum.

Group Benefits Continuation. Beginning on the first day of the calendar month following the termination of his or her employment, the Company would pay the cost of medical, dental and vision benefit coverage under COBRA for 12 months for the executive officer.

2008 Retention Program. If the Company had terminated Ms. Kumar’s, Mr. Parker’s or Ms. Primrose’s employment without “cause” (generally defined in the same manner as under their employment letter agreements, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above) prior to April 30, 2009, pursuant to the 2008 Retention Program, each of Ms. Kumar, Mr. Parker and Ms. Primrose would have received a one-time payment equal to 100% of his or her current annual salary, in exchange for the execution of the Company’s standard separation agreement.

Equity Award Agreements. The agreements that govern the stock options granted to Ms. Kumar, Mr. Parker and Ms. Primrose do not provide for any vesting following a termination of the executive officer’s employment by the Company without “cause” (generally defined in the option agreements as the executive’s (i) dishonesty with respect to Time Warner or any of its affiliates, (ii) insubordination, substantial malfeasance or non-feasance of duty, (iii) unauthorized disclosure of confidential information or (iv) conduct substantially prejudicial to the business of Time Warner or any of its affiliates).

The agreements that govern the RSUs awarded to Ms. Kumar, Mr. Parker and Ms. Primrose generally provide that if the Company terminates the executive officer’s employment without “cause” (as defined under the employment letter agreements with Ms. Kumar, Mr. Parker and Ms. Primrose, which is summarized under “—Compensation Discussion and Analysis—Termination and Severance Packages” above), a pro rata amount of RSUs that were scheduled to vest at the next vesting date would vest on the date of separation.

With respect to PSUs, following termination without “cause” (generally defined in the PSU agreements in the same manner as under the agreements that govern RSUs), Ms. Kumar, Mr. Parker and Ms. Primrose would receive a pro rata portion (based on the period of time from the award date until the date of termination) of the number of shares underlying the PSUs that would have vested based on the actual performance level achieved for the full performance period, plus all retained distributions relating thereto.

Termination for Material Breach or Good Reason. With respect to Mr. Falco and Mr. Grant, in the event that the executive officer terminated his employment due to the Company’s “material breach” of its obligations under the executive officer’s employment agreement (which includes, but is not limited to, (i) the Company’s violation of the executive officer’s rights under his employment agreement with respect to authority, reporting lines, duties, powers or place of employment or (ii) the Company’s failure to cause any successor to expressly assume the obligations of the Company under the executive officer’s employment agreement), the executive officer would have received the same benefits as those described under “—Termination without Cause—Employment Agreements with Mr. Falco and Mr. Grant” above.

 

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With respect to Ms. Kumar, in the event of termination of her employment due to her resignation for “good reason” (generally defined as (i) any reduction in Ms. Kumar’s base salary, (ii) relocation of the Company’s offices more than 50 miles from its current location or outside the New York City area or (iii) diminution of Ms. Kumar’s function with the Company), Ms. Kumar would have received the same benefits as those described under “—Termination without Cause—Employment Letter Agreements with Ms. Kumar, Mr. Parker and Ms. Primrose” above.

With respect to Ms. Kumar, Mr. Parker and Ms. Primrose, in the event of a termination of his or her employment due to the executive officer’s resignation for “good reason” (generally defined as the executive officer’s termination of his or her employment due to the Company’s breach of his or her employment agreement, provided that good reason ceases to exist on the 60th day following the later of its occurrence or the executive officer’s knowledge of its occurrence, unless the executive officer has given the Company written notice of his or her termination for good reason prior to such date), the executive officer would have received the same benefits as those described under “—Termination without Cause—Equity Award Agreements” above solely with respect to PSUs. Upon resignation for good reason, Ms. Kumar, Mr. Parker and Ms. Primrose would not have received any other separation benefits, except as set forth in the immediately preceding paragraph with respect to Ms. Kumar.

Change in Control of Time Warner. The employment agreements, employment letter agreements and retention programs for the executive officers do not provide for any additional benefits as a result of a change in control of Time Warner.

Equity Award Agreements. The agreements that govern stock option grants and RSU awards generally provide for accelerated vesting following a change in control of Time Warner upon the earliest of (i) the first anniversary of the change in control, (ii) the original vesting date with respect to each portion of the award and (iii) the termination of the participant’s employment other than for “cause” (as defined in the relevant award agreement, which are summarized above) unless due to death or disability or by the participant for “good reason” (generally defined as defined in any employment agreement between the Company and the participant or, if not defined therein or if there is no such agreement, as (i) failure of Time Warner to pay or cause to be paid the participant’s base salary or annual bonus when due or (ii) any substantial and sustained diminution in the participant’s authority or responsibilities materially inconsistent with the participant’s position, provided that good reason ceases to exist on the 60th day following the later of its occurrence or the executive officer’s knowledge of its occurrence, unless the executive officer has given the Company written notice of his or her termination for good reason prior to such date).

The agreements that govern PSUs generally provide for accelerated vesting immediately following a change in control of Time Warner. The number of PSUs that would vest following such a change in control would be equal to the sum of the number of shares underlying the PSUs that would vest based on (i) the actual performance level achieved from the award date through the date of the change in control, and (ii) the target level of performance from the date of the change in control through the last day of the performance period, plus all retained distributions relating thereto.

With respect to acceleration of RSUs and PSUs, the agreements that govern these awards provide that if the delivery of shares to the executive officer constitutes a “parachute payment” under Section 280G of the Code and would exceed the safe harbor amount under Section 280G, then the amounts constituting “parachute payments” would either be reduced to equal the safe harbor amount or provided to the executive officer in full, whichever would result in receipt by the executive officer of a greater amount on a net after-tax basis.

Change in Control or Spin-Off of the Company. With respect to Mr. Falco and Mr. Grant, upon a spin-off of the Company, (i) all of the executive officer’s stock options granted on or following the effective date of the executive officer’s employment agreement that would have vested before December 31, 2010 would vest and remain exercisable for up to three years following the closing of the transaction, (ii) the RSUs granted to

 

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Mr. Falco on or following the effective date of his employment agreement (including the initial grant of 82,399 RSUs Mr. Falco received on November 27, 2006) would vest and be settled upon the spin-off and (iii) any other unvested awards would be determined in accordance with the terms and provisions of such plans and any agreements under which they were granted, based on the assumption that the executive officer’s employment terminated without cause on the closing date of the spin-off, which is described under “—Termination without Cause—Equity Award Agreements” above.

With respect to each of Ms. Kumar, Mr. Parker and Ms. Primrose, the employment letter agreements for these executive officers do not provide for any additional benefits as a result of a change in control of the Company.

2008 Retention Program. Pursuant to the 2008 Retention Program, each of Ms. Kumar, Mr. Parker and Ms. Primrose would have received a one-time payment equal to 100% of his or her current annual salary, payable on or after April 30, 2009, in exchange for the execution of the Company’s standard separation agreement, if prior to the end of the bonus period, and as a result of a change of control transaction, the executive officer no longer has a position with the Company, or his or her job functions and responsibilities are substantially or materially diminished from what they were immediately prior to the change in control transaction. For purposes of the program, a “change of control transaction” means a transaction that results in (i) a transfer by the Company of the executive officer’s employment to a company whose financial results are not consolidated with those of the Company or Time Warner, or (ii) a change in the ownership structure of the Company such that the Company’s financial results are no longer consolidated with those of Time Warner.

Equity Award Agreements. The agreements that govern the stock option grants and RSU awards do not provide for accelerated vesting upon a change in control of a Time Warner division. The agreements that govern PSUs generally provide for accelerated vesting immediately following a change in control of a Time Warner division (defined as a transfer by Time Warner or its affiliate of the employee’s employment to an entity whose financial results are not consolidated with those of Time Warner or a change in the ownership structure of the affiliate where the employee is employed such that the affiliate’s financial results are no longer consolidated with those of Time Warner). The number of PSUs that would vest following such a change in control would be equal to the sum of the number of PSUs that would vest based on (i) the actual performance level achieved from the award date through the date of the change in control and (ii) the target level of performance from the date of the change in control through the last day of the performance period, plus all retained distributions relating thereto.

Retirement. With respect to each of the Named Executive Officers, the employment agreements and employment letter agreements for these executive officers do not provide for any additional benefits as a result of their retirement. In addition, the Named Executive Officers are not retirement eligible under the Time Warner equity plans. Accordingly, amounts regarding payments due upon retirement have not been included in the table below.

 

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Termination without Cause/for Good Reason or Change in Control

 

Named Executive Officer

   Cash
Severance
   Pro Rata
Target

Annual
Bonus or
Average
Annual
Bonus
   Group
Benefits
Continuation
   Retention
Bonus
   Equity
Awards:
Stock Options
and RSUs (2)
   Equity
Awards:
PSUs (3)
   Total
Mr. Falco                     
- Termination without Cause /for Good Reason (1)    $ 8,500,000    $ 3,250,000    $ 51,312         $ 2,690,801    $ 848,050    $ 15,340,163
- Change in Control of Time Warner                             $ 761,365    $ 761,365
- Change in Control of Time Warner and Termination without Cause/for Good Reason (1)    $ 8,500,000    $ 3,250,000    $ 51,312         $ 2,690,801    $ 761,365    $ 15,253,478
- Change in Control or Spin-Off of the Company                             $ 761,365    $ 761,365
- Change in Control or Spin-Off of the Company and Termination without Cause/for Good Reason (1)    $ 8,500,000    $ 3,250,000    $ 51,312         $ 2,690,801    $ 761,365    $ 15,253,478
Ms. Kumar                     
- Termination without Cause/for Good Reason (1)    $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 125,294    $ 97,880    $ 2,165,334
- Change in Control of Time Warner                             $ 233,583    $ 233,583
- Change in Control of Time Warner and Termination without Cause/for Good Reason (1)    $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 466,941    $ 233,583    $ 2,642,684
- Change in Control or Spin-Off of the Company                             $ 233,583    $ 233,583
- Change in Control or Spin-Off of the Company and Termination without Cause/for Good
Reason (1)
   $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 125,294    $ 233,583    $ 2,301,037

Mr. Grant

                    
- Termination without Cause/for Good Reason (1)    $ 4,825,000    $ 1,662,500    $ 28,152         $ 719,862    $ 378,529    $ 7,614,043
- Change in Control of Time Warner                             $ 378,529    $ 378,529
- Change in Control of Time Warner and Termination without Cause/for Good Reason (1)    $ 4,825,000    $ 1,662,500    $ 28,152         $ 947,096    $ 378,529    $ 7,841,277
- Change in Control or Spin-Off of the Company                             $ 378,529    $ 378,529
- Change in Control or Spin-Off of the Company and Termination without Cause/for Good
Reason (1)
   $ 4,825,000    $ 1,662,500    $ 28,152         $ 947,096    $ 378,529    $ 7,841,277

Mr. Parker

                    
- Termination without Cause/for Good Reason (1)    $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 82,580    $ 91,531    $ 2,116,271
- Change in Control of Time Warner                             $ 199,528    $ 199,528
- Change in Control of Time Warner and Termination without Cause/for Good Reason (1)    $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 335,052    $ 199,528    $ 2,476,740
- Change in Control or Spin-Off of the Company                             $ 199,528    $ 199,528

 

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Named Executive Officer

   Cash
Severance
   Pro Rata
Target

Annual
Bonus or
Average
Annual
Bonus
   Group
Benefits
Continuation
   Retention
Bonus
   Equity
Awards:
Stock Options
and RSUs (2)
   Equity
Awards:
PSUs (3)
   Total
- Change in Control or Spin-Off of the Company and Termination without Cause/for Good Reason (1)    $ 825,000    $ 550,000    $ 17,160    $ 550,000    $ 82,580    $ 199,528    $ 2,224,268
Ms. Primrose                     
- Termination without Cause/for Good Reason (1)    $ 637,500    $ 318,750    $ 17,160    $ 425,000    $ 61,200    $ 79,932    $ 1,539,542
- Change in Control of Time Warner                             $ 160,134    $ 160,134
- Change in Control of Time Warner and Termination without Cause/for Good Reason (1)    $ 637,500    $ 318,750    $ 17,160    $ 425,000    $ 215,658    $ 160,134    $ 1,774,202
- Change in Control or Spin-Off of the Company                             $ 160,134    $ 160,134
- Change in Control or Spin-Off of the Company and Termination without Cause/for Good Reason (1)    $ 637,500    $ 318,750    $ 17,160    $ 425,000    $ 61,200    $ 160,134    $ 1,619,744

 

(1) Termination without Cause/for Good Reason:    The cash severance disclosed for Mr. Falco and Mr. Grant reflects the continued payment of the executive officer’s base salary through December 31, 2010 and a lump-sum payment in each of 2009 and 2010 equal to the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable. The severance payment for Ms. Kumar, Mr. Parker and Ms. Primrose is 18 months of base salary. In the event of a termination of employment by Ms. Kumar, Mr. Parker or Ms. Primrose for “good reason” that is not in connection with a change in control of Time Warner or the Company, the amounts in the column entitled Equity Awards: PSUs would become payable. In the event of a termination of employment by Ms. Kumar, Mr. Parker or Ms. Primrose for “good reason” in connection with a change in control of Time Warner or the Company, the amounts in both of the Equity Awards columns would become payable. All other amounts with respect to Mr. Parker and Ms. Primrose are payable only upon termination without “cause.”

 

(2) Equity Awards: Stock Options and Restricted Stock Units:    The values set forth in the table above are based on (i) the excess (if any) of the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split) over the exercise price with respect to stock options, and (ii) the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split) with respect to RSUs.

 

(3) Equity Awards: PSUs:    Reflects the value of the PSUs that would vest upon the following scenarios based on the provisions in the PSU agreements and the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split). The final payout would also include any retained distributions, of which there were none as of December 31, 2008.

Termination without Cause/for Good Reason: With respect to the PSUs having 2007-2009 or 2008-2010 performance periods, the table above reflects the value of the PSUs that would vest pro rata (based on the period of time from the date of grant until the date of termination), assuming the achievement of the target performance level at the end of the applicable performance period. Time Warner’s actual performance during the year ended December 31, 2008 with respect to the PSUs was “above threshold” but below the target performance level, at 65.6% of target (with respect to target PSUs having a 2007-2009 performance period) and 95.9% of target (with respect to PSUs having a 2008-2010 performance period). The actual number of PSUs that would vest would not be known until after the full applicable performance period has ended but, in accordance with SEC disclosure rules, the numbers in the table assume the target performance level.

 

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Change in Control of Time Warner or the Company: The amounts in the table above relating to “Change in Control” reflect the sum of the value of the PSUs that would vest based on (i) the actual performance level achieved from the date of grant through the date of the change in control on December 31, 2008, and (ii) the target level of performance from the date of the change in control through the last day of the applicable performance period. With respect to the PSUs having a performance period of 2007-2009, the actual performance level achieved as of December 31, 2008 was “above threshold” (65.6% of target). With respect to the PSUs having a performance period of 2008-2010, the actual performance level achieved as of December 31, 2008 was “above threshold” (95.9% of target).

Disability. If Mr. Falco or Mr. Grant became disabled during the term of the executive officer’s employment agreement, the executive officer would have received his full base salary for six months and a pro rata bonus for the year in which the disability occurred (which would have been calculated based on the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable). Thereafter, the executive officer would have remained on the Company’s payroll, and the Company would have paid him disability benefits equal to the following:

Bonus and Salary Continuation. After the six-month period described immediately above, the executive officer would have had a disability period ending on the later of the expiration of the employment agreement and the date that was 12 months following the end of the six-month period described immediately above and would have received during his disability period an annual amount equal to 75% of his base salary in effect immediately prior to termination of his employment and 75% of the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable, payable at the same times as such payments otherwise would have been paid if the termination had not occurred. Any such payments would have been reduced by amounts received from workers’ compensation, Social Security and disability insurance policies maintained by the Company.

Group Benefits Continuation. During the disability period, the executive officer would also have continued to be eligible to participate in the Company’s group benefit plans, including medical and other group insurance (other than disability insurance), but would not have been eligible to contribute to any retirement plans or receive any additional grants or awards of Time Warner or Company equity-based awards.

Other Benefits. The executive officers would also receive certain other payments and benefits, which are described in footnote (5) of the table below.

With respect to Ms. Kumar, Mr. Parker and Ms. Primrose, in the event that the Company terminated the executive officer’s employment due to “disability” (as defined under the long-term disability plan of the Company), he or she would have (i) received his or her base salary through the effective date of termination and (ii) retained any rights pursuant to any insurance or other benefit plans of the Company. Ms. Kumar, Mr. Parker and Ms. Primrose would not have received any additional payments or other benefits under their employment letter agreements or the retention programs.

Equity Award Agreements. Under the terms of the agreements governing stock options and RSUs, all of these equity awards held by each executive officer would vest upon his or her “disability” (as defined in the applicable equity award agreements). With respect to PSUs, each executive officer would receive a pro rata portion (based on the period of time from the award date until the end of the applicable disability period) of the number of shares underlying the PSUs that would have vested based on the actual performance level achieved for the full performance period, plus all retained distributions relating thereto.

Death. With respect to Mr. Falco and Mr. Grant, in the event of the executive officer’s death, the executive officer’s estate or designated beneficiary would have received his base salary until the last day of the month in which his death occurs and a pro rata bonus for the year in which the death occurred (which would have been calculated based on the Falco Average Annual Bonus or the Grant Average Annual Bonus, as applicable). Mr. Falco and Mr. Grant would not have received any additional payments or other benefits under their employment agreements or the retention programs.

 

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With respect to Ms. Kumar, Mr. Parker and Ms. Primrose, in the event of the executive officer’s death, he or she would have received his or her base salary through the date of termination and a pro rata amount of his or her target bonus based on the number of days he or she was employed during the year of death. He or she would have also retained any rights pursuant to any insurance or other benefit plans of the Company. Ms. Kumar, Mr. Parker and Ms. Primrose would not have received any additional payments or other benefits under their employment letter agreements or the retention programs.

Equity Award Agreements. Under the terms of the agreements governing awards of stock options and RSUs, all of these equity awards held by each executive officer would vest upon his or her death. With respect to PSUs, following the termination of employment due to the executive officer’s death, the executive officer’s estate or designated beneficiary would receive a pro rata portion (based on the period of time from the award date until the date of death on December 31, 2008) of the number of shares underlying the PSUs that would have vested if the applicable performance period had ended on the date of the holder’s death, plus all retained distributions relating thereto; provided, however, that if the death occurs prior to the first anniversary of the award date, then the pro rata number of PSUs that vest would be based on the number of target PSUs, without regard to the actual performance level achieved through that date.

Termination of Employment Due to Disability or Death

 

Named Executive
Officer

  Base Salary
Continuation
(2)
  Bonus
Continuation
(2)
  Pro Rata
Target
Annual

Bonus or
Average
Annual
Bonus
  Equity
Awards:

Stock
Options

and RSUs
(3)
  Equity
Awards:
PSUs
(4)
  Other
Benefits
(5)
  Total

Mr. Falco

             

Disability (1)

  $ 1,625,000   $ 5,281,250   $ 1,625,000   $ 2,723,757   $ 376,465   $ 51,312   $ 11,682,784

Death

          $ 3,250,000   $ 2,723,757   $ 295,590       $ 6,269,347

Ms. Kumar

             

Disability

              $ 466,941   $ 97,880       $ 564,821

Death

          $ 550,000   $ 466,941   $ 82,086       $ 1,099,027

Mr. Grant

             

Disability (1)

  $ 1,218,750   $ 2,701,563   $ 831,250   $ 947,096   $ 187,683   $ 28,152   $ 5,914,494

Death

          $ 1,662,500   $ 947,096   $ 147,212       $ 2,756,808

Mr. Parker

             

Disability

              $ 335,052   $ 91,531       $ 426,583

Death

          $ 550,000   $ 335,052   $ 74,144       $ 959,196

Ms. Primrose

             

Disability

              $ 215,658   $ 79,932       $ 295,590

Death

          $ 318,750   $ 215,658   $ 62,546       $ 596,954

 

(1) The disability periods for Mr. Falco and Mr. Grant are January 1, 2009 through December 31, 2010.

 

(2) The amounts disclosed in the Base Salary Continuation and Bonus Continuation columns reflect the continued payment by the Company of 75% of each of Mr. Falco’s and Mr. Grant’s base salary and average annual bonus during his disability period.

 

(3) Equity Awards:    Stock Options and Restricted Stock Units:    The values set forth in the table above are based on (i) the excess (if any) of the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split) over the exercise price with respect to stock options, and (ii) the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split) with respect to RSUs.

 

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(4) Equity Awards:    PSUs:    Reflects the value of the PSUs that would vest upon the following scenarios based on the provisions in the PSU agreements and the closing sale price of the Time Warner common stock on December 31, 2008 ($10.06 per share, prior to adjustment for the Cable Separation and the Reverse Stock Split). The final payout would also include any retained distributions, of which there were none as of December 31, 2008.

Disability:    With respect to PSUs having 2007-2009 or 2008-2010 performance periods, the table above reflects the value of the PSUs that would vest pro rata (based on the period of time from the date of grant until the end of the applicable disability period), assuming the achievement of the target performance level at the end of the applicable performance period. Time Warner’s actual performance through the year ended December 31, 2008 with respect to the PSUs was “above threshold” but below the target performance level, at 65.6% of target (with respect to target PSUs having a 2007-2009 performance period) and 95.9% of target (with respect to PSUs having a 2008-2010 performance period). The actual number of PSUs that would vest would not be known until after the full applicable performance period has ended but, in accordance with SEC disclosure rules, the numbers in the table assume the target performance level.

Death:    The Termination of Employment Due to Disability or Death table above reflects the value of the PSUs that would vest pro rata (based on the period of time from the date of grant through the date of death). With respect to the PSUs having a performance period of 2007-2009, the values provided in the table above are based on the Company’s achievement of the “above threshold” performance level (65.6% of target with respect to the PSUs having a performance period of 2007-2009) through the date of death on December 31, 2008. With respect to the PSUs having a performance period of 2008-2010, because the date of death would have occurred prior to the first anniversary of the date of grant, the values provided in the table above are based on achievement of the target performance level, as required by the relevant award agreements.

 

(5) Other Benefits:

 

  (a) For Mr. Falco, includes $51,312 for the cost of health and welfare benefits for the disability period.

 

  (b) For Mr. Grant, includes $28,152 for the cost of health and welfare benefits for the disability period.

Other Restrictive Covenants. Mr. Falco’s employment agreement provides that he is subject to restrictive covenants that obligate him not to disclose any of the Company’s confidential matters at any time. During his employment with the Company and through the later of (i) December 31, 2010, (ii) the Falco Severance Term Date, (iii) the Falco Equity Cessation Date and (iv) one year following termination of employment for any reason other than death or disability, Mr. Falco is not permitted to compete with the Company by providing services to, serving in any capacity for or owning certain interests in, (i) during Mr. Falco’s employment, any person or entity that engages in any line of business that is substantially the same as either (x) any line of business that the Company engages in, conducts or, to his knowledge, has definitive plans to engage in or conduct or (y) any operating business that is engaged in or conducted by the Company as to which, to his knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business, (ii) following Mr. Falco’s termination of employment, eBay, Inc., MySpace, Interactive Corp., EarthLink, Inc., Google Inc., Microsoft Corporation or Yahoo! Inc., or any of their respective subsidiaries or affiliates, or any successor to the internet service provider, media or entertainment business thereto or (iii) any internet access, service or portal company or any other company that directly competes with the Company. Further, for one year following termination of his employment for any reason other than death or disability, Mr. Falco is not permitted to employ, or cause any entity affiliated with him to employ, any person who was a Company employee at, or within six months prior to, the effective date of such his termination, other than Mr. Falco’s secretary or executive assistant and any other employee eligible to receive overtime pay.

Mr. Grant’s employment agreement provides that he is subject to restrictive covenants that are generally similar to the restrictive covenants in Mr. Falco’s employment agreement, except the non-competition covenant in Mr. Grant’s employment agreement applies during his employment with the Company and through either (i) in the event of a spin-off of the Company, six months from the close of the spin-off or (ii) through the later of

 

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(x) December 31, 2010, (y) the date Mr. Grant leaves the Company’s payroll and (z) one year following termination of employment for any reason other than death or disability.

The employment letter agreements with Ms. Kumar, Mr. Parker and Ms. Primrose provide that each executive officer is subject to restrictive covenants which provide that he or she will not, among other things: (i) disclose any of the Company’s proprietary information or confidential matters at any time, (ii) solicit Company employees for one year following any termination of employment and (iii) compete with the Company while employed and for one year following any termination of employment by (1) participating in the ownership, control or management of any business that competes in any way with the aspects of the business of the Company to which the individual was engaged or had material knowledge or (2) being employed by any business in any capacity such that the executive officer’s job duties would make such employment competitive with the business interests of the Company in which the executive officer was engaged or had material knowledge.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of the date of this Information Statement, all of the outstanding shares of our common stock are owned by Time Warner. After the spin-off, Time Warner will not own any shares of our common stock. The following table provides information with respect to the anticipated beneficial ownership of our common stock by:

 

   

each of our shareholders who we believe (based on the assumptions described below) will beneficially own more than 5% of our outstanding common stock;

 

   

each of our current directors and our directors following the spin-off;

 

   

each officer named in the summary compensation table; and

 

   

all of our directors and executive officers following the spin-off as a group.

We based the share amounts on each person’s beneficial ownership of Time Warner common stock on September 30, 2009, assuming a distribution ratio of                      shares of our common stock for every                      shares of Time Warner common stock held by such person.

To the extent our directors and executive officers own Time Warner common stock at the record date of the spin-off, they will participate in the distribution on the same terms as other holders of Time Warner common stock.

Except as otherwise noted in the footnotes below, each person or entity identified in the table has sole voting and investment power with respect to the securities they hold.

Immediately following the spin-off, we estimate that                      million shares of our common stock will be issued and outstanding, based on the number of shares of Time Warner common stock outstanding as of                     , 2009. The actual number of shares of our common stock outstanding following the spin-off will be determined on                     , 2009, the record date.

 

Name

  

Amount and Nature of

Beneficial Ownership

   Percentage of
Class

Directors and Named Executive Officers:

     

Mr. Tim Armstrong (a)

     

Mr. Richard Dalzell

Ms. Karen Dykstra

     

Mr. William Hambrecht

     

Ms. Patricia Mitchell

     

Mr. Michael Powell

     

Mr. Fredric Reynolds

     

Mr. James Stengel

     

Mr. James Wiatt

     

Mr. Ira Parker

     

Ms. Tricia Primrose

     

Mr. Jeff Bewkes (b)

     

Mr. John Martin (b)

     

Mr. Randy Falco (c)

     

Ms. Nisha Kumar (c)

     

Mr. Ron Grant (c)

     

All directors and executive officers as a group (13 individuals)

     

 

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Name

  

Amount and Nature of

Beneficial Ownership

   Percentage of
Class

Principal Shareholders:

     

Capital Research Global Investors (d)

      7.2%

AXA Financial, Inc. (e)

      6.0%

Dodge & Cox (f)

      5.3%

 

 * Less than 1%.
 † Includes those individuals listed under “Management” on page 85 of this Information Statement.
(a) On April 15, 2009, Mr. Armstrong received a grant of 590,480 Time Warner stock options (which vest and become exercisable in four equal quarterly installments). The number of stock options that have vested as of                     , 2009, together with the number of stock options that will vest within 60 days of                     , 2009, is                     . Accordingly, as of such date, Mr. Armstrong is deemed to be the beneficial owner of                      shares of Time Warner common stock pursuant to these stock options in accordance with Rule 13d-3 of the Exchange Act. Pursuant to Mr. Armstrong’s employment agreement, these Time Warner stock options will be converted in connection with the spin-off, with appropriate adjustments, into stock options with respect to AOL common stock on the same terms and conditions (including vesting) as were applicable to his Time Warner stock options immediately prior to the spin-off.

 

(b) Will resign from our board of directors immediately prior to the spin-off.

 

(c) No longer employed by AOL.

 

(d) Based solely on a Schedule 13G with respect to Time Warner common stock filed by Capital Research Global Investors with the SEC on February 17, 2009.

 

(e) Based solely on a Schedule 13G with respect to Time Warner common stock filed with the SEC on February 13, 2009 by (i) AXA Financial, Inc. (on behalf of its subsidiaries AllianceBernstein L.P. and AXA Equitable Life Insurance Company), (ii) AXA, which owns AXA Financial, Inc., and (iii) AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle (as a group and, collectively, “Mutuelles AXA”), which as a group control AXA (each of AXA and Mutuelles AXA filing on behalf of affiliated entities AXA Investment Managers Paris, AXA Konzers AG and AXA Rosenburg Investment Management LLC). The Schedule 13G contained a statement that a majority of the shares reported are held by unaffiliated third-party client accounts managed by AllianceBernstein (a majority-owned subsidiary of AXA Financial, Inc.), as investment advisor.

 

(f) Based solely on a Schedule 13G with respect to Time Warner common stock filed by Dodge & Cox with the SEC on February 11, 2009.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Agreements with Time Warner

Following the spin-off, AOL and Time Warner will operate independently, and neither will have any ownership interest in the other. In order to govern certain ongoing relationships between AOL and Time Warner after the spin-off and to provide mechanisms for an orderly transition, AOL and Time Warner intend to enter into agreements pursuant to which certain services and rights will be provided for following the spin-off, and AOL and Time Warner will indemnify each other against certain liabilities arising from our respective businesses. The following is a summary of the terms of the material agreements we expect to enter into with Time Warner.

Separation and Distribution Agreement

We intend to enter into a Separation and Distribution Agreement with Time Warner before the distribution of our shares of common stock to Time Warner shareholders. The Separation and Distribution Agreement will set forth our agreements with Time Warner regarding the principal actions needed to be taken in connection with our separation from Time Warner. It will also set forth other agreements that govern certain aspects of our relationship with Time Warner following the separation.

Transfer of Assets and Assumption of Liabilities. The Separation and Distribution Agreement will identify certain transfers of assets and assumptions of liabilities that are necessary in advance of our separation from Time Warner so that each of AOL and Time Warner retains the assets of, and the liabilities associated with, its respective business. The Separation and Distribution Agreement will also provide for the settlement or extinguishment of certain liabilities and other obligations between AOL and Time Warner. In particular, the Separation and Distribution Agreement will provide that:

 

   

subject to the exceptions immediately below, all of the assets and liabilities (whether accrued, contingent or otherwise) of AOL LLC prior to the distribution will be transferred to and assumed by us;

 

   

those assets and liabilities of AOL LLC which relate to the guarantees of indebtedness of Time Warner and other non-AOL subsidiaries will be retained by AOL LLC; and

 

   

certain leasehold interests and other assets and liabilities which are not material to the AOL business will be retained by AOL LLC.

To effect the transfer of assets and assumption of liabilities, we intend to enter into an Assignment and Assumption Agreement with Time Warner and AOL LLC, pursuant to which AOL LLC will transfer, and we will accept and assume, all of the assets and liabilities of AOL LLC intended to be transferred to us in advance of the separation.

Internal Reorganization. The Separation and Distribution Agreement will describe certain actions related to our separation from Time Warner that will occur prior to the distribution, including the following (collectively referred to herein as the “Internal Transactions”):

 

   

the conversion of Time Warner’s wholly-owned subsidiary, TW AOL Holdings Inc., into a Virginia limited liability company to be named TW AOL Holdings LLC;

 

   

our conversion from a Delaware limited liability company to a Delaware corporation and our change of name to AOL Inc.;

 

   

the series of intercompany transactions that will be undertaken to transfer substantially all of the assets and liabilities of AOL LLC (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner, certain leasehold interests and other assets and liabilities which are not material to the AOL business), our wholly-owned subsidiary that currently holds, directly or indirectly, all of the AOL business, to us;

 

   

the transfer of all of the membership interests in AOL LLC by us to Time Warner and TW AOL Holdings LLC on a pro rata basis;

 

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the subsequent transfer by TW AOL Holdings LLC of its entire membership interest in AOL LLC to Time Warner;

 

   

the transfer by TW AOL Holdings LLC of all of our common stock that it owns to Time Warner;

 

   

the settlement or forgiveness of most intercompany payables and receivables among us and our subsidiaries and affiliates, on the one hand, and Time Warner and its other subsidiaries and affiliates, on the other hand; and

 

   

our recapitalization so that the number of outstanding shares of our common stock will be equal to the number of shares to be distributed by Time Warner in the distribution.

Intercompany Arrangements. All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us and our subsidiaries and other affiliates, on the one hand, and Time Warner and its other subsidiaries and other affiliates, on the other hand, will terminate effective as of the distribution, except certain agreements and arrangements that are intended to survive the distribution.

Credit Support. We will agree to use reasonable best efforts to arrange, prior to the distribution, for the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances of credit support currently provided by or through Time Warner or any of its affiliates for the benefit of AOL or any of its affiliates. However, in the event that we have not obtained releases for all such credit support instruments as of the distribution date, Time Warner has agreed to provide ongoing credit support until the earlier of 24 months following the distribution and 30 days after we obtain the right to borrow funds under a permanent post-distribution credit facility, at which time we will be required to provide Time Warner with either letters of credit or guarantees against losses arising from such credit support instruments or otherwise cash collateralize the full amount of such credit support instruments for the benefit of Time Warner in the event that we have not obtained releases. To compensate Time Warner for the credit support it will continue to provide, we expect to pay Time Warner a credit support fee equal to a rate per annum of             % of the principal amount of all existing obligations for which Time Warner will provide credit support under this arrangement. The credit support fee will be subject to prescribed periodic increases over the term of this arrangement.

We currently anticipate that we will require Time Warner to continue to guarantee our obligations under the lease for our corporate headquarters at 770 Broadway, New York, New York. Under the existing guarantee agreement, Time Warner issued to the landlord a guarantee of approximately $10.0 million which can increase to $15.7 million in certain circumstances. We will replace Time Warner as guarantor at the time we arrange permanent bank financing or are able to transfer the obligations to ourselves, but in any event no later than the 24 months permitted by the Separation and Distribution Agreement.

We also currently anticipate that it will be necessary for AOL LLC to continue to act as the guarantor under our leases of office space at 3040 Citiwest and 3044 Citiwest in Dublin, Ireland, and our lease for office space consisting of the ground and first floors at 2/20 Capper Street, London, United Kingdom. Under these leases, AOL LLC, as successor to America Online, Inc., provides a full guarantee of all liabilities for the applicable tenants, each an AOL subsidiary. In the event that we are unable to substitute AOL LLC with AOL Inc. as the guarantor under these leases, our estimated total future obligations subject to Time Warner’s guarantee would be approximately €13.1 million ($18.4 million based on the June 30, 2009 exchange rate) under the Dublin leases and approximately £9.7 million ($16.1 million based on the June 30, 2009 exchange rate) under the London lease. If AOL LLC is liable for any costs as a guarantor, we will indemnify Time Warner under the Separation and Distribution Agreement. In addition, we anticipate that we will replace AOL LLC as the guarantor within the 24 months as specified in the Separation and Distribution Agreement.

Representations and Warranties. In general, neither we nor Time Warner will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with such transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal

 

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sufficiency of any conveyance documents. Except as expressly set forth in the Separation and Distribution Agreement, all assets will be transferred on an “as is,” “where is” basis.

Further Assurances. To the extent that any transfers contemplated by the Separation and Distribution Agreement have not been consummated prior to the distribution, the parties must use reasonable best efforts to effect such transfers as promptly as practicable following the distribution date. In addition, in the event it is discovered after the distribution that there was an omission of the transfer, or the incorrect transfer, of any asset or liability that, had the parties given specific consideration to such asset or liability, would have otherwise been transferred or retained by the relevant party, as the case may be, the parties will use reasonable best efforts to effect any necessary transfer or re-transfer as promptly as practicable following the distribution date.

The Distribution. The Separation and Distribution Agreement will govern the rights and obligations of the parties regarding the proposed distribution. Prior to the spin-off, Time Warner will deliver all of the issued and outstanding shares of our common stock to the distribution agent. Following the distribution date, the distribution agent will electronically deliver the shares of our common stock to entitled Time Warner shareholders based on the distribution ratio. Time Warner will have the sole and absolute discretion to determine the terms of, and whether to proceed with, the distribution.

Conditions. The Separation and Distribution Agreement will also provide that the distribution is subject to several conditions that must be satisfied or waived by Time Warner in its sole discretion. For further information regarding these conditions, see the section entitled “The Spin-Off—Conditions to the Spin-Off” beginning on page 36 of this Information Statement. Time Warner may, in its sole discretion, determine the record date, the distribution date and the terms of the distribution and may at any time prior to the completion of the distribution decide to abandon or modify the distribution.

Exchange of Information. We and Time Warner will agree to provide each other with information reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and to satisfy audit, accounting, litigation and other similar requests. We and Time Warner will also agree to use reasonable best efforts to retain such information in accordance with our respective record retention policies as in effect on the date of the Separation and Distribution Agreement. Until the end of the first full fiscal year following the distribution, each party will also agree to use its reasonable best efforts to assist the other with respect to its financial reporting and audit obligations.

Termination. The Separation and Distribution Agreement will provide that it may be terminated by Time Warner at any time prior to the distribution.

Release of Claims. We and Time Warner will agree to broad releases pursuant to which we will each release the other and its affiliates, successors and assigns and their respective shareholders, directors, officers, agents and employees from any claims against any of them that arise out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the distribution. These releases will be subject to certain exceptions set forth in the Separation and Distribution Agreement.

Indemnification. We and Time Warner will agree to indemnify each other and each of our respective affiliates, current and former directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing against certain liabilities in connection with the spin-off and our respective businesses.

The amount of each party’s indemnification obligations will be subject to reduction by any insurance proceeds received by the party being indemnified. The Separation and Distribution Agreement will also specify procedures with respect to claims subject to indemnification and related matters.

Transition Services Agreement

We intend to enter into a Transition Services Agreement pursuant to which Time Warner will provide us with certain services for a limited time to help ensure an orderly transition following the distribution.

 

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Under the agreement, Time Warner will provide us with:

 

   

treasury services for a period of up to 12 months following the spin-off at a cost of $40,000 per month, which services may include consultation regarding our cash management strategies, investment policies, strategies and products, international treasury matters and overall capital structure, support in obtaining debt ratings, hedging execution services and assistance with arranging a long-term revolving credit facility or other long-term financing;

 

   

construction and project management services in connection with ongoing improvements to our corporate headquarters at 770 Broadway, New York, New York, until the later of three months following the spin-off and the date on which the final project documentation is delivered to us; we will pay Time Warner all third-party vendor costs for the project (which Time Warner will pass through to the vendors) plus a fee for Time Warner’s work equal to 2% of the amount of all third-party vendors’ invoices, with the total liability capped at $1.0 million for the project; and

 

   

worldwide tax services for a period of up to 12 months following the spin-off at a cost of $62,500 per month, which services may include financial reporting of income taxes, assistance with tax audits and controversies, the provision of general tax consulting and advice, and assistance with ongoing tax compliance (including the preparation and filing of tax returns with the IRS and other tax authorities).

The cost of these services was negotiated between us and Time Warner and may not necessarily be reflective of prices that we could have obtained for similar services from an independent third party.

The above services represent all of the services currently intended to be provided pursuant to the Transition Services Agreement immediately following the distribution. Time Warner does not anticipate requiring services from us, but the agreement can be amended by mutual consent to add additional services.

Under the Transition Services Agreement, each party will, in its capacity as a service recipient (to the extent it does receive services under the agreement), indemnify the other and each member of its group with respect to the services provided thereunder, except to the extent any liability arises as a result of the service provider’s material breach of the Transition Services Agreement, violation of law, violation of any third party rights and/or gross negligence or wilful misconduct in providing the services. In such event, the relevant service provider will indemnify the service recipient against any loss, which indemnity will be capped at the total amount received by it for services provided pursuant to the Transition Services Agreement.

Either party will be permitted to terminate a service being provided pursuant to the Transition Services Agreement if the other party materially breaches any of its obligations under the agreement and does not cure such breach within 30 days of receiving written notice from the non-defaulting party. In addition, either party in its capacity as a service recipient shall have the ability, upon 90 days’ written notice, to unilaterally terminate one or more services being provided by the other party unless a particular service schedule allows for a shorter period for such termination. Also, either party in its capacity as a service provider will be permitted to terminate a service upon 90 days’ written notice if it ceases to provide such service to members of its group.

Given the short-term nature of the Transition Services Agreement, we are in the process of developing a plan to increase our internal capabilities to eliminate reliance on Time Warner in the future for the services which it will provide us immediately following the distribution.

Second Tax Matters Agreement

We intend to enter into a Second Tax Matters Agreement with Time Warner that will govern the respective rights, responsibilities and obligations of Time Warner and us after the spin-off with respect to all tax matters. As a member of Time Warner’s consolidated U.S. Federal income tax group, we have (and will continue to have following the spin-off) joint and several liability with Time Warner to the IRS for the consolidated U.S. Federal

 

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income taxes of the Time Warner group relating to the taxable periods in which we were part of the group. Under the Second Tax Matters Agreement, however, Time Warner will agree to indemnify us against this liability and any similar liability for U.S. Federal, state or local income taxes that are determined on a consolidated, combined, unitary or similar basis for each taxable period in which we are included in such consolidated, combined, unitary or similar group with Time Warner. We will remain responsible for any foreign income taxes and any income taxes that are not determined on a consolidated, combined, unitary or similar basis with Time Warner.

The Second Tax Matters Agreement will provide rules for allocating tax liabilities in the event that the spin-off, together with certain related transactions, is not tax-free. We will agree to indemnify Time Warner for such tax liabilities that are attributable to the failure of certain representations made by us or our affiliates to be true when made or deemed made or to certain other actions or omissions by us or our affiliates. In addition, the Second Tax Matters Agreement includes certain covenants that may restrict our ability to pursue strategic or other transactions that may maximize the value of our business and may discourage or delay a change of control that you may consider favorable.

Though valid as between the parties, the Second Tax Matters Agreement will not be binding on the IRS.

Upon the effectiveness of the Second Tax Matters Agreement, Time Warner will assume the obligation for certain tax positions taken by Time Warner in its consolidated, combined, unitary or similar tax returns with respect to AOL up to the date of the spin-off. As a result, at the date of the spin-off, we expect to reverse the recorded liability to Time Warner related to these tax positions, with an offsetting adjustment to equity.

Employee Matters Agreement

We intend to enter into an Employee Matters Agreement with AOL LLC and Time Warner that will set forth our agreements with Time Warner as to certain employment, compensation and benefits matters.

The Employee Matters Agreement will provide for the allocation and treatment of assets and liabilities arising out of employee compensation and benefit programs in which our employees participated prior to the distribution. Generally, such assets and liabilities will be transferred from AOL LLC or Time Warner to us. In certain limited instances, however, such assets and liabilities will remain with AOL LLC or Time Warner. In connection with the distribution, we will provide benefit plans and arrangements in which our employees will participate going forward. Generally, vested and certain unvested account balances under Time Warner’s tax-qualified savings plan which relate to our current and former employees will be transferred directly to the tax-qualified savings plan that we will establish.

All obligations pursuant to Time Warner’s nonqualified deferred compensation plans and other agreements providing for the payment of deferred compensation by AOL LLC or Time Warner will remain with AOL LLC or Time Warner, as applicable, following the distribution. Following the distribution, except for our obligation to reimburse Time Warner for certain ongoing administrative expenses, we will have no further financial obligations with respect to any such deferred compensation arrangements.

Stock options and RSUs granted or awarded to our employees under Time Warner’s equity incentive plans will be treated as if the employee was terminated without cause under the relevant award agreement (with the exception of options and RSUs granted or awarded to our Chief Executive Officer, which are described in “Executive Compensation—Actions Taken in 2009—Employment Agreement with Current Chairman and CEO” and which will be treated in the manner described below). All PSUs awarded to our employees under Time Warner’s equity incentive plans will be treated under provisions governing a “divisional change in control” under the relevant award agreement. In connection with our legal and structural separation from Time Warner, the liability to Time Warner relating to awards held by our current and former employees will be settled with Time Warner and, as such, reflected as an adjustment to our equity prior to spin-off. Following the distribution,

 

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except for our obligation to reimburse Time Warner for certain ongoing administrative expenses, we will have no further financial obligations with respect to such awards.

Upon the spin-off, all Time Warner stock options and RSUs held by our Chief Executive Officer will be converted, with appropriate adjustments, into stock options and RSUs of the Company on substantially the same terms and conditions (including vesting) as were applicable to his Time Warner stock options and RSUs immediately prior to the spin-off. Specifically, the Employee Matters Agreement provides that our Chief Executive Officer’s stock options and RSUs will be adjusted in a manner such that the “fair value” and the “intrinsic value” of such awards (each, within the meaning of FAS 123R) will be same immediately before and immediately after the Distribution.

The Employee Matters Agreement will also govern the transfer of employees between Time Warner and us in connection with the distribution, and sets forth obligations for certain reimbursements and indemnities between Time Warner and us relating to such transfer.

Intellectual Property Cross-License Agreement

We intend to enter into an Intellectual Property Cross-License Agreement with Time Warner pursuant to which each party will license, subject to certain terms and conditions, all United States or foreign patent applications or patents owned in whole or in part, as of the distribution date, by it or any of its subsidiaries to the other party on a non-exclusive basis.

The Intellectual Property Cross-License Agreement will contain certain covenants regarding the licensed intellectual property, including covenants by each licensor not to sue the licensee or certain third-party end users under or in respect of the intellectual property licensed to the licensee, and not to materially impair or adversely affect the rights of the licensee in its use of the applicable intellectual property. In addition, the Intellectual Property Cross-License Agreement will provide certain mechanisms to allow the licensee to retain the benefits of its license in any patent or patent application that the licensor abandons or transfers to an affiliate or third party.

Subject to certain restrictions, both us and Time Warner (and our subsidiaries, as applicable) may grant non-exclusive sublicenses to certain third parties under certain patents or patent applications licensed to it by the other party, provided that the third party agrees in writing to comply with the applicable licensee’s obligations under the agreement.

IT Applications and Database Agreement

We intend to enter into an IT Applications and Database Agreement with Time Warner pursuant to which each of us and Time Warner will provide to the other software applications that have been developed internally. Under the Agreement, Time Warner will also transfer to us all AOL-data which currently resides on its databases, and, to the extent necessary for business continuity, continue to provide us access to certain network applications.

Time Warner will also provide us with assistance after the distribution to the extent reasonably necessary to install and implement the software applications and data transfers described above, but only with respect to data transfers not completed before the distribution. Time Warner’s obligation to provide assistance under the agreement is limited to the 100 hours of service and shall not extend beyond 60 days from the later of the date on which such software applications are installed, the date of the last data transfer or the distribution date.

Each party is required to indemnify the other against certain claims arising from or related to the agreement. Except with respect to the indemnity, each party’s liability to the other is capped at $500,000 in the aggregate. The agreement will remain in effect until May 31, 2010.

 

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Master Services Agreement for ATDN and Hosting Services

We intend to enter into a Master Services Agreement with Time Warner pursuant to which we will continue to provide AOL network and hosting services to Time Warner and its subsidiaries after the distribution in a manner consistent with the nature, scope and price of services currently provided to Time Warner and its subsidiaries. The specific services to be provided to Time Warner and its subsidiaries, as well as the applicable payment terms, will be set forth in individual service orders to be entered into between us and each Time Warner entity receiving such services.

We have the right to modify any of our rates, fees and charges at any time, but such changes will not be effective as to any service orders executed prior to such modification. The agreement and any service orders entered into will terminate on December 1, 2011. Any Time Warner entity receiving services from us will be entitled to terminate the agreement as to itself or any service order for any reason by providing us 60 days’ notice.

We are providing such services to Time Warner and its subsidiaries as an accommodation as part of the separation transaction because the transition of such services to another provider will require 12 to 18 months.

Guarantee of Revolving Credit Facility

Under the anticipated terms of the new revolving credit facility we intend to enter into prior to the separation, Time Warner will guarantee our obligations under the facility. For more information on the revolving credit facility and the Time Warner guarantee, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Debt Obligations” on page 77 of this Information Statement.

Ongoing Commercial Agreements

In addition to the above agreements, we are also currently party to various other agreements with Time Warner and its subsidiaries (including Time Inc., Home Box Office, Inc., Warner Bros. Entertainment Inc. and Turner Broadcasting System, Inc.) that are intended to continue post-distribution subject to their existing terms or terms and conditions to be negotiated and agreed to. These agreements cover a range of services, including, but not limited to, advertising sales and advertising placement agreements for Time Warner group print and online media properties (including, among others, cnnmoney.com, sportsillustrated.com, people.com, time.com and golf.com), licensing and content distribution arrangements relating to Time Warner media content, web and sponsored search services agreements for Time Warner’s online media properties and miscellaneous sublease agreements. Except for the agreements described below, we do not consider these agreements with the Time Warner group to be material.

Private Label Publisher Master Services Agreement

Our wholly owned subsidiary, Quigo Technologies, Inc., is currently party to a Private Label Publisher Master Services Agreement with Time Inc., an indirect wholly owned subsidiary of Time Warner, pursuant to which Quigo is the exclusive provider of content-targeted and site search targeted text advertising services to certain of Time Inc.’s and its affiliates’ websites. Quigo made payments to Time Inc. and its affiliates in the amount of $10.6 million for the six months ended June 30, 2009, and $14.2 million and $6.9 million in 2008 and 2007, respectively, and expects to pay a total of $63.2 million under all existing service orders. The agreement, subject to certain exceptions, shall continue in effect through July 31, 2011.

Search Services Agreement

We are currently party to a Search Services Agreement with Time Inc., pursuant to which we are the exclusive provider of search-based sponsored text links for certain of Time Inc.’s websites (excluding searches

 

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targeted to market segments). Under the terms of the agreement, we are required to pay Time Inc. 95% of the revenues generated from advertising results on its websites, less our revenue share payment to Google for such results. We made payments to Time Inc. in the amount of $4.3 million for the six months ended June 30, 2009, and $2.9 million and $1.1 million in 2008 and 2007, respectively. Although the term of the agreement runs through August 31, 2010, given that Time Inc. will no longer be our affiliate upon completion of the distribution, we will need to either obtain Google’s consent to continue to provide certain services to Time Inc., enter into a separate agreement with an alternative third-party provider or mutually agree to terminate the agreement.

TMZ Arrangement

We are currently party to a Memorandum of Understanding with Telepictures Productions Inc., an indirect wholly-owned subsidiary of Time Warner, governing the operations of TMZ. Our contribution includes the provision of certain technology and the design, development and maintenance of TMZ’s website. Subject to certain performance adjustments and the reimbursement of expenses, revenues are split evenly between the parties. Telepictures received payments of $4.2 million for the six months ended June 30, 2009, and $10.8 million, $11.1 million and $5.0 million in 2008, 2007 and 2006, respectively.

As part of our separation from Time Warner, the TMZ Memorandum of Understanding between us and Telepictures is expected to be restructured such that Telepictures will assume responsibility for all of TMZ’s ongoing operations. Under the terms of the amended Memorandum of Understanding, we will provide online distribution to TMZ for a fee. This distribution arrangement will terminate on the earlier of December 31, 2010 or the date 12 months after the date AOL is no longer wholly-owned by Time Warner. In addition, we will provide hosting services to TMZ under the Master Services Agreement for ATDN and Hosting Services between Time Warner and us. The financial results related to TMZ are not material to our business.

Other Arrangements

Prior to the separation, we have had various other arrangements with Time Warner, including arrangements whereby Time Warner provides cash management and treasury services to AOL as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources” on page 73 of this Information Statement.

As described in more detail in “—Separation and Distribution Agreement” above, these arrangements, other than those contemplated pursuant to the Transition Services Agreement, will generally be terminated in connection with the separation. We do not consider these arrangements with Time Warner to be material.

Related Party Transactions

Patch Acquisition

On June 10, 2009, we purchased Patch Media Corporation, a news, information and community platform business dedicated to providing comprehensive local information and services for individual towns and communities, for approximately $7.0 million in cash. Approximately $700,000 of the consideration is being held in an indemnity escrow account until the first anniversary of the closing.

At the time of closing, Tim Armstrong, our Chairman and Chief Executive Officer, held, indirectly through Polar Capital Group, LLC (a private investment company which he founded), economic interests in Patch that entitled him to receive approximately 75% of the transaction consideration. Mr. Armstrong’s original investment in Patch, made in December 2007 through Polar Capital, was approximately $4.5 million. In connection with the transaction, Mr. Armstrong, through Polar Capital, waived his right to receive any transaction consideration in excess of his original $4.5 million investment, opting to accept only the return of his initial investment. In addition, Mr. Armstrong elected to return the $4.5 million (approximately $450,000 of which is being held in the indemnity escrow account for a year) that he was entitled to receive in connection with the transaction to us, to

 

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be held by us until after the spin-off. As soon as legally permissible, following the spin-off, we will cause to be issued to Polar Capital an amount of AOL common stock equivalent to $4.5 million (minus any amounts held in the indemnity escrow account) based on an average of the high and low market prices on the relevant trading day. The issuance of shares of AOL common stock to Polar Capital will be exempt from registration under Section 4(2) of the Securities Act, as a transaction by an issuer not involving a public offering.

Policy and Procedures Governing Related Person Transactions

Our board of directors intends to adopt a written policy for the review and approval of transactions involving related persons, which consist of directors, director nominees, executive officers, persons or entities known to the Company to be the beneficial owner of more than 5% of any outstanding class of the voting securities of the Company, or immediate family members or certain affiliated entities of any of the foregoing persons. Under authority delegated by the board of directors, the Nominating and Governance Committee (or its chair, under certain circumstances) will be responsible for applying the policy with the assistance of the General Counsel or his or her designee (if any). Transactions covered by the policy will consist of any financial transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, in which the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year; the Company is, will or may be expected to be a participant; and any related person has or will have a direct material interest or an indirect material interest.

Factors which the Nominating and Governance Committee may take into account in its determination to approve or ratify a transaction will include:

 

   

the extent of the related person’s interest in the transaction;

 

   

whether the transaction would interfere with the objectivity and independence of any related person’s judgment or conduct in fulfilling his or her duties and responsibilities to the Company;

 

   

whether the transaction is fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; and

 

   

whether the transaction is in the best interest of the Company and its shareholders.

The Nominating and Governance Committee may impose such conditions or guidelines as it determines appropriate with respect to any related person transaction it approves or ratifies, including:

 

   

conditions relating to ongoing reporting to the Committee and other internal reporting;

 

   

limitations on the dollar amount of the transaction;

 

   

limitations on the duration of the transaction or the Committee’s approval of the transaction; and

 

   

other conditions for the protection of the Company and to avoid conferring an improper benefit, or creating the appearance of a conflict of interest.

In addition, the Company anticipates that the policy will include a list of categories of transactions identified by our board of directors as having no significant potential for an actual or apparent conflict of interest or improper benefit to a related person, and thus will not be subject to review by the Nominating and Governance Committee.

 

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DESCRIPTION OF OUR CAPITAL STOCK

General

The following is a summary of information concerning our capital stock, including material provisions of our amended and restated certificate of incorporation and by-laws, and certain provisions of Delaware law. Our amended and restated certificate of incorporation and by-laws are included as exhibits to our Registration Statement on Form 10, of which this Information Statement is part.

Distribution of Securities

Except as disclosed in “Certain Relationships and Related Party Transactions—Related Party Transactions—Patch Acquisition” on page 157 of this Information Statement, in the past three years, we have not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services or other securities, and new securities resulting from the modification of outstanding securities that were not registered under the Securities Act. See Note 3 to the accompanying audited consolidated financial statements for information about the 5% equity interest in AOL that was sold to Google in April 2006.

Authorized Capital Stock

Immediately following the spin-off, our authorized capital stock will consist of 600.0 million shares of common stock, par value $0.01 per share, and 60.0 million shares of preferred stock, par value $0.01 per share.

Common Stock

Shares Outstanding. Immediately following the spin-off, we estimate that approximately                      million shares of our common stock will be issued and outstanding, based on the number of shares of Time Warner common stock outstanding as of     , 2009. The actual number of shares of our common stock outstanding immediately following the spin-off will depend on the actual number of shares of Time Warner common stock outstanding on the record date, and will reflect any issuance of new shares pursuant to Time Warner’s equity plans, including from exercises of stock options and vestings of RSUs or PSUs, and any shares repurchased by Time Warner under its common stock repurchase program, in each case on or prior to the record date.

Dividends. Holders of shares of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for that purpose. Future dividends are dependent on our earnings, financial condition, cash flow and business requirements, as determined by our board of directors. We do not anticipate paying any dividends for the foreseeable future. All decisions regarding the payment of dividends by us will be made by our board of directors from time to time in accordance with applicable law.

Voting Rights. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders.

Other Rights. Subject to any preferential liquidation rights of holders of preferred stock that may be outstanding, upon our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in our assets legally available for distribution to our shareholders.

Fully Paid. The issued and outstanding shares of our common stock are fully paid and non-assessable. Any additional shares of common stock that we may issue in the future will also be fully paid and non-assessable.

The holders of our common stock do not have preemptive rights or preferential rights to subscribe for shares of our capital stock.

 

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Preferred Stock

Our amended and restated certificate of incorporation will authorize our board to designate and issue from time to time one or more series of preferred stock without shareholder approval. Our board may fix and determine the preferences, limitations and relative rights of each series of preferred stock. There are no present plans to issue any shares of preferred stock.

Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and By-laws

Amended and Restated Certificate of Incorporation and By-laws

Certain provisions in our proposed amended and restated certificate of incorporation and by-laws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by shareholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control.

Blank Check Preferred Stock. Our amended and restated certificate of incorporation will permit us to issue, without any further vote or action by the shareholders, up to 60.0 million shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative, participating, optional and other rights, if any, and any qualifications, limitations or restrictions, of the shares of such series. The ability to issue such preferred stock could discourage potential acquisition proposals and could delay or prevent a change in control.

No Shareholder Action by Written Consent. Our amended and restated certificate of incorporation will expressly exclude the right of our shareholders to act by written consent. Shareholder action must take place at an annual meeting or at a special meeting of our shareholders.

Special Shareholder Meetings. Under our proposed amended and restated by-laws, only our Chairman of the board, Chief Executive Officer, board of directors or any record holders of shares of our common stock representing at least 40% of the outstanding shares of our common stock will be able to call a special meeting of shareholders. For a shareholder to call a special meeting, the shareholder must comply with the requirements set forth in our amended and restated by-laws, including giving notice to our secretary which notice must include the information described in “—Requirements for Advance Notification of Shareholder Nomination and Proposals” below.

Requirements for Advance Notification of Shareholder Nomination and Proposals. Under our proposed amended and restated by-laws, shareholders of record will be able to nominate persons for election to our board of directors or bring other business constituting a proper matter for shareholder action only by providing proper notice to our secretary. Proper notice must be timely, generally between 90 and 120 days prior to the relevant meeting (or, in the case of annual meetings, prior to the first anniversary of the prior year’s annual meeting), and must include, among other information, the name and address of the shareholder giving the notice, a representation that such shareholder is a holder of record of our common stock as of the date of the notice, certain information relating to each person whom such shareholder proposes to nominate for election as a director (including a statement as to whether such nominee intends to tender, following their election as a director, an irrevocable offer of resignation effective upon such nominee’s failure to be re-elected and upon acceptance of such resignation by our board of directors), a brief description of any other business and the text of any proposal such shareholder proposes to bring before the meeting and the reason for bringing such proposal,

 

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and the name of each person with whom the shareholder is acting in concert with respect to AOL or with whom such shareholder has any agreement, arrangement or understanding (whether written or oral) for the purpose of acquiring, holding, voting or disposing of our common stock or to cooperate in influencing the control of AOL, including details of any such agreement, arrangement or understanding, all shares of our common stock that are beneficially owned or owned of record by such persons, any derivative securities owned by such persons or other similar arrangements with respect to shares of our common stock (including all economic terms), all transactions by such persons involving shares of our common stock or other derivatives or similar instruments entered into or consummated within 60 days prior to the date of such notice, and a representation as to whether any such person intends or is part of a group which intends to deliver a proxy statement and/or form of proxy to our shareholders.

Delaware Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any “business combination” (as defined below) with any “interested stockholder” (as defined below) for a period of three years following the date that such stockholder became an interested stockholder, unless: (1) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 of the Delaware General Corporation Law defines “business combination” to include: (1) any merger or consolidation involving the corporation and the interested stockholder; (2) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (4) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (5) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.

Limitation on Liability of Directors and Indemnification of Directors and Officers

Under Delaware law, a corporation may indemnify any individual made a party or threatened to be made a party to any type of proceeding, other than an action by or in the right of the corporation, because he or she is or was an officer, director, employee or agent of the corporation or was serving at the request of the corporation as an officer, director, employee or agent of another corporation or entity against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such proceeding if (1) he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or (2) in the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful. A corporation may indemnify any individual made a party or threatened to be made a party to any threatened, pending or completed action or suit brought by or in the right of the corporation because he or she was an officer, director, employee or agent of the corporation, or is or was serving at the

 

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request of the corporation as a director, officer, employee or agent of another corporation or other entity, against expenses actually and reasonably incurred in connection with such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, provided that such indemnification will be denied if the individual is found liable to the corporation unless, in such a case, the court determines the person is nonetheless entitled to indemnification for such expenses. A corporation must indemnify a present or former director or officer who successfully defends himself or herself in a proceeding to which he or she was a party because he or she was a director or officer of the corporation against expenses actually and reasonably incurred by him or her. Expenses incurred by an officer or director, or any employees or agents as deemed appropriate by the board of directors, in defending civil or criminal proceedings may be paid by the corporation in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. The Delaware law regarding indemnification and expense advancement is not exclusive of any other rights which may be granted by our amended and restated certificate of incorporation or our amended and restated by-laws, a vote of stockholders or disinterested directors, agreement or otherwise.

Under Delaware law, termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that such person is prohibited from being indemnified.

Delaware law permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director, but not an officer, in his or her capacity as such, to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that such provision may not limit the liability of a director for (1) any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (3) unlawful payment of dividends or stock purchases or redemptions or (4) any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted under Delaware law, no AOL director shall be liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director.

Our amended and restated by-laws will require indemnification, to the fullest extent permitted under Delaware law, of any person who is or was a director or officer of AOL or any of its direct or indirect wholly-owned subsidiaries and who is or was a party or is threatened to be made a party to, or was or is otherwise directly involved in (including as a witness), any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of AOL or any direct or indirect wholly-owned subsidiary of AOL, or is or was serving at the request of AOL as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding; provided that the foregoing shall not apply to a director or officer with respect to a proceeding that was commenced by such director or officer except under certain circumstances.

In addition, our amended and restated by-laws will provide that expenses incurred by or on behalf of a current or former director or officer in connection with defending any action, suit or proceeding will be advanced to the director or officer by us upon the request of the director or officer, which request, if required by law, will include an undertaking by or on behalf of the director or officer to repay the amounts advanced if ultimately it is determined that the director or officer was not entitled to be indemnified against the expenses.

The indemnification rights to be provided in our amended and restated by-laws will not be exclusive of any other right to which persons seeking indemnification may otherwise be entitled.

 

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As permitted by Delaware law, our amended and restated by-laws will authorize us to purchase and maintain insurance to protect any director, officer, employee or agent against claims and liabilities that such persons may incur in such capacities.

Transfer Agent and Registrar

Computershare Trust Company, N.A.

New York Stock Exchange Listing

We intend to list our common stock on the New York Stock Exchange under the symbol “AOL.”

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a Registration Statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this Information Statement. This Information Statement is a part of, and does not contain all of the information set forth in, the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to our company and our common stock, please refer to the Registration Statement, including its exhibits and schedules. Statements made in this Information Statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may review a copy of the Registration Statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the Internet website maintained by the SEC at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room. Information contained on any website referenced in this Information Statement does not and will not constitute a part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.

As a result of the distribution, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC.

You may request a copy of any of our filings with the SEC at no cost, by writing or telephoning us at the following address:

Investor Relations

AOL Inc.

770 Broadway

New York, New York 10003-9522

Telephone: 1-877-AOL-1010

We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance with United States generally accepted accounting principles and audited and reported on, with an opinion expressed thereto, by an independent registered public accounting firm.

You should rely only on the information contained in this Information Statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this Information Statement.

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page

Audited Consolidated Financial Statements

  

Report of Independent Registered Public Accounting Firm

   F-2

Consolidated Balance Sheets as of December 31, 2008 and 2007

   F-3

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

   F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

   F-5

Consolidated Statements of Equity for the years ended December 31, 2008, 2007, 2006 and 2005

   F-6

Notes to Consolidated Financial Statements

   F-7

Unaudited Interim Consolidated Financial Statements

  

Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008

   F-43

Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008

   F-44

Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008

   F-45

Consolidated Statements of Equity for the six months ended June 30, 2009 and 2008

   F-46

Notes to Interim Consolidated Financial Statements

   F-47

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Management of AOL Inc.

We have audited the accompanying consolidated balance sheets of AOL Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, equity and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the Financial Statement Schedule II listed in the cross-reference sheet to the Registration Statement on Form 10 at Item 15(a)(3). These financial statements and Financial Statement Schedule II are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and Financial Statement Schedule II based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AOL Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related Financial Statement Schedule II, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 5, as of January 1, 2007, AOL adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109.

Ernst & Young LLP

McLean, Virginia

July 27, 2009, except for Note 1 as to which the date is     , 2009

The foregoing report is in the form that will be signed upon the completion of the conversion from AOL Holdings LLC to AOL Inc. and the restatement of the capital accounts described in Note 1 to the financial statements.

/s/ Ernst & Young LLP

McLean, Virginia

October 26, 2009

 

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AOL Inc.

Consolidated Balance Sheet

($ in millions)

 

Assets

   December 31,
   2008    2007

Current assets:

     

Cash

   $ 134.7     $ 151.9 

Accounts receivable, net of allowances of $39.8 and $30.9, respectively

     500.2       573.6 

Receivables from Time Warner

     39.5       90.3 

Prepaid expenses and other current assets

     33.5       190.7 

Deferred income taxes

     25.8       269.4 

Assets held for sale

     6.7       —   
             

Total current assets

     740.4       1,275.9 

Property and equipment, net

     790.6       906.5 

Long-term receivables from Time Warner

     37.7       55.3 

Goodwill

     2,161.5       3,527.4 

Intangible assets, net

     369.2       395.7 

Long-term deferred income taxes

     734.2       634.3 

Other long-term assets

     27.7       68.0 
             

Total assets

   $     4,861.3     $     6,863.1 
             
Liabilities and Equity      

Current liabilities:

     

Accounts payable

   $ 52.2     $ 86.4 

Accrued compensation and benefits

     51.1       198.7 

Accrued expenses and other current liabilities

     302.4       433.7 

Deferred revenue

     140.1       164.1 

Payables to Time Warner

     58.8       212.2 

Current portion of notes payable and obligations under capital leases

     25.0       74.3 
             

Total current liabilities

     629.6       1,169.4 

Notes payable and obligations under capital leases

     33.7       24.7 

Long-term obligations to Time Warner

     377.0       327.2 

Restructuring liabilities

     9.0       16.7 

Deferred income taxes

     11.5       6.8 

Other long-term liabilities

     62.8       48.8 
             

Total liabilities

     1,123.6       1,593.6 
             

Commitments and contingencies (See Note 9)

     

Equity

     

Divisional equity

     4,038.6       5,474.1 

Accumulated other comprehensive loss, net

     (302.4)      (206.9)
             

Total divisional equity

     3,736.2       5,267.2 

Noncontrolling interest

     1.5       2.3 
             

Total equity

     3,737.7       5,269.5 
             

Total liabilities and equity

   $ 4,861.3     $ 6,863.1 
             

See accompanying notes.

 

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AOL Inc.

Consolidated Statement of Operations

($ in millions)

 

     Years ended December 31,
     2008    2007    2006

Revenues

        

Advertising

   $ 2,096.4     $ 2,230.6     $     1,886.1 

Subscription

     1,929.3       2,787.9       5,783.6 

Other

     140.1       162.2       117.0 
                    

Total revenues

     4,165.8       5,180.7       7,786.7 

Costs of revenues

     2,278.4       2,652.6       4,129.0 

Selling, general and administrative

     644.8       964.2       2,199.6 

Amortization of intangible assets

     166.2       95.9       133.5 

Amounts related to securities litigation and government investigations, net of recoveries

     20.8       171.4       705.2 

Restructuring costs

     16.6       125.4       222.2 

Goodwill impairment charge

     2,207.0       —         —   

Gain on disposal of assets and consolidated businesses, net

     (0.3)      (682.6)      (770.6)
                    

Operating income (loss)

     (1,167.7)      1,853.8       1,167.8 

Other income (loss), net

     (3.8)      1.2       29.4 
                    

Income (loss) from continuing operations before income taxes

     (1,171.5)      1,855.0       1,197.2 

Income tax provision

     355.1       641.7       480.7 
                    

Income (loss) from continuing operations

     (1,526.6)      1,213.3       716.5 

Discontinued operations, net of tax

     —         182.1       18.9 
                    

Income before cumulative effect of accounting change

     (1,526.6)      1,395.4       735.4 

Cumulative effect of accounting change, net of tax

     —         —         14.3 
                    

Net income (loss)

     (1,526.6)      1,395.4       749.7 

Less: Net loss attributable to noncontrolling interests

     (0.8)      (0.7)      —   
                    

Net income (loss) attributable to AOL Inc.

   $     (1,525.8)    $     1,396.1     $ 749.7 
                    

Amounts attributable to AOL Inc.:

        

Income (loss) from continuing operations

   $ (1,525.8)    $ 1,214.0     $ 716.5 

Discontinued operations, net of tax

     —         182.1       18.9 

Cumulative effect of accounting change, net of tax

     —         —         14.3 
                    

Net income (loss) attributable to AOL Inc.

   $ (1,525.8)    $ 1,396.1     $ 749.7 
                    

See accompanying notes.

 

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AOL Inc.

Consolidated Statement of Cash Flows

($ in millions)

 

     Years ended December 31,
     2008    2007    2006

Operations

        

Net income (loss)

   $ (1,526.6)    $ 1,395.4    $ 749.7

Adjustments for non-cash and nonoperating items:

        

Cumulative effect of accounting change, net of tax

     —        —        (14.3)

Depreciation and amortization

     477.2      498.6      634.3

Asset impairments

     2,240.0      16.2      52.2

Gain on disposal of assets and consolidated businesses, net

     (0.3)      (682.6)      (770.6)

Equity-based compensation

     19.6      32.3      41.2

Amounts related to securities litigation and government investigations, net of recoveries

     20.8      171.4      705.2

Other non-cash adjustments

     (1.7)      (6.7)      (3.5)

Deferred income taxes

     (49.5)      102.2      (14.7)

Changes in operating assets and liabilities, net of acquisitions:

        

Receivables

     73.2      (86.9)      (46.3)

Accrued expenses

     (282.9)      (151.3)      (129.7)

Deferred revenue

     (21.7)      (123.9)      (95.6)

Other balance sheet changes

     (14.5)      38.6      21.7

Adjustments relating to discontinued operations (a)

     —        (186.7)      12.6
                    

Cash provided by operations

     933.6      1,016.6      1,142.2

Investing Activities

        

Investments and acquisitions, net of cash acquired

     (1,035.4)      (881.4)      (134.0)

Proceeds from disposal of assets and consolidated businesses, net

     126.9      1,034.8      836.7

Capital expenditures and product development costs

     (172.2)      (280.2)      (387.1)

Investment activities from discontinued operations

     —        261.0      —  

Other investment proceeds

     8.4      8.0      5.1
                    

Cash provided (used) by investing activities

     (1,072.3)      142.2      320.7

Financing Activities

        

Debt repayments

     (54.0)      (25.9)      (502.2)

Principal payments on capital leases

     (25.1)      (36.1)      (66.3)

Proceeds from sale of member interests

     —        —        1,000.0

Excess tax benefits on stock options

     2.1      34.4      47.6

Net contribution from (distribution to) Time Warner

     210.4      (1,390.3)      (1,670.2)

Other

     1.5      (7.4)      (9.7)
                    

Cash provided (used) by financing activities

     134.9      (1,425.3)      (1,200.8)

Effect of exchange rate changes on cash

     (13.4)      16.9      19.5

Increase (decrease) in cash

     (17.2)      (249.6)      281.6

Cash at beginning of period

     151.9      401.5      119.9
                    

Cash at end of period

   $ 134.7    $ 151.9    $ 401.5
                    

Supplemental disclosures of cash flow information

        

Cash paid for interest

   $ 10.5    $ 9.7    $ 16.1
                    

Cash paid for taxes (b)

   $ 516.6    $ 741.9    $ 312.6
                    

 

(a) The years ended December 31, 2007 and 2006 included net income from discontinued operations of $182.1 million and $18.9 million, respectively. After considering non-cash expenses, the net gain on sale reported in discontinued operations and working capital related adjustments relating to discontinued operations, net operational cash used by discontinued operations was $4.6 million for the year ended December 31, 2007 and net operational cash provided by discontinued operations was $31.5 million for the year ended December 31, 2006.

 

(b) The amount of cash paid for taxes includes $504.2 million, $704.4 million and $307.5 million for the years ended December 31, 2008, 2007 and 2006, respectively, paid to Time Warner under the tax matters agreement. See Note 11 for further information on the tax matters agreement.

See accompanying notes.

 

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Table of Contents

AOL Inc.

Consolidated Statement of Equity

($ in millions)

 

         Divisional    
Equity
   Accumulated
Other
Comprehensive
Income (Loss)
   Non-
    controlling    
Interest
     Total Equity  

Balance at December 31, 2005

   $ 3,712.3    $ (181.7)    $ —      $ 3,530.6

Net income

     749.7      —        —        749.7

Unrealized gains (losses) on derivatives and investments, net of tax

     —        20.5      —        20.5

Foreign currency translation adjustments

     —        8.6      —        8.6

Net transactions with Time Warner (a)

     293.2      (99.8)      —        193.4

Other

     —        —        3.0      3.0
                           

Balance at December 31, 2006

   $ 4,755.2    $ (252.4)    $ 3.0    $ 4,505.8
                           

Net income

     1,396.1      —        (0.7)      1,395.4

Unrealized gains (losses) on derivatives and investments, net of tax

     —        (0.2)      —        (0.2)

Foreign currency translation adjustments

     —        45.7      —        45.7

Impact of adopting FASB Interpretation No. 48

     379.3      —        —        379.3

Net transactions with Time Warner (a)

     (1,056.5)      —        —        (1,056.5)
                           

Balance at December 31, 2007

   $ 5,474.1    $ (206.9)    $ 2.3    $ 5,269.5
                           

Net loss

     (1,525.8)      —        (0.8)      (1,526.6)

Foreign currency translation adjustments

     —        (95.5)      —        (95.5)

Net transactions with Time Warner (a)

     90.3      —        —        90.3
                           

Balance at December 31, 2008

   $ 4,038.6    $ (302.4)    $ 1.5    $ 3,737.7
                           

 

(a) In 2006, and in connection with the agreements entered into related to the AOL-Google alliance, AOL made a distribution of substantially its entire investment portfolio, having a carrying value of $190.0 million on the date of the distribution (including unrealized gains, net of tax of $99.8 million), to Time Warner in a tax-free transaction. No gain or loss was recognized by AOL as a result of this distribution. AOL also repaid $707.1 million of amounts owed to Time Warner by AOL’s international subsidiaries. These transactions reduced divisional equity by $897.1 million and increased accumulated other comprehensive loss, net by $99.8 million for the year ended December 31, 2006.

See accompanying notes.

 

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Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

On May 28, 2009, Time Warner Inc. (“Time Warner”) announced plans for the complete legal and structural separation of its subsidiary, AOL LLC, from Time Warner (also referred to herein as the “spin-off”). Prior to the spin-off, Time Warner will convert its wholly-owned subsidiary and the immediate parent company of AOL LLC, AOL Holdings LLC, into a Delaware corporation to be named AOL Inc. (“AOL” or the “Company”), and substantially all of the assets and liabilities that comprise the AOL business will be transferred to AOL. These financial statements have been prepared as if the conversion to AOL Inc. has taken place, and as if the transfer of assets and liabilities has taken place. The spin-off will be completed by way of a pro rata dividend of AOL shares held by Time Warner to its shareholders as of the record date. Immediately following completion of the spin-off, Time Warner shareholders will own 100% of the outstanding shares of common stock of AOL. After the spin-off, AOL will operate as an independent, publicly-traded company.

AOL is a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience. AOL’s business spans online content, products and services that it offers to consumers, publishers and advertisers. AOL is focused on attracting and engaging consumers and providing valuable online advertising services on both its owned and operated properties and third-party websites. We generate advertising revenues from our owned and operated content, products and services, which we refer to as “AOL Media,” through the sale of display and search advertising. A valuable distribution channel for AOL Media is through our AOL-brand subscription access service, which we offer consumers in the United States for a monthly fee. We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we refer to as the “Third Party Network.”

Basis of Presentation

 

  (a) Basis of Consolidation

The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of AOL, all voting interest entities in which AOL has a controlling voting interest (“subsidiaries”), and those variable interest entities for which AOL is the primary beneficiary in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46R”). These financial statements have been prepared as if the legal entity conversion and transfer of assets and liabilities described in the “Description of Business” section above has taken place. Accordingly, these financial statements present the historical results of the business that will be transferred to AOL Inc. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. For each of the periods presented, AOL was a subsidiary of Time Warner. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented.

In connection with the spin-off, the Company will enter into transactions with Time Warner that either have not existed historically or that are on different terms than the terms of arrangements or agreements that existed prior to the spin-off. In addition, the Company’s historical financial information does not reflect changes that the Company expects to experience in the future as a result of the separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of the business. Further, the historical financial statements include allocations of certain Time Warner corporate expenses. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by AOL if it

 

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Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. These allocated expenses relate to various services that have historically been provided to AOL by Time Warner, including cash management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit, accounting and human resources), equity-based compensation plan administration, aviation services, insurance coverage and the licensing of certain third-party patents. During the years ended December 31, 2008, 2007 and 2006, AOL incurred $23.3 million, $28.4 million and $35.8 million, respectively, of expenses related to charges for services performed by Time Warner. See Note 11 for further information regarding the allocation of Time Warner corporate expenses.

The Company’s financial instruments include primarily cash, accounts receivable, accounts payable, accrued expenses and other current liabilities. Due to the short-term nature of these assets and liabilities, their carrying amounts approximate their fair value. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company maintains its cash balances in the form of money market accounts and overnight deposits with financial institutions that management believes are creditworthy. The Company’s exposure to customer credit risk relates primarily to our advertising customers and individual subscribers to our access service, and is dispersed among many different counterparties, with no single customer having a receivable balance in excess of 10% of total net receivables at December 31, 2008.

The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses are included in the consolidated balance sheet as a component of accumulated other comprehensive loss, net.

 

  (b) Change in Accounting Principle

The 2006 financial information reflects the cumulative effect of a change in accounting principle upon the adoption of FASB Statement of Financial Accounting Standards (“Statement”) No. 123 (revised 2004), Share-Based Payment (“FAS 123R”). When recording compensation cost for equity awards, FAS 123R requires companies to estimate the number of equity awards granted that are expected to be forfeited. Prior to the adoption of FAS 123R, the Company recognized forfeitures when they occurred, rather than using an estimate at the grant date and subsequently adjusting the estimated forfeitures to reflect actual forfeitures. The Company adjusted its 2006 consolidated statement of operations and consolidated statement of cash flows to reflect a benefit of $14.3 million, net of tax, as the cumulative effect of a change in accounting principle upon the adoption of FAS 123R in the first quarter of 2006, to recognize the effect of estimating the number of awards granted by Time Warner to AOL employees prior to January 1, 2006 that are not ultimately expected to vest.

 

  (c) Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the consolidated financial statements include accounting for asset impairments, reserves established for uncollectible accounts, equity-based compensation, depreciation and amortization, business combinations, income taxes, litigation matters and contingencies.

 

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Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Recent Accounting Standards

 

  (a) Fair Value Measurements

On January 1, 2008, the Company adopted certain provisions of FASB Statement No. 157, Fair Value Measurements (“FAS 157”), which establishes the authoritative definition of fair value, sets out a framework for measuring fair value and expands the required disclosures about fair value measurement. The provisions of FAS 157 adopted on January 1, 2008 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis and did not have a material impact on the Company’s consolidated financial statements. The provisions of FAS 157 related to other nonfinancial assets and liabilities became effective for AOL on January 1, 2009, and are being applied prospectively. These provisions are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (b) Business Combinations

In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (“FAS 141R”). FAS 141R establishes principles and requirements for how an acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, (ii) recognizes and measures goodwill acquired in a business combination or a gain from a bargain purchase and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. In addition, FAS 141R requires that changes in the amount of acquired tax attributes be included in the Company’s results of operations. FAS 141R became effective for AOL on January 1, 2009 and is being applied prospectively to business combinations that have an acquisition date on or after January 1, 2009. While FAS 141R applies only to business combinations with an acquisition date after its effective date, the amendments to FASB Statement No. 109, Accounting for Income Taxes (“FAS 109”), with respect to deferred tax valuation allowances and liabilities for income tax uncertainties are being applied to all deferred tax valuation allowances and liabilities for income tax uncertainties recognized in prior business combinations. The provisions of FAS 141R will not impact the Company’s consolidated financial statements for prior periods.

 

  (c) Noncontrolling Interests

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“FAS 160”). The provisions of FAS 160 establish accounting and reporting standards for the noncontrolling interest in a subsidiary, including the accounting treatment upon the deconsolidation of a subsidiary. FAS 160 became effective for AOL on January 1, 2009 and is being applied prospectively, except for the provisions related to the presentation of noncontrolling interests. Noncontrolling interests have been reclassified to equity in the consolidated balance sheet and excluded from net income in the consolidated statement of operations for all prior periods presented.

 

  (d) Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“FAS 161”). FAS 161 establishes enhanced disclosures about how derivative instruments and hedging activities affect an entity’s financial position, financial performance, and cash flows. The provisions of FAS 161 became effective for AOL on January 1, 2009 and requires these enhanced disclosures for periods subsequent to the effective date. The provisions of FAS 161 are not expected to have a significant impact on the Company’s financial statements.

 

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Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

  (e) Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB staff issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP No. FAS 107-1 and APB 28-1”). This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The provisions of FSP No. FAS 107-1 and APB 28-1 became effective for AOL on April 1, 2009, will be applied prospectively beginning in the second quarter of 2009 and are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (f) Recognition and Presentation of Other-Than-Temporary-Impairments

In April 2009, the FASB staff issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other Than-Temporary-Impairments (“FSP No. FAS 115-2 and FAS 124-2”). This FSP incorporates impairment guidance for debt securities from various sources of authoritative literature and clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired. The provisions of FSP No. FAS 115-2 and FAS 124-2 became effective for AOL on April 1, 2009, will be applied prospectively beginning in the second quarter of 2009 and are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (g) Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB staff issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP No. FAS 157-4”). This FSP provides additional guidance for estimating fair value in accordance with FAS 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly (i.e., a forced liquidation or distressed sale). The provisions of FSP No. FAS 157-4 became effective for AOL on April 1, 2009, are being applied prospectively beginning in the second quarter of 2009 and are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (h) Subsequent Events

In May 2009, the FASB issued Statement No. 165, Subsequent Events (“FAS 165”). FAS 165 establishes standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. In particular, FAS 165 sets forth (i) the periods after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. The provisions of FAS 165 became effective for AOL on April 1, 2009, are being applied prospectively beginning in the second quarter of 2009 and are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (i) Variable Interest Entities

In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”). FAS 167 amends FIN 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has (i) the power

 

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Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (ii) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity of the right to receive benefits from the entity that could potentially be significant to the variable interest entity. In addition, FAS 167 amends FIN 46(R) to (i) require ongoing assessments of whether an entity is the primary beneficiary of a variable interest entity, (ii) eliminates the quantitative approach for determining the primary beneficiary of a variable interest entity, (iii) amends certain guidance for determining whether an entity is a variable interest entity and (iv) requires enhanced disclosures. The provisions of FAS 167 will become effective for AOL on January 1, 2010, will be applied retrospectively beginning in the first quarter of 2010 and are not expected to have a material impact on the Company’s consolidated financial statements.

Summary of Significant Accounting Policies

 

  (a) Uncollectible Accounts

AOL’s receivables consist primarily of two components, receivables from individual subscribers to AOL’s subscription access service and receivables from advertising customers. Management performs separate evaluations of these components to determine if the balances will ultimately be fully collected considering management’s views on trends in the overall receivable agings. In addition, for certain advertising receivables, management prepares an analysis of specific risks on a customer-by-customer basis. Using this information, management reserves an amount that is expected to be uncollectible. At December 31, 2008 and 2007, total reserves for uncollectible accounts were $39.8 million and $30.9 million, respectively.

 

  (b) Receivables from, and Payables to, Time Warner

Receivables from, and payables to, Time Warner represent amounts due from or to Time Warner and its subsidiaries under various arrangements which are discussed further in Note 11.

 

  (c) Property and Equipment

Property and equipment are stated at cost. Depreciation, which includes amortization of capitalized software costs and amortization of assets under capital lease, is provided generally on a straight-line basis over the estimated useful lives of the assets. AOL evaluates the depreciation periods of property and equipment to determine whether events or circumstances warrant revised estimates of useful lives. Depreciation expense, recorded in costs of revenues and selling, general and administrative expense, totaled $311.0 million, $402.7 million and $500.8 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Property and equipment, including assets under capital lease, consist of ($ in millions):

 

     December 31,     Estimated
Useful Lives
     2008     2007    

Land (a)

   $ 47.0      $ 51.8     

Buildings

     387.1        437.3      15 to 40 years

Capitalized internal-use software costs

     908.6        810.1      1 to 5 years

Leasehold improvements

     182.0        156.0      5 to 15 years

Furniture, fixtures and other equipment

     1,060.0        1,230.4      2 to 15 years
                  
     2,584.7        2,685.6     

Less accumulated depreciation

     (1,794.1     (1,779.1  
                  

Total

   $ 790.6      $ 906.5     
                  

 

(a) Land is not depreciated.

 

F-11


Table of Contents

AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

  (d) Capitalized Software

 

  (i) Internal-use Software

AOL capitalizes certain costs incurred for the development of internal-use software. These costs, which include the costs associated with coding, software configuration, upgrades and enhancements and are related to both AOL’s internal systems (such as billing and accounting) and AOL’s user-facing Internet offerings, are included in property and equipment, net in the consolidated balance sheet.

 

  (ii) Capitalized Software Associated with Subscription Access Service

AOL capitalizes costs incurred for the production of computer software that generates the functionality for its subscription access service. Capitalized costs typically include direct labor and related overhead for software produced by AOL, as well as the cost of software purchased from third parties. Costs incurred for a product prior to the determination that the product is technologically feasible (i.e., research and development costs), as well as maintenance costs for established products, are expensed as incurred. Once technological feasibility has been established, development costs are capitalized until the software has completed testing and is mass-marketed. Amortization is recognized on a product-by-product basis using the greater of the straight-line method or the current year revenue as a percentage of total revenue estimates for the related software product, not to exceed five years, commencing the month after the date of the product release. The total net book value of capitalized software costs related to subscription access service was $9.5 million and $32.8 million at December 31, 2008 and 2007, respectively. Such amounts are included in other long-term assets in the consolidated balance sheet. Amortization of capitalized software costs related to our subscription access service was $22.4 million, $62.2 million and $106.2 million for the years ended December 31, 2008, 2007 and 2006, respectively.

 

  (iii) Research and Development

Research and development costs related to our software development efforts, which are expensed as incurred, are included in costs of revenues and totaled $68.8 million, $74.2 million and $114.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. These costs consist primarily of personnel and related costs that are incurred related to the development of software and user-facing Internet offerings that do not qualify for capitalization.

 

  (e) Leases

The Company leases operating equipment and office space in various locations worldwide. Lease obligations are classified as operating leases or capital leases, as appropriate, under the guidance in FASB Statement No. 13, Accounting for Leases. Leased property that meets the capital lease criteria is capitalized and the present value of the future minimum lease payments is recorded as an asset under capital lease and related capital lease obligation in the consolidated balance sheet.

Rent expense under operating leases is recognized on a straight-line basis over the lease term taking into consideration scheduled rent increases or any lease incentives.

 

  (f) Intangible Assets

AOL has a significant number of intangible assets, including acquired technology, trademarks and customer relationships. AOL does not recognize the fair value of internally generated intangible assets. Intangible assets acquired in business combinations are recorded at fair value on the Company’s consolidated balance sheet and are amortized over estimated useful lives generally on a straight-line basis. Intangible assets subject to

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

amortization are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. AOL did not have any impairments of intangible assets during 2008, 2007 or 2006.

 

  (g) Asset Impairments

 

  (i) Goodwill

Goodwill is tested annually for impairment during the fourth quarter or earlier in the year upon the occurrence of certain events or substantive changes in circumstances. FASB Statement No. 142, Goodwill and Intangible Assets (“FAS 142”), requires the testing of goodwill for impairment be performed at the level referred to as the reporting unit. A reporting unit is either the “operating segment level” or one level below, which is referred to as a “component.” For purposes of AOL’s goodwill impairment test, AOL considers itself to be a single reporting unit.

Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of its reporting unit using a combination of a discounted cash flow (“DCF”) analysis and a market-based approach. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying amount to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

 

  (ii) Long-Lived Assets

Long-lived assets, including finite-lived intangible assets (e.g., acquired technology and customer relationships), do not require that an annual impairment test be performed; instead, long-lived assets are tested for impairment upon the occurrence of a triggering event. Once a triggering event has occurred, the impairment test is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the impairment test first requires a comparison of estimated undiscounted future cash flows generated by the asset group against the carrying value of the asset group. If the carrying value of the asset group exceeds the estimated undiscounted future cash flows, the asset would be deemed to be impaired. Impairment would then be measured as the difference between the estimated fair value of the asset and its carrying value. Fair value is generally determined by discounting the future cash flows associated with that asset. If the intent is to hold the asset for sale and certain other criteria are met (i.e., the asset can be disposed of currently, appropriate levels of authority have approved the sale and there is an active program to locate a buyer), the impairment test involves comparing the asset’s carrying value to its estimated fair value. To the extent the carrying value is greater than the asset’s estimated fair value, an impairment loss is recognized for the difference. AOL recorded non-cash impairments of $33.0 million, $16.2 million and $52.2 million in 2008, 2007 and 2006, respectively, included in costs of revenues in the consolidated statement of operations. The impairment charge recorded in 2008 related primarily to asset write-offs in connection with facility consolidations. The impairment charge recorded in 2007 related primarily to impairments of certain capitalized software no longer being used by

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

AOL. The impairment charge recorded in 2006 related primarily to impairments of certain capitalized software and fixed asset write-offs in connection with the closing of a leased office facility.

 

  (h) Revenues

The Company generates revenue primarily from advertising and from its subscription access service. Revenue is recognized when persuasive evidence of an arrangement exists, performance under the contract has begun, the contract price is fixed or determinable and collectibility of the related fee is reasonably assured.

 

  (i) Advertising Revenues

Advertising revenues are generated through the display of graphical advertisements, the display of sponsored links to an advertiser’s website that are associated with search results, the display of contextual links to an advertiser’s website, as well as other performance-based advertising transactions. Advertising revenues derived from impression-based contracts, in which AOL provides impressions in exchange for a fixed fee (generally stated as cost-per-thousand impressions), are generally recognized as the impressions are delivered. An “impression” is delivered when an advertisement appears in pages viewed by users. Revenues derived from time-based contracts, in which AOL provides a minimum number of impressions over a specified time period for a fixed fee, are recognized on a straight-line basis over the term of the contract, provided that AOL is meeting its obligations under the contract (e.g., delivery of impressions). Advertising revenues derived from contracts where AOL is compensated based on certain performance criteria are recognized as AOL completes the contractually specified performance. Performance can be measured in terms of “click-throughs” when a user clicks on a company’s advertisement or other user actions such as product/customer registrations, survey participation, sales leads or product purchases.

In addition to advertising revenues generated on AOL Media, the Company also generates revenue from its advertising offerings on its Third Party Network, which consist primarily of sales of display advertising on behalf of third parties on a cost-per-impression basis, or a fixed-fee basis or on a pay-for-performance basis.

 

  (ii) Gross versus Net Revenue Recognition

In the normal course of business, the Company sometimes acts as or uses an intermediary or agent in executing transactions with third parties. The determination of whether revenue should be reported gross or net is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the guidance in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”).

 

  (iii) Multiple-Element Transactions

Management analyzes contracts with multiple elements under the guidance of EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, and SEC Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Specifically, if the Company enters into sales contracts for the sale of multiple products or services, then the Company evaluates whether the delivered elements have value to the customer on a standalone basis, and whether it has fair value evidence for each undelivered element in the transaction. If these criteria are met, then the Company accounts for each deliverable in the transaction separately. The Company generally recognizes revenue for other contractual elements on a straight-line basis over the contractual performance period for time-based elements or once specified deliverables have been provided to the customer. If the Company is

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

unable to determine fair value for one or more undelivered elements in the transaction, the Company recognizes revenue associated with the aggregate contract value on a straight-line basis over the term of the agreement, provided that AOL is meeting its obligations under the contract.

 

  (iv) Contemporaneous Purchases and Sales

In the normal course of business, AOL enters into transactions in which it purchases a product or service and contemporaneously negotiates a contract for the sale of advertising to the customer. Contemporaneous transactions may also involve circumstances where the Company is purchasing or selling products and services and settling a dispute. Such arrangements, although negotiated contemporaneously, may be documented in one or more contracts.

The Company’s accounting policy for each transaction negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the products or services purchased and the fair values of the products or services sold. If the Company is unable to determine the fair value of one or more of the elements being purchased, revenue would be recognized for the contemporaneous transactions on a net basis.

 

  (v) Subscription Revenues

The Company earns revenue from its subscription access service in the form of monthly fees paid by subscribers to its dial-up Internet access service, and such revenues are recognized as the service is provided.

 

  (vi) Other Revenues

Other revenues are related primarily to the Company’s licensing of ad serving technology and are recognized as those services are provided to customers. Other revenues also include fees associated with the Company’s mobile email and instant messaging functionality which are generally recognized based on usage of the messaging functionality at contractually specified rates, and historically, transition support services provided to the purchasers of the European access service businesses, which were recognized as the services were provided. The agreements to provide transition support services to the purchasers of the European access service businesses ended in 2008.

 

  (i) Traffic Acquisition Costs

AOL incurs costs through arrangements in which it acquires online advertising inventory from publishers for resale to advertisers and arrangements whereby partners distribute AOL’s free products or services or otherwise direct traffic to AOL Media. AOL considers these costs to be traffic acquisition costs or “TAC.” TAC arrangements have a number of different economic structures, the most common of which are: (i) payments based on a cost-per-thousand impressions or based on a percentage of the ultimate advertising revenues generated from the advertising inventory acquired for resale, (ii) payments for direct traffic delivered to AOL Media priced on a per-click basis (e.g., search engine marketing fees) and (iii) payments to partners in exchange for distributing AOL products to their users (e.g., agreements with computer manufacturers to distribute the AOL toolbar or a co-branded web portal on computers shipped to end users). These arrangements can be on a fixed-fee basis (which often carry reciprocal performance guarantees by the counterparty), on a variable basis or, in some cases, a combination of the two. TAC agreements with fixed payments are typically expensed ratably over the term of the agreement. TAC agreements with variable payments are typically expensed based on the volume of the underlying activity at the specified contractual rates. TAC agreements with a combination of a fixed fee for a minimum amount of traffic delivered or other underlying activity and variable payments for delivery or

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

performance in excess of the minimum are typically recognized into expense at the higher of straight-line or actual performance, taking into account counterparty performance to date and the projected counterparty performance over the term of the agreement.

 

  (j) Advertising Costs

The Company expenses advertising costs as they are incurred, which is when the advertising is first exhibited or displayed. Advertising expense to third parties was $117.0 million, $301.1 million and $1,186.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. In addition, the Company had prepaid advertising costs of $3.4 million and $5.7 million at December 31, 2008 and 2007, respectively, recorded in prepaid expenses and other current assets in the consolidated balance sheet.

 

  (k) Income Statement Classification of Taxes Collected from Customers

AOL follows the provisions of EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”), in accounting for taxes collected from customers. AOL collects value added taxes from customers and remits such taxes to the appropriate governmental authority. AOL accounts for the taxes collected and remitted on a net basis (excluded from revenues).

 

  (l) Income Taxes

Time Warner and its domestic subsidiaries, including AOL prior to the spin-off, file a consolidated U.S. Federal income tax return. Income taxes as presented in the consolidated financial statements attribute current and deferred income taxes of Time Warner to AOL in a manner that is systematic, rational and consistent with the asset-and-liability method prescribed by FASB Statement No. 109, Accounting for Income Taxes (“FAS 109”). AOL’s income tax provision is prepared under the “separate return method.” The separate return method applies FAS 109 to the standalone financial statements as if AOL were a separate taxpayer and a standalone enterprise.

Income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between GAAP and tax reporting. Deferred income taxes reflect the tax effect of net operating loss, capital loss and general business credit carryforwards and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company analyzes uncertain tax positions under the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation requires the Company to recognize in the consolidated financial statements those tax positions determined to be “more likely than not” of being sustained upon examination, based on the technical merits of the positions. The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest. The reserve for uncertain income tax positions is included in long-term related party payables in the consolidated balance sheet, as the amounts relate to positions taken in Time Warner’s consolidated tax return. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense. For further information, see Note 5.

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

  (m) Equity-Based Compensation

Until consummation of the separation from Time Warner, AOL participates in Time Warner’s stock-based compensation plans and records compensation expense based on the equity awards granted to AOL employees. In accounting for these awards, the Company follows the provisions of FAS 123R, which require that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Generally, stock options granted to employees vest ratably over a four-year period, and the cost associated with these awards is recognized in the consolidated statement of operations on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. FAS 123R also requires that excess tax benefits, as defined, realized from the exercise of stock options be reported as a financing cash inflow rather than as a reduction of taxes paid in cash flow from operations. See Note 6 for additional information on equity-based compensation.

The grant-date fair value of a Time Warner stock option is estimated using the Black-Scholes option-pricing model, consistent with the provisions of FAS 123R and SAB No. 107, Share-Based Payment. Time Warner determines the volatility assumption for these stock options using implied volatilities data from its traded options. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on the historical exercise experience of AOL employees. Groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. Time Warner determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Time Warner common stock at the date of grant.

 

  (n) Discontinued Operations

In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued operation, the Company makes a determination of whether the group of assets being disposed of comprises a component of the entity; that is, whether it has historic operations and cash flows that can be clearly distinguished (both operationally and for financial reporting purposes). The Company also determines whether the cash flows associated with the group of assets have been significantly (or will be significantly) eliminated from the ongoing operations of the Company as a result of the disposal transaction and whether the Company has no significant continuing involvement in the operations of the group of assets after the disposal transaction. If these determinations can be made affirmatively, the results of operations of the group of assets being disposed of (as well as any gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements. See Note 3 for additional information.

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

  (o) Comprehensive Income (Loss)

Comprehensive income (loss) is included within equity in the consolidated balance sheet and consists of net income (loss) and other gains and losses affecting equity that, under GAAP, are excluded from net income (loss). For AOL, such items consist primarily of foreign currency translation gains (losses). The following table sets forth other comprehensive income (loss), net of tax, accumulated in equity ($ in millions).

 

     Foreign currency
translation gains
(losses)
    Net unrealized
gains
(losses) on
securities (a)
    Net derivative
financial
instrument
gains (losses)
    Net accumulated
other
comprehensive
income (loss)
 

Balance at December 31, 2005

   $ (261.9   $ 81.9      $ (1.7   $ (181.7

2006 activity

     8.6        (81.9     2.6        (70.7
                                

Balance at December 31, 2006

     (253.3     —          0.9        (252.4

2007 activity

     45.7        0.1        (0.3     45.5   
                                

Balance at December 31, 2007

     (207.6     0.1        0.6        (206.9

2008 activity

     (95.5     (0.1     0.1        (95.5
                                

Balance at December 31, 2008

   $ (303.1   $ —        $ 0.7      $ (302.4
                                

 

(a) In connection with the agreements entered into related to the AOL-Google alliance as described in Note 3, AOL made a distribution of substantially its entire investment portfolio to Time Warner. No gain or loss was recognized by AOL as a result of this distribution.

 

  (p) Restructuring Costs

Restructuring costs, which consist primarily of employee termination benefits, contract termination costs and lease exit costs, are generally accounted for in accordance with FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Specifically, one-time termination benefits are recognized as a liability at estimated fair value when the plan of termination has been communicated to employees and certain other criteria are met. With respect to certain contractual termination benefits or employee terminations in certain foreign countries, a liability for termination benefits is recognized at estimated fair value when it is probable that amounts will be paid to employees and such amounts are reasonably estimable in accordance with FASB Statement No. 112, Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43. Contract termination costs are recognized as a liability at fair value when a contract is terminated in accordance with its terms, or when AOL has otherwise executed a written termination of the contract. When AOL ceases using a facility under an operating lease, AOL records a liability for the present value of the remaining lease payments, net of estimated sublease income. Costs associated with exit activities are reflected as restructuring costs in the consolidated statement of operations. See Note 7 for additional information about the Company’s restructuring activities.

 

  (q) Loss Contingencies

In the normal course of business, the Company is involved in legal proceedings, tax audits and other contingencies that give rise to potential loss contingencies. The Company accrues a liability for such matters when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In situations where the Company can determine a best estimate within the range of potential loss, the Company records the best estimate of the potential loss as a liability. In situations where the Company has determined a range of loss, but no amount within the range is a better estimate than any other amount within the range, the Company records the minimum amount of the range of loss as a liability.

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 2 - GOODWILL AND INTANGIBLE ASSETS

 

  (a) Goodwill

Goodwill includes preliminary estimates of goodwill for recently acquired companies. These amounts may vary in the future as purchase price allocations are finalized. A summary of changes in the Company’s goodwill related to continuing operations during the years ended December 31, 2008 and 2007 is as follows ($ in millions):

 

     Years Ended December 31,
          2008               2007     

Beginning balance

   $ 3,527.4      $ 2,883.6

Acquisitions, dispositions and adjustments

     889.9        625.9

Impairments

     (2,207.0     —  

Translation adjustments

     (48.8     17.9
              

Year-end balance

   $ 2,161.5      $ 3,527.4
              

In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2008, AOL determined that the carrying value of its goodwill was impaired and, accordingly, recorded a goodwill impairment charge of $2,207.0 million to write goodwill down to its implied fair value.

In performing the first step (“Step 1”) of the goodwill impairment test in accordance with FAS 142, AOL compared the carrying amount of its reporting unit to its estimated fair value. In determining the estimated fair value of its reporting unit, the Company used a combination of a DCF analysis and a market-based approach. As noted in the summary of the Company’s critical accounting policies, determining estimated fair values requires the exercise of significant judgment. As a result of the significant economic downturn in the last few months of 2008, determining the fair value of AOL was even more judgmental than it has been in the past. In particular, the global economic recession has resulted in, among other things, increased unemployment, lower consumer confidence and reduced business and consumer spending. These factors reduced AOL’s visibility into long-term trends and dampened AOL’s expectations of future business performance. Consequently, estimates of future cash flows used in the fourth quarter 2008 DCF analysis were moderated, in some cases significantly, relative to the estimates used in the fourth quarter 2007 DCF analysis due primarily to reduced expectations for advertising revenues. The discount rates utilized in the DCF analysis reflect market-based estimates of the risks associated with the projected cash flows of AOL’s reporting unit. The discount rates utilized in the DCF analysis were increased to reflect increased risk due to current economic volatility to a range of 13% to 15% in 2008 from 12% in 2007. In addition, the terminal growth rates used for AOL’s advertising revenues in the DCF analysis were decreased to a range of 2.5% to 3% in 2008 from 4.5% in 2007. The results of the DCF analysis were corroborated with other value indicators where available, such as a comparable company earnings approach.

The results of the Step 1 process indicated that there was a potential impairment of goodwill, as the carrying amount of the Company’s reporting unit exceeded its estimated fair value. As a result, the second step (“Step 2”) of the goodwill impairment test was performed. The implied fair value of goodwill determined in the Step 2 analysis was determined by allocating the fair value of the Company’s reporting unit to its assets and liabilities (including any unrecognized intangible assets) as if the Company’s reporting unit had been acquired in a business combination and the fair value of AOL was the purchase price. As a result of the Step 2 analysis, AOL recorded a goodwill impairment of $2,207.0 million with a corresponding reduction to the carrying value of goodwill.

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

  (b) Intangible Assets

The Company’s intangible assets and related accumulated amortization at December 31, 2008 and 2007 consisted of the following ($ in millions):

 

    December 31, 2008   December 31, 2007
    Gross   Accumulated
Amortization (a)
    Net   Gross   Accumulated
Amortization (a)
    Net

Acquired technology

  $ 886.2   $ (704.7   $ 181.5   $ 855.8   $ (632.2   $ 223.6

Customer relationships

    215.1     (99.1     116.0     173.7     (56.7     117.0

Trade names

    97.0     (39.3     57.7     57.5     (22.2     35.3

Other intangible assets

    56.8     (42.8     14.0     39.2     (19.4     19.8
                                       

Total

  $ 1,255.1   $ (885.9   $ 369.2   $ 1,126.2   $ (730.5   $ 395.7
                                       

 

(a) Amortization of intangible assets is provided generally on either an accelerated or straight-line basis over their respective useful lives, which range from two to seven years. The Company evaluates the useful lives of its finite-lived intangible assets each reporting period to determine whether events or circumstances warrant revised estimates of useful lives.

The Company recorded amortization expense of $166.2 million, $95.9 million and $133.5 million for the years ended December 31, 2008, 2007 and 2006, respectively. Based on the amount of intangible assets as of December 31, 2008, the estimated amortization expense for each of the succeeding five years ending December 31 is as follows ($ in millions):

 

2009

   $ 138.3

2010

     132.1

2011

     84.6

2012

     14.2

2013 and thereafter

     —  

These amounts may vary as acquisitions and dispositions occur in the future.

NOTE 3 - BUSINESS ACQUISITIONS, DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

Significant 2008 Acquisitions

AOL completed the following significant acquisitions during 2008:

 

  (a) Bebo, Inc.

On May 14, 2008, the Company completed the acquisition of Bebo, Inc. (“Bebo”), a global social media network, for $859.8 million, net of cash acquired, of which $852.0 million was paid in cash in May 2008, and $7.8 million of which was paid by the Company in the first quarter of 2009. AOL recognized $765.8 million of goodwill and $86.5 million of intangible assets related to this acquisition.

 

  (b) Perfiliate Limited (doing business as buy.at)

On February 5, 2008, the Company completed the acquisition of Perfiliate Limited (“buy.at”), a company based in the United Kingdom which provides performance-based advertising services to advertisers, for $125.2 million in cash, net of cash acquired. AOL recognized $99.3 million of goodwill and $32.5 million of intangible assets related to this acquisition.

 

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AOL Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The results of operations of Bebo and buy.at have been included in the Company’s consolidated financial statements from their respective dates of acquisition, and were not material to the Company’s consolidated results in 2008. These businesses were acquired to attract and engage more Internet users and provide advertising services to customers, which, along with market conditions at the time of acquisition, contributed to purchase prices that resulted in the recognition of goodwill. The intangible assets associated with these acquisitions consist primarily of acquired technology to be amortized on a straight-line basis over a weighted-average period of four years, customer relationships to be amortized on an accelerated basis over a weighted-average period of four years and trade names and other intangible assets to be amortized on an accelerated basis over a weighted-average period of four years.

Significant 2007 Acquisitions

AOL completed the following significant acquisitions during 2007:

 

  (a) Quigo Technologies Inc.

On December 19, 2007, the Company completed the acquisition of Quigo Technologies Inc. (now Quigo Technologies LLC), a site- and content-targeted advertising company, for $346.4 million in cash, net of cash acquired. AOL recognized $239.6 million of goodwill and $133.5 million of intangible assets related to this acquisition.

 

  (b) TACODA Inc.

On September 6, 2007, the Company completed the acquisition of TACODA, Inc. (now TACODA LLC), an online behavioral targeting advertising company, for $273.9 million in cash, net of cash acquired. AOL recognized $219.1 million of goodwill and $47.2 million of intangible assets related to this acquisition.

 

  (c) ADTECH AG

On May 15, 2007, the Company acquired a majority ownership stake in ADTECH AG (“ADTECH”), an international online ad serving network, for $88.1 million in cash, and acquired the remaining outstanding shares of ADTECH during the second, third and fourth quarters of 2007 for an additional $17.8 million, such that the Company owned 100% of the shares of ADTECH at December 31, 2007. AOL recognized $89.2 million of goodwill and $23.0 million of intangible assets related to this acquisition.

 

  (d) Third Screen Media, Inc.

On May 15, 2007, the Company completed the acquisition of Third Screen Media, Inc. (now Third Screen Media LLC), a mobile advertising company and mobile ad serving management platform provider, for $105.4 million in cash, net of cash acquired. AOL recognized $76.2 million of goodwill and $29.0 million of intangible assets related to this acquisition.

The results of operations of these acquired businesses have been included in the Company’s consolidated financial statements from their respective dates of acquisition, and were not material to the Company’s consolidated results in 2007. These businesses were acquired to attract and engage more Internet users and provide advertising services to customers, which, along with market conditions at the time of acquisition, contributed to purchase prices that resulted in the recognition of goodwill. The intangible assets consist primarily of acquired technology to be amortized on a straight-line basis over a weighted-average period of three years and customer relationships to be amortized on an accelerated basis over a weighted-average period of three years.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2006 Acquisitions

The Company did not complete any individually significant acquisitions during 2006. During 2006, the Company acquired the following three businesses for an aggregate purchase price of $111.5 million in cash, net of cash acquired:

 

   

Lightningcast, an online advertising company specializing in advertising displayed in streaming video, acquired on May 17, 2006;

 

   

Userplane, a web company that has developed web-based chat and messaging tools designed for use in community websites, acquired on August 9, 2006; and

 

   

Relegence, an online news and information aggregator, acquired on November 6, 2006.

The results of operations of these acquired businesses have been included in the Company’s consolidated financial statements from their respective dates of acquisition, and were not material to the Company’s consolidated results in 2006. The Company recorded $79.8 million of goodwill and $32.3 million of intangible assets related to these acquisitions. These businesses were acquired to attract and engage more Internet users and take advantage of the growth in online advertising by providing advertising services to customers, which, along with market conditions at the time of acquisition, contributed to purchase prices that resulted in the recognition of goodwill. The intangible assets consist primarily of acquired technology to be amortized on a straight-line basis over a weighted-average period of three years and customer relationships to be amortized on a straight-line basis over a weighted-average period of three years.

Sales of European Access Service Businesses

On February 28, 2007, the Company completed the sale of its German access service business to Telecom Italia S.p.A. for $849.6 million in cash, resulting in a net pre-tax gain of $668.2 million, calculated as the excess of the cash proceeds over the carrying value of the net assets sold (including goodwill allocated to the sale of $136.4 million). In connection with this sale, the Company entered into a separate agreement to provide ongoing web services, including content, e-mail and other online tools and services, to Telecom Italia S.p.A., which expires on February 26, 2012; however, Telecom Italia S.p.A. has a right to terminate the web services agreement effective August 31, 2010 if certain revenue thresholds are not achieved by February 26, 2010. For the years ended December 31, 2007 and 2006, AOL’s German access service business had subscription revenues of $88.2 million and $538.3 million, respectively.

On October 31, 2006, the Company completed the sale of its French access service business to Neuf Cegetel S.A. (which has since been acquired by SFR S.A.) for approximately $360.5 million in cash. On December 29, 2006, the Company completed the sale of its United Kingdom access service business to the Carphone Warehouse Group PLC for approximately $712.1 million in cash, $476.2 million of which was paid at closing and the remainder of which was paid over the 18 months following the closing. At December 31, 2007, the balance due from the Carphone Warehouse Group PLC of $140.1 million was included in prepaid expenses and other current assets in the consolidated balance sheet. This amount was paid to the Company in 2008. The Company recorded pre-tax gains on the sales of the French and United Kingdom access service businesses of $767.4 million, calculated as the excess of the cash proceeds over the carrying value of the net assets sold (including goodwill allocated to the sales of $181.2 million). In connection with the sales of the French and United Kingdom access service businesses, the Company entered into separate agreements to provide ongoing web services, including content, e-mail and other online tools and services, to the respective purchasers of these businesses. The web services agreement with the Carphone Warehouse Group PLC expires on December 28, 2011. The web services agreement with SFR S.A. expires December 31, 2011, with AOL having the option to

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

continue selling advertising on behalf of SFR S.A. for an additional year thereafter. For the year ended December 31, 2006, AOL’s French and United Kingdom access service businesses had subscription revenues of $1,023.3 million.

As a result of the historical interdependency of AOL’s European access service and web services businesses, the historical cash flows and operations of the European access service and web services businesses were not clearly distinguishable. Accordingly, AOL’s European access service businesses have not been reflected as discontinued operations in the consolidated financial statements.

Asset Dispositions

On December 28, 2007, AOL completed the sale of a building in Reston, Virginia, for a net sales price of $43.4 million, which resulted in a pre-tax gain of $15.8 million.

During 2006, AOL closed its call center facility located in Jacksonville, Florida, and recorded an asset impairment of $5.0 million to reduce the carrying value of the building and certain related fixed assets to their estimated fair value. On April 2, 2007, AOL completed the sale of the Jacksonville facility for $16.5 million in cash, less closing costs. The net sales price approximated the book value of the assets sold as of that date.

Divestitures of Certain Wireless Businesses

On August 24, 2007, the Company completed the sale of Tegic Communications, Inc. (“Tegic”) to Nuance Communications, Inc. for $265.0 million in cash, which resulted in a pre-tax gain of approximately $201.4 million. In addition, in the third quarter of 2007, the Company transferred the assets of Wildseed LLC (“Wildseed”) to a third party to settle an outstanding dispute. The Company recorded a pre-tax charge of $6.5 million related to this divestiture in the second quarter of 2007 and an impairment charge of $18.5 million on the long-lived assets of Wildseed in the first quarter of 2007. All amounts related to both Tegic and Wildseed have been reflected as discontinued operations for all periods presented.

Financial data associated with the Tegic and Wildseed businesses reflected as discontinued operations in 2007 and 2006 is as follows ($ in millions):

 

     Year Ended December 31,  
         2007             2006      

Total revenues

   $ 43.0      $ 79.5   

Pre-tax income (loss) (before gain on sale of business)

     (29.1     29.0   

Gain on sale of business

     201.4        —     

Income tax (provision) benefit

     9.8        (10.1

Net income attributable to AOL Inc.

     182.1        18.9   

AOL-Google Alliance

During December 2005, AOL announced that it was expanding its strategic alliance with Google. As part of this alliance, on April 13, 2006, Time Warner completed its issuance of a 5% equity interest in AOL to Google for $1,000 million in cash.

Under the alliance, Google continues to provide search services to AOL and a revenue share for searches conducted on AOL Media, which AOL recognizes as advertising revenues when earned. Additionally, AOL

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

continues to pay Google a license fee for the use of its search technology, which AOL recognizes as costs of revenues when such amounts have been incurred. Other key aspects of the alliance, and the related accounting, include:

 

   

AOL Marketplace. Creating an “AOL Marketplace” through white labeling of Google’s advertising technology, which enables AOL to sell search-based advertising directly to certain advertisers on AOL Media. AOL records as advertising revenue the sponsored-links advertising sold and delivered to third parties. Amounts paid to Google for Google’s share in the sponsored-links advertising sold on the AOL Marketplace are recognized as costs of revenues in the period the advertising is delivered.

 

   

Distribution and Promotion. Providing AOL $300 million of marketing credits for promotion of AOL’s content on Google-owned Internet properties as well as $100 million of AOL/Google co-sponsored promotion of AOL Media. The Company believes that this is an advertising barter transaction in which distribution and promotion is being provided in exchange for AOL agreeing to dedicate its search business to Google on an exclusive basis (except in certain limited circumstances). Because the criteria in EITF 99-17, Accounting for Advertising Barter Transactions, for recognizing revenue have not been met, no revenue or expense is being recognized on this portion of the arrangement.

 

   

Google AIM Development. Enabling Google Talk and AIM instant messaging users to communicate with each other provided certain conditions are met. Because this agreement does not provide for any revenue share or other fees, there is no accounting for this arrangement.

On July 8, 2009, Time Warner repurchased Google’s 5% interest in us for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in AOL. Following this purchase, AOL became a 100%-owned subsidiary of Time Warner.

NOTE 4 - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Long-term debt and other financing arrangements consist of ($ in millions):

 

     Weighted-Average
Interest Rate at

December 31, 2008
            Outstanding Debt
          Maturities      December 31, 2008      December 31, 2007

Fixed-rate mortgages

             $ —        $ 54.0

Capital lease obligations

               58.7        45.0
                         

Total debt and capital lease obligations

   5.73%      2009-2012        58.7        99.0

Debt due within one year

               (25.0)        (74.3)
                         

Total long-term debt

             $ 33.7      $ 24.7
                         

Fixed-Rate Mortgages

During 2008, various property mortgages outstanding in the amount of $54.0 million were repaid in full.

During 2007, a commercial mortgage in the amount of $23.7 million was paid off early due to the sale of the related building. See “Asset Dispositions” section in Note 3 for additional information.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Capital Leases

Assets recorded under capital lease obligations totaled $275.3 million and $371.3 million at December 31, 2008 and 2007, respectively. Related accumulated amortization totaled $215.9 million and $326.0 million at December 31, 2008 and 2007, respectively.

Future minimum capital lease payments at December 31, 2008 are as follows ($ in millions):

 

2009

   $       27.6    

2010

     21.5    

2011

     11.1    

2012

     3.1    

2013 and thereafter

     —      
        

Total

     63.3    

Amount representing interest

     (4.6
        

Present value of minimum lease payments

     58.7    

Current portion

     (25.0
        

Total long-term portion

   $ 33.7    
        

Interest Expense and Maturities

Interest expense amounted to $8.0 million, $9.7 million and $15.0 million for the years ended December 31, 2008, 2007 and 2006, respectively. The weighted-average interest rate on AOL’s total debt was 5.73% and 6.40% at December 31, 2008 and 2007, respectively. The rate on debt due within one year was 5.71% at December 31, 2008.

NOTE 5 - INCOME TAXES

AOL has historically been included in Time Warner’s consolidated income tax return filings. AOL’s income taxes are computed and reported herein under the “separate return method.” The separate return method applies FAS 109 to the standalone financial statements as if AOL were a separate taxpayer and a standalone enterprise.

Domestic and foreign income before income taxes, discontinued operations and cumulative effect of accounting changes is as follows ($ in millions):

 

     Years Ended December 31,
     2008     2007    2006

Domestic

   $ (1,123.1   $ 1,272.5    $ 537.0

Foreign

     (48.4     582.5      660.2
                     

Total

   $ (1,171.5   $ 1,855.0    $ 1,197.2
                     

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Current and deferred income taxes (tax benefits) provided on income from continuing operations are as follows ($ in millions):

 

     Years Ended December 31,  
     2008     2007     2006  

U.S. Federal:

      

Current

   $ 309.8      $ 426.2      $ 387.0   

Deferred

     (35.1     102.6        (39.3

Foreign:

      

Current

     13.1        19.0        51.6   

Deferred

     (0.7     (0.8     29.3   

State and local:

      

Current

     81.7        94.3        56.8   

Deferred

     (13.7     0.4        (4.7
                        

Total

   $ 355.1      $ 641.7      $ 480.7   
                        

The differences between income taxes (tax benefits) expected at the U.S. Federal statutory income tax rate of 35% and income taxes (tax benefits) provided are as set forth below ($ in millions):

 

     Years Ended December 31,  
     2008     2007     2006  

Taxes (tax benefits) on income at U.S. Federal statutory rate

   $ (410.1   $ 649.3      $ 419.0   

State and local taxes, net of U.S. Federal tax benefits

     42.0        74.3        32.2   

Non-deductible goodwill (including goodwill impairment charge)

     696.3        52.2        65.4   

Tax loss carryforwards

     (11.3     (217.3     (277.4

Tax contingencies

     45.9        138.5        261.9   

Other

     (7.7     (55.3     (20.4
                        

Total

   $ 355.1      $ 641.7      $ 480.7   
                        

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Significant components of AOL’s deferred tax assets and liabilities are as follows ($ in millions):

 

     December 31,  
     2008     2007  

Deferred tax assets:

    

Reserves and allowances

   $ 28.7      $ 33.5   

Equity-based compensation (a)

     614.7        801.9   

Tax loss and credit carryforwards

     1,045.1        1,423.0   

Other

     210.2        235.2   

Valuation allowance

     (902.2     (1,198.5
                

Total deferred tax assets

     996.5        1,295.1   
                

Deferred tax liabilities:

    

Capitalized software

     (46.5     (58.3

Unrealized foreign exchange tax gain

     (109.3     (174.2

Intangible assets and goodwill

     (66.9     (149.4

Other

     (25.3     (16.3
                

Total deferred tax liabilities

     (248.0     (398.2
                

Net deferred tax assets

   $ 748.5      $ 896.9   
                

 

(a) Following the spin-off, the Company expects a significant write-off of the equity-based compensation deferred tax asset based on the provisions of Time Warner’s equity-based compensation plans as described in Note 6 and the current market value of Time Warner stock. As required by FAS 123R, the Company cannot consider the current fair value of Time Warner stock in assessing the need for a valuation allowance associated with this deferred tax asset.

AOL had approximately $3,414 million and $3,531 million of tax losses in various foreign jurisdictions, primarily from countries with unlimited carryforward periods, as of December 31, 2008 and 2007, respectively. However, many of these foreign losses were attributable to specific operations and may not be utilized against income of certain other operations of AOL. The valuation allowance outstanding at December 31, 2008 and 2007 is principally attributable to these foreign net operating losses.

AOL had approximately $160.3 million and $219.2 million of acquired U.S. Federal net operating losses subject to use limitations as of December 31, 2008 and 2007, respectively. In addition, AOL had approximately $214.8 million and $190.5 million of tax losses in various state and local jurisdictions as of December 31, 2008 and 2007, respectively. However, similar to the foreign net operating losses, many of these tax losses are subject to a valuation allowance because they were attributable to specific operations and may not be utilized against income of other operations of AOL. These tax loss carryforwards will expire at various dates between 2009 and 2028. AOL also had approximately $772.9 million of U.S. Federal and state capital loss carryforwards with a full valuation allowance as of December 31, 2007. These capital loss carryforwards expired unutilized at December 31, 2008 and the associated deferred tax assets and valuation allowances were reversed.

U.S. Federal income taxes are provided on that portion of AOL’s income from foreign subsidiaries that is expected to be remitted to the United States and be taxable, pursuant to APB Opinion No. 23, Accounting for

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Income Taxes—Special Areas. U.S. Federal income and foreign withholding taxes have not been recorded on permanently reinvested earnings of certain foreign subsidiaries aggregating approximately $17.4 million and $21.6 million, as of December 31, 2008 and 2007, respectively. Determination of the amount of unrecognized deferred U.S. Federal income tax liability with respect to such earnings is not practicable.

Accounting for Uncertainty in Income Taxes

Prior to the adoption of FIN 48, AOL took positions on its tax returns that may be challenged by domestic and foreign taxing authorities. Certain of these tax positions arose in the context of transactions involving the purchase, sale or exchange of businesses or assets. All such transactions were subject to substantial tax due diligence and planning, in which the underlying form, substance and structure of the transaction was evaluated. Although AOL believes it had support for the positions taken on these tax returns, AOL recorded a liability for its best estimate of the probable loss on certain of these transactions.

On January 1, 2007, AOL adopted the provisions of FIN 48, which clarifies the accounting for uncertainty in income tax positions. Upon adoption, AOL recorded an increase to equity of $379.3 million as of January 1, 2007, which was due primarily to the recognition of tax benefits for positions that were previously unrecognized. The reserve for uncertain income tax positions as of January 1, 2007 was approximately $176.4 million and reflects a $110.4 million reduction to the previously recorded income tax reserves resulting from the adoption of FIN 48.

Currently, AOL indemnifies Time Warner for certain tax positions related to AOL taken by Time Warner from April 13, 2006 up to the date of the spin-off in its consolidated tax return. In connection with the transactions entered into between AOL and Time Warner prior to the AOL-Google alliance, Time Warner retained the obligation with respect to tax positions related to AOL prior to April 13, 2006 in Time Warner’s consolidated tax return. In the event Time Warner makes payments to a taxing authority with respect to AOL-related tax positions taken from April 13, 2006 through the date of the spin-off, we would be required to make an equivalent payment to Time Warner. This indemnification obligation relates to tax positions taken on Time Warner’s consolidated tax returns that are subject to U.S. Federal, state, local or foreign income tax examinations by taxing authorities.

In certain foreign jurisdictions (including the United Kingdom) in which AOL files separately from Time Warner, various periods from 2003 through the current period remain open to examination by the taxing authorities.

Changes in the long-term obligation to Time Warner for uncertain tax positions, excluding the related accrual for interest, from January 1 to December 31 are set forth below ($ in millions):

 

     Years Ended December 31,  
         2008             2007      

Beginning balance

   $ 311.8      $ 176.4   

Additions for current year tax provisions

     41.0        137.4   

Reductions for prior year tax provisions

     (7.1     —     

Settlements

     —          (2.0
                

Ending balance

   $ 345.7      $ 311.8   
                

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Interest expense included in the income tax provision was $18.2 million and $11.5 million for the years ended December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, the amount of accrued interest included in the long-term obligation to Time Warner associated with uncertain tax positions was $31.3 million and $13.2 million, respectively.

NOTE 6 - EQUITY-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

Until consummation of the separation from Time Warner, AOL employees participate in certain Time Warner domestic and international defined contribution plans, including savings and profit sharing plans. Expenses related to AOL’s contribution to these plans amounted to $19.8 million, $27.8 million and $19.6 million for the years ended December 31, 2008, 2007 and 2006, respectively. AOL’s contributions to the savings plans are primarily based on a percentage of the employees’ elected contributions and are subject to plan provisions.

Equity-Based Compensation

Until consummation of the separation from Time Warner, AOL employees participate in Time Warner’s equity plans. Time Warner has two active equity plans under which it is authorized to grant equity awards of Time Warner common stock to AOL employees. Options have been granted to employees of AOL with exercise prices equal to the fair market value at the date of grant. Generally, the stock options vest ratably over a four-year vesting period and expire 10 years from the date of grant. Certain stock option awards provide for accelerated vesting upon an election to retire pursuant to the Company’s defined benefit retirement plans or after reaching a specified age and years of service.

Pursuant to these equity plans, Time Warner may also grant shares of common stock or restricted stock units (“RSUs”) to employees of AOL. These awards generally vest between three to five years from the date of grant. Certain RSU awards provide for accelerated vesting upon an election to retire pursuant to Time Warner’s defined benefit retirement plans or after reaching a specified age and years of service. Holders of restricted stock and RSU awards are generally entitled to receive cash dividends or dividend equivalents, respectively, paid by Time Warner during the period of time that the restricted stock or RSU awards are unvested.

Time Warner also has a performance stock unit program for senior level executives. Under this program, recipients of performance stock units (“PSUs”) are awarded a target number of PSUs (“Target PSUs”) that represent the contingent (unfunded and unsecured) right to receive shares of Time Warner stock at the end of a performance period (generally three years) based on the actual performance level achieved by Time Warner. Depending on Time Warner’s total shareholder return relative to the other companies in the S&P 500 Index, as well as a requirement of continued employment, the recipient of a PSU may receive 0% to 200% of the Target PSUs granted based on a sliding scale where a relative ranking of less than the 25th percentile will pay 0% and a ranking at the 100th percentile will pay 200% of the target number of shares. PSU holders do not receive payments or accruals of dividends or dividend equivalents for regular cash dividends paid by Time Warner while the PSU is outstanding. Participants who are terminated by the Company other than for cause or who terminate their own employment for good reason or due to retirement or disability are generally entitled to a pro rata portion of the PSUs that would otherwise vest at the end of the performance period. For accounting purposes, the PSU is considered to have a market condition. The effect of a market condition is reflected in the grant date fair value of the award and, thus, compensation expense is recognized on this type of award provided that the requisite service is rendered (regardless of whether the market condition is achieved). The fair value of a PSU is estimated on the date of the grant by using a Monte Carlo analysis to estimate the total return ranking of Time Warner among the S&P 500 Index companies over the performance period.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The number of equity awards, the grant-date fair value and the per share exercise price for all periods presented herein have been adjusted to reflect the effects of Time Warner’s 1-for-3 reverse stock split which became effective on March 27, 2009. Compensation expense recognized by AOL for its participation in Time Warner’s equity-based compensation plans is as follows ($ in millions):

 

     Years Ended December 31,
     2008    2007    2006

Stock options

   $ 8.7    $ 20.1    $ 38.8

Restricted stock, restricted stock units and performance stock units

     10.9      12.2      2.4
                    

Total impact on operating income

   $     19.6    $     32.3    $     41.2
                    

Tax benefit recognized

   $ 8.3    $ 11.9    $ 13.7

Certain of the Company’s employees also participated in the Time Warner Employee Stock Purchase Plan which was discontinued effective May 30, 2008. The Time Warner Employee Stock Purchase Plan was not considered a compensatory stock purchase plan under applicable accounting literature. Other information pertaining to each category of Time Warner’s equity-based compensation appears below.

 

  (a) Stock Options

The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value Time Warner stock options at their grant date.

 

     Years Ended December 31,
     2008   2007   2006

Expected volatility

   28.5%   22.1%   22.2%

Expected term to exercise from grant date

   5.73 years   5.16 years   4.87 years

Risk-free rate

   3.1%   4.4%   4.6%

Expected dividend yield

   1.7%   1.1%   1.1%

The following table summarizes information about Time Warner stock options awarded to AOL employees that were outstanding at December 31, 2008:

 

Options

       Number of    
Options
(millions)
    Weighted-
Average
  Exercise Price  
   Weighted-
Average
Remaining
Contractual Life
(in years)
   Aggregate
  Intrinsic Value  
(thousands)

Outstanding at December 31, 2007

   33.6      $ 100.29      

Granted

   1.5        44.79      

Exercised

   (2.7     32.76      

Forfeited or expired

   (10.6     107.04      
              

Outstanding at December 31, 2008

   21.8        101.67    3.42    $ 11
              

Exercisable at December 31, 2008

   18.5        110.40    2.60    $ 10

At December 31, 2008, the number, weighted-average exercise price, aggregate intrinsic value and weighted-average remaining contractual term of options vested and expected to vest approximate amounts for options outstanding.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The weighted-average fair value of a Time Warner stock option granted to AOL employees during the year was $12.09 ($7.50, net of tax), $15.21 ($9.42, net of tax) and $13.11 ($8.13 net of tax) for the years ended December 31, 2008, 2007 and 2006, respectively. The total intrinsic value of Time Warner options exercised by AOL employees during the year was $38.6 million, $141.8 million and $168.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. Time Warner received cash from the exercise of Time Warner stock options by AOL employees totaling $90.9 million, $188.9 million and $169.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. The tax benefits realized by AOL from Time Warner stock options exercised in the years ended December 31, 2008, 2007 and 2006 were approximately $15.4 million, $55.9 million and $63.3 million, respectively.

 

  (b) Restricted Stock, Restricted Stock Units and Target Performance Stock Units

The following table summarizes information about unvested Time Warner restricted stock, RSUs and Target PSUs granted to AOL employees at December 31, 2008:

 

     Number of
Shares/Units
(millions)
    Weighted-
Average Grant

Date Fair Value

Unvested at December 31, 2007

   0.8      $ 57.93

Granted

   0.9        44.58

Vested

   (0.1     53.28

Forfeited

   (0.3     51.18
        

Unvested at December 31, 2008

   1.3        50.55
        

At December 31, 2008, the intrinsic value of unvested Time Warner restricted stock, RSUs and Target PSUs granted to AOL employees was $38.8 million. Total unrecognized compensation cost related to unvested Time Warner restricted stock, RSUs and Target PSUs at December 31, 2008, without taking into account expected forfeitures, was $41.3 million and is expected to be recognized over a weighted-average period between one and two years. The fair value of Time Warner restricted stock and RSUs granted to AOL employees that vested during the years ended December 31, 2008, 2007 and 2006 was $5.4 million, $5.9 million and $1.9 million, respectively. No Target PSUs vested during the years ended December 31, 2008, 2007 and 2006.

For the year ended December 31, 2008, 0.8 million Time Warner RSUs were granted to AOL employees at a weighted-average grant date fair value per RSU of $44.13. For the year ended December 31, 2007, 0.6 million Time Warner RSUs were granted to AOL employees at a weighted-average grant date fair value per RSU of $59.88.

For the year ended December 31, 2008, 71,300 Time Warner Target PSUs were granted to AOL employees at a weighted-average grant date fair value per PSU of $49.32. For the year ended December 31, 2007, 67,000 Time Warner Target PSUs were granted to AOL employees at a weighted-average grant date fair value per PSU of $58.50. There were no Target PSUs granted in 2006.

 

  (c) Treatment Following Spin-Off

Total unrecognized compensation cost related to unvested stock option awards at December 31, 2008, without taking into account expected forfeitures, was $28.1 million. In connection with the legal and structural separation of the Company from Time Warner, AOL employees will no longer participate in the Time Warner equity plans once the spin-off has been completed. Employees who hold Time Warner equity awards at the time

 

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of the separation will be treated as if their employment with Time Warner was terminated without cause. For most AOL employees, this treatment will result in the forfeiture of unvested stock options and shortened exercise periods for vested stock options and pro rata vesting of the next installment of (and forfeiture of the remainder of) the RSU awards. As a result, the majority of the unrecognized compensation cost will not be recognized, as stock options that were originally expected to vest subsequent to the spin-off are no longer expected to vest under the terms of Time Warner’s equity plans. Time Warner equity awards held by AOL’s Chairman and Chief Executive Officer at the time of the separation will be converted into AOL equity awards with the same terms.

NOTE 7 - RESTRUCTURING COSTS

2008 Restructuring Costs

For the year ended December 31, 2008, the Company incurred $16.6 million in restructuring costs, which included $7.2 million in restructuring costs related to employee terminations, facility closures and other exit activities in 2008, and $9.4 million in restructuring costs associated with actions taken in 2007 and prior years (which includes adjustments to previous estimates). Employee termination costs were attributable to terminations of employees ranging from senior executives to line personnel.

2007 Restructuring Costs

For the year ended December 31, 2007, the Company incurred $125.4 million in restructuring costs, which included $93.7 million in restructuring costs, related primarily to employee terminations, asset write-offs, facility closures and other exit activities in 2007, and $31.7 million in restructuring costs associated with actions taken in 2006 and prior years (which includes adjustments to previous estimates). Employee termination costs were attributable to terminations of employees ranging from senior executives to line personnel.

2006 Restructuring Costs

For the year ended December 31, 2006, the Company incurred $222.2 million in restructuring costs, which included $138.6 million in restructuring costs related to employee terminations and $83.6 million related to contract terminations, asset write-offs, facility closures and other exit activities in 2006. Employee termination costs were attributable to terminations of employees ranging from senior executives to line personnel. Included in the $83.6 million was the writedown of certain assets, including prepaid marketing materials, totaling $16.2 million and costs associated with contract terminations totaling $38.1 million.

 

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A summary of AOL’s restructuring activity for the years ended December 31, 2008, 2007 and 2006 is as follows ($ in millions):

 

     Employee
Terminations
      Other Exit  
Costs
        Total      

Liability at December 31, 2005

   $ 13.9      $ 14.3      $ 28.2   

Net accruals

     138.6        83.6        222.2   

Non-cash charges (a)

     (6.0     (23.8     (29.8

Cash paid

     (54.1     (43.0     (97.1
                        

Liability at December 31, 2006

     92.4        31.1        123.5   

Net accruals (including adjustments to previous estimates)

     119.7        10.4        130.1   

Cash paid

     (147.9     (14.8     (162.7
                        

Liability at December 31, 2007

     64.2        26.7        90.9   

Net accruals (including adjustments to previous estimates)

     13.8        4.4        18.2   

Cash paid

     (67.6     (10.6     (78.2
                        

Liability at December 31, 2008

   $ 10.4      $ 20.5      $ 30.9   
                        

 

(a) Non-cash charges relate primarily to the write down of certain assets, including fixed assets, prepaid marketing materials and certain contract terminations.

At December 31, 2008, of the remaining liability of $30.9 million, $21.9 million was classified as a current liability, with the remaining $9.0 million classified as a long-term liability in the consolidated balance sheet. Amounts classified as long-term are expected to be paid through 2015.

NOTE 8 - DERIVATIVE INSTRUMENTS

AOL uses derivative instruments (principally forward contracts), entered into on its behalf by Time Warner, to manage the risk associated with movements in foreign currency exchange rates. Time Warner monitors its positions with, and the credit quality of, the financial institutions that are party to any of its financial transactions. Netting provisions are provided for in existing International Swap and Derivative Association Inc. agreements in situations where Time Warner executes multiple contracts with the same counterparty. The following is a summary of AOL’s foreign currency risk management strategies and the effect of these strategies on AOL’s consolidated financial statements.

Foreign Currency Risk Management

Until consummation of the separation from Time Warner, Time Warner manages certain derivative contracts on AOL’s behalf. Foreign exchange derivative contracts are used by AOL primarily to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates.

AOL uses derivative instruments to hedge various foreign exchange exposures including the following: (i) variability in foreign-currency-denominated cash flows (i.e., cash flow hedges) and (ii) currency risk associated with foreign-currency-denominated operating assets and liabilities (i.e., fair value hedges).

As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, AOL hedges a portion of its foreign currency exposures anticipated over the calendar year. This

 

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process generally coincides with AOL’s annual strategic planning period. Additionally, as transactions arise (or are planned) during the year that are exposed to foreign currency risk and are unhedged at the time, AOL enters into derivative instruments, primarily foreign currency forward contracts, to mitigate the exposure presented by such transactions. Time Warner reimburses or is reimbursed by AOL for contract gains and losses related to AOL’s foreign currency exposure. To hedge this exposure, AOL uses foreign exchange contracts that generally have maturities of three months to 18 months providing continuing coverage throughout the hedging period. In the aggregate, the derivative instruments and hedging activities are not material to AOL. Time Warner manages the foreign currency transactions directly and enters into foreign currency purchase and sale transactions directly with counterparties and charges the costs allocable to AOL related to these transactions. For the years ended December 31, 2008, 2007 and 2006, AOL recognized net gains (losses) of ($20.4 million), $22.1 million and ($23.0 million), respectively, within other income, net related to foreign currency management activity performed by Time Warner on behalf of AOL. These amounts were recognized upon the de-designation or settlement of foreign exchange contracts used in hedging relationships, including economic hedges. Such amounts were largely offset by corresponding gains or losses from the respective transaction that was hedged and are generally recognized in income in the same period that the hedged item or transaction affects income, which may be a future period. Gains and losses from the ineffectiveness of hedging relationships, including ineffectiveness as a result of the discontinuation of cash flow hedges for which it was probable that the originally forecasted transaction would no longer occur, were not material for any period.

At December 31, 2008 and 2007, respectively, AOL had recorded an asset of $1.3 million and $1.0 million for net gains on foreign currency derivatives with the offset recorded in accumulated other comprehensive loss, a component of equity. Such amount is expected to be substantially recognized in income over the next 12 months at the same time the hedged item is recognized in income.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Commitments

AOL’s total rent expense from continuing operations amounted to $55.9 million, $59.6 million and $70.0 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has long-term non-cancelable lease commitments for office space and operating equipment in various locations around the world, a number of which have renewal options at market rates to be determined prior to the renewal option being exercised. In addition, certain leases have rent escalation clauses with either fixed scheduled rent increases or rent increases based on the Consumer Price Index. The minimum rental commitments under non-cancelable long-term operating leases during the next five years are as follows ($ in millions):

 

     Gross operating
lease commitments
   Sublease income    Net operating lease
commitments

2009

   $ 67.2    $ 14.8    $ 52.4

2010

     59.9      15.9      44.0

2011

     63.2      16.2      47.0

2012

     44.0      17.0      27.0

2013

     37.7      13.0      24.7

Thereafter

     215.1      7.5      207.6
                    

Total

   $ 487.1    $ 84.4    $ 402.7
                    

 

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AOL also has commitments under certain network licensing, marketing, royalty and other agreements aggregating approximately $292.9 million at December 31, 2008, which are payable principally over a three-year period, as follows ($ in millions):

 

2009

   $ 243.7

2010-2011

     33.4

2012-2013

     10.2

Thereafter

     5.6
      

Total

   $ 292.9
      

The Company also has certain contractual arrangements that would require it to make payments or provide funding if certain circumstances occur (“contingent commitments”). At December 31, 2008, these arrangements related primarily to letters of credit and totaled $9.6 million. The Company does not expect that these contingent commitments will result in any material amounts being paid by the Company in the foreseeable future.

See Note 11 for information regarding AOL’s guarantee agreements with Time Warner and its other commitments to Time Warner and other related parties.

Contingencies

 

  (a) Shareholder Derivative Lawsuits

During the summer and fall of 2002, numerous shareholder derivative lawsuits were filed in state and federal courts naming as defendants certain current and former directors and officers of Time Warner, as well as Time Warner as a nominal defendant. The complaints alleged that defendants breached their fiduciary duties by, among other things, causing Time Warner to issue corporate statements that did not accurately represent that AOL had declining advertising revenues. Certain of these lawsuits were later dismissed, and others were eventually consolidated in their respective jurisdictions. In 2006, the parties entered into a settlement agreement to resolve all of the remaining derivative matters, and the Court granted final approval of the settlement on September 6, 2006. The court has yet to rule on plaintiffs’ petition for attorneys’ fees and expenses. At December 31, 2008, Time Warner’s remaining reserve related to these matters is $9.9 million, which approximates an expected award for plaintiffs’ attorneys’ fees. During 2008, AOL reflected $20.8 million of legal fees incurred as an expense in the financial statements herein. During 2007, Time Warner reached agreements to settle substantially all of the remaining securities litigation claims, and AOL reflected expense of $171.4 million related to these agreements and legal fees incurred. During 2006, in connection with the settlement agreement discussed above, AOL recorded $705.2 million of expense in the consolidated financial statements. While these amounts were historically incurred by Time Warner and reflected in Time Warner’s financial results, they have been reflected as an expense and a corresponding additional capital contribution in AOL’s financial statements. Following the spin-off, these costs will continue to be incurred by Time Warner to the extent that proceeds from a settlement with insurers are available to pay those costs, and thereafter will be borne by AOL or Time Warner to the extent either entity is obligated by its bylaws or otherwise to pay such costs.

 

  (b) Other Matters

On May 24, 1999, two former AOL Community Leader volunteers brought a putative class action, Hallissey et al. v. America Online, Inc., in the U.S. District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (“FLSA”) and New York State law. The plaintiffs allege that, in serving as AOL

 

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Community Leader volunteers, they were acting as employees rather than volunteers for purposes of the FLSA and New York State law and are entitled to minimum wages. The court denied the Company’s motion to dismiss in 2006 and ordered the issuance of notice to the putative class in 2008. In February 2009, plaintiffs filed a motion to file an amended complaint, the briefing for which was completed in May 2009, and which the court denied on July 17, 2009. In 2001, four of the named plaintiffs in the Hallissey case filed a related lawsuit alleging retaliation as a result of filing the FLSA suit in Williams, et al. v. America Online, Inc., et al. A related case was filed by several of the Hallissey plaintiffs in the U.S. District Court for the Southern District of New York alleging violations of the retaliation provisions of the FLSA. This case was stayed pending the outcome of the Company’s motion to dismiss in the Hallissey matter discussed above, but has not yet been activated. Also in 2001, two related class actions were filed in state courts in New Jersey (Superior Court of New Jersey, Bergen County Law Division) and Ohio (Court of Common Pleas, Montgomery County, Ohio), alleging violations of the FLSA and/or the respective state laws. These cases were removed to federal court and subsequently transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.

On January 17, 2002, AOL Community Leader volunteers filed a class action lawsuit in the U.S. District Court for the Southern District of New York, Hallissey et al. v. AOL Time Warner, Inc., et al., against AOL LLC alleging ERISA violations. Plaintiffs allege that they are entitled to pension and/or welfare benefits and/or other employee benefits subject to ERISA. In March 2003, plaintiffs filed and served a second amended complaint, adding as defendants the AOL Time Warner Administrative Committee and the AOL Administrative Committee. On May 19, 2003, AOL filed a motion to dismiss and the Administrative Committees filed a motion for judgment on the pleadings. Both of these motions are pending. The Company intends to defend against all these lawsuits vigorously.

On August 1, 2005, Thomas Dreiling, a shareholder of Infospace Inc., filed a derivative suit in the U.S. District Court for the Western District of Washington against AOL LLC and Infospace Inc. as nominal defendant. The complaint, brought in the name of Infospace, asserts violations of Section 16(b) of the Exchange Act. The plaintiff alleges that certain AOL LLC executives and the founder of Infospace, Naveen Jain, entered into an agreement to manipulate Infospace’s stock price through the exercise of warrants that AOL LLC received in connection with a commercial agreement with Infospace. The complaint seeks disgorgement of profits, interest and attorneys’ fees. On January 3, 2008, the court granted AOL LLC’s motion and dismissed the complaint with prejudice. Plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit, and the oral argument occurred on May 7, 2009. The Company intends to defend against this lawsuit vigorously.

On September 22, 2006, Salvadore Ramkissoon and two unnamed plaintiffs filed a putative class action against AOL LLC in the U.S. District Court for the Northern District of California based on AOL LLC’s public posting of AOL LLC member search queries in late July 2006. Among other things, the complaint alleges violations of the Electronic Communications Privacy Act and California statutes relating to privacy, data protection and false advertising. The complaint seeks class certification and damages, as well as injunctive relief that would oblige AOL LLC to alter its search query retention practices. In February 2007, the District Court dismissed the action without prejudice. The plaintiffs then appealed this decision to the Ninth Circuit. On January 16, 2009, the Ninth Circuit held that AOL LLC’s Terms of Service violated California public policy as to any California plaintiffs in the putative class, as it did not allow for them to fully exercise their rights. The Ninth Circuit reversed and remanded to the District Court for further proceedings. On April 24, 2009, AOL LLC filed a motion to stay discovery as well as a motion to implement the Ninth Circuit’s mandate; the former motion was denied on June 22, 2009. AOL LLC filed its answer on June 29, 2009. On July 6, 2009, the District Court found that the plaintiffs’ claims for unjust enrichment and public disclosure of private facts were subject to the forum selection clause in the Terms of Service and thus could not be pursued in that court. Further, the District Court ordered additional briefing on whether the District Court may compel plaintiffs to litigate their claims for

 

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alleged violations of the Electronic Communications Privacy Act in a state court. The briefing has been filed by both sides and the Company awaits a ruling from the District Court. The Company intends to defend against this lawsuit vigorously.

Between December 27, 2006 and July 6, 2009, AOL Europe Services SARL (“AOL Luxembourg”), a wholly-owned subsidiary of AOL organized under the laws of Luxembourg, received four assessments from the French tax authorities for French value added tax (“VAT”) related to AOL Luxembourg’s subscription revenues from French subscribers earned during the period from July 1, 2003 through October 31, 2006. The French tax authorities allege that the French subscriber revenues are subject to French VAT, instead of Luxembourg VAT, as originally reported and paid by AOL Luxembourg. The assessments, including interest accrued through the respective assessment dates, total €187.1 million (approximately $262.8 million based on the euro to dollar exchange rate as of June 30, 2009). On May 12, 2009, the French tax authority issued a collection notice for €94.1 million (approximately $132.1 million based on the euro to dollar exchange rate as of June 30, 2009), the amount of the 2003 and 2004 assessments. The Company has appealed the collection notice and intends to continue to defend against all four assessments vigorously. The controversy is currently at the administrative appeals level.

In addition to the matters listed above, we are a party to a variety of legal proceedings that arise in the normal course of our business. While the results of such normal course legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of the current pending matters will not have a material adverse effect on our financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on us because of defense costs, diversion of management resources and other factors.

NOTE 10 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of ($ in millions):

 

     December 31,
     2008    2007

Accrued rent and facilities expense

   $ 16.7    $ 30.1

Accrued network and related costs

     12.6      22.4

Accrued publisher payments and other costs of revenues

     140.5      142.0

Short-term restructuring liabilities

     21.9      74.2

Accrued taxes

     42.0      36.2

Accrued member support services

     5.9      14.3

Accrued advertising and marketing

     6.1      23.5

Other accrued expenses

     56.7      91.0
             

Total

   $ 302.4    $ 433.7
             

NOTE 11 - RELATED PARTY TRANSACTIONS

Until consummation of the separation from Time Warner, AOL has certain related party relationships with Time Warner and its subsidiaries, as discussed further below.

 

  (a) Transactions with Time Warner Related to the AOL-Google Alliance

In 2006, and in connection with the agreements entered into related to the AOL-Google alliance as described in Note 3, AOL and Time Warner entered into certain transactions including the following:

 

   

AOL made a distribution of substantially its entire investment portfolio, having a carrying value of $190.0 million on the date of the distribution (including unrealized gains, net of tax of $99.8 million), to Time Warner in a tax-free transaction. No gain or loss was recognized by AOL as a result of this distribution.

 

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As a result of a restructuring that took place prior to Google’s investment, historical tax attributes consisting of U.S. Federal net operating losses, state net operating losses, capital loss carryover and R&D credits were retained by Time Warner.

 

  (b) Administrative Services

Until consummation of the separation from Time Warner, Time Warner performs certain administrative functions on behalf of AOL. Costs of these services that are allocated or charged to AOL are based on either the actual costs incurred or Time Warner’s estimate of expenses relative to the services provided to other subsidiaries of Time Warner. AOL believes that these allocations are made on a reasonable basis, and that receiving these services from Time Warner creates cost efficiencies. These services and transactions include the following:

 

   

Cash management and other treasury services;

 

   

Administrative services such as government relations, tax, employee benefit administration, internal audit, accounting, and human resources;

 

   

Equity-based compensation plan administration;

 

   

Aviation services;

 

   

Insurance coverage; and

 

   

The licensing of certain third-party patents.

During the years ended December 31, 2008, 2007 and 2006, AOL incurred $23.3 million, $28.4 million and $35.8 million, respectively, of expenses related to charges for services performed by Time Warner. These expenses are recorded as operating expenses by AOL as incurred.

 

  (c) Tax Matters Agreement

In connection with Google’s equity investment in the Company, AOL entered into a tax matters agreement with Time Warner governing AOL’s inclusion in the Time Warner consolidated tax return. Under the terms of the tax matters agreement, Time Warner prepares a pro forma AOL return, and AOL agreed to make tax payments to Time Warner generally on the basis of a standalone pro forma consolidated AOL tax return. Amounts payable or receivable under the tax matters agreement are generally reported as adjustments to divisional equity. Uncertain tax positions that are recorded as a liability on AOL’s financial statements are included in long-term obligations to Time Warner on the consolidated balance sheet, as the amounts relate to positions taken in Time Warner’s consolidated tax return.

 

  (d) Guarantee Agreements

AOL LLC has entered into several guarantee agreements with Time Warner or subsidiaries of Time Warner whereby AOL LLC guarantees debt issued by Time Warner or its subsidiaries on a joint and several basis. The aggregate unpaid principal balance of the debt issued by Time Warner and its subsidiaries that is guaranteed by AOL LLC was approximately $14.821 billion as of December 31, 2008. The guarantee remains in place until the related debt matures, which will occur on varying dates through 2036, and if the issuer or the primary guarantor, as applicable, defaults on the underlying debt, AOL LLC would be required to satisfy the outstanding debt. As this is an intercompany guarantee, the Company has not recognized an indemnification liability or any income associated with this guarantee in its financial statements. Following the spin-off, AOL and its subsidiaries will not guarantee any debt issued by Time Warner or its subsidiaries. See Note 8 of the interim consolidated financial statements included elsewhere in this Information Statement for a description of the Consent Solicitation and its effect on the AOL LLC guarantee and the spin-off.

 

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In 2007, in connection with a lease of office space in New York City that the Company entered into with a third party, Time Warner agreed to guarantee up to $10.0 million to the third party as security for AOL’s obligations under the lease. In 2008, in connection with the lease of additional office space at the same building, Time Warner agreed, upon the occurrence of certain events, to increase the total guarantee to approximately $15.7 million to the third party as security for AOL’s obligations under the lease. As of December 31, 2008, these events had not occurred and, accordingly, the amount guaranteed by Time Warner at December 31, 2008 was $10.0 million.

 

  (e) Banking and Treasury Functions

Until consummation of the separation from Time Warner, Time Warner provides cash management and treasury services to AOL. As part of these services, AOL sweeps the majority of all cash balances to Time Warner on a daily basis and receives funding from Time Warner for any cash needs.

Additionally, AOL enters into various financial arrangements internationally with Time Warner International Finance Limited, a wholly-owned subsidiary of Time Warner, and other of Time Warner’s international subsidiaries. The objective of these arrangements is to provide AOL with efficient avenues for liquidity in a structure that minimizes or eliminates the currency risk to AOL. These amounts are expected to be settled in cash prior to the spin-off. The following table sets forth AOL’s receivable and payable amounts to Time Warner related to international loans ($ in millions):

 

     December 31,
     2008    2007

Receivables from Time Warner

   $ 31.2    $ 83.8

Long-term receivables from Time Warner

     37.7      55.3
             

Total

     68.9      139.1
             

Payables to Time Warner

     34.2      107.6

Long-term obligations to Time Warner

     —        2.2
             

Total

   $       34.2    $     109.8
             

 

  (f) Equity-Based Compensation Reimbursement

As a result of AOL’s participation in Time Warner’s equity-based compensation plans, AOL is obligated to make cash payments to Time Warner for the intrinsic value of Time Warner RSUs and PSUs held by AOL employees upon vesting and for the intrinsic value of stock options held by AOL employees upon the exercise of those options. Accordingly, AOL has recorded a liability (reflected in payables to Time Warner) measured based on the intrinsic value as of each balance sheet date of vested but unexercised Time Warner stock options and a portion of the intrinsic value of unvested RSUs and PSUs held by AOL employees. This intrinsic value liability is remeasured at each balance sheet date, with changes reflected in equity. As of December 31, 2008 and 2007, the liability related to vested unexercised stock options, unvested RSUs and PSUs was $11.6 million and $88.5 million, respectively. For the years ended December 31, 2008, 2007 and 2006, AOL remitted cash totaling $43.8 million, $161.0 million and $89.9 million, respectively, to Time Warner for stock options exercised by AOL employees and the vesting of RSUs held by AOL employees.

 

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  (g) Other

In the normal course of business, AOL historically has entered into commercial transactions with other subsidiaries of Time Warner. AOL believes that the terms of these transactions are reflective of those that could be obtained in arm’s-length negotiations with unrelated third parties. AOL recognized $10.5 million, $19.6 million and $48.3 million in revenue and $33.7 million, $29.7 million and $45.9 million in operating expenses from transactions with other Time Warner subsidiaries for the years ended December 31, 2008, 2007 and 2006, respectively.

AOL had receivables of $6.9 million and $11.8 million from and payables of $11.4 million and $14.0 million to other Time Warner subsidiaries reflected in receivables from Time Warner and payables to Time Warner in the consolidated balance sheet at December 31, 2008 and 2007, respectively. The amounts receivable related primarily to the costs associated with the provision of high-speed data network services and online advertising to other Time Warner subsidiaries. The amounts payable related primarily to the costs associated with the provision of broadband Internet services to Time Warner Cable subscribers as well as the purchase of online advertising inventory.

In December 2006, AOL sold certain real estate in Columbus, Ohio to Time Warner subject to a leaseback by AOL. While this real estate has been legally sold to Time Warner, due to the related party nature of the arrangement and AOL’s continuing involvement in the building in the form of a lease, such real estate’s net book value is recorded as an asset in AOL’s financial statements. During 2008, AOL, in conjunction with Time Warner, made the decision to exit this facility. Accordingly, AOL recorded a $13.2 million non-cash impairment associated with this real estate, and reflected the remaining net book value of $6.7 million as held for sale in the consolidated balance sheet.

In 2007, Time Warner purchased a perpetual right to use a series of patents from a third party on behalf of AOL and other divisions of Time Warner. Based on AOL’s usage of the technology related to these patents relative to other divisions, approximately $21 million of the consideration paid by Time Warner for this right has been allocated to AOL and included within intangible assets, net in the consolidated balance sheet. This intangible asset is being amortized by AOL on a straight-line basis over a five-year period beginning January 1, 2007. As of December 31, 2008 and 2007, the net book value of this intangible asset was $12.6 million and $16.8 million, respectively. AOL expects to maintain the perpetual right to use this series of patents following the spin-off with no additional consideration due to the third party.

NOTE 12 - SEGMENT INFORMATION

FASB Statement No. 131, Disclosure about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and that has discrete financial information that is regularly reviewed by the chief operating decision-maker in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision-maker, its chief executive officer, evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. There are no managers who are held accountable by our chief operating decision-maker, or anyone else, for an operating measure of profit and loss for any operating unit below the consolidated unit level. Accordingly, management has determined that the Company has one segment.

 

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For each of the periods presented herein, the Company has had a contractual relationship with Google whereby Google provides paid text-based search advertising on AOL Media. For the years ended December 31, 2008, 2007 and 2006, the revenues associated with the Google relationship were $677.9 million, $642.1 million and $573.0 million, respectively.

Revenues and assets in different geographical areas are as follows ($ in millions):

 

     Revenues for the Years Ended December 31,(a)    Assets as of December 31,
           2008                2007                2006                2008                2007      

United States

   $ 3,623.6    $ 4,535.0    $ 5,712.0    $ 4,237.2    $ 5,944.8

United Kingdom

     257.6      283.0      1,013.6      249.5      377.5

Germany

     82.2      187.2      652.1      150.0      228.9

France

     82.0      57.1      302.4      101.7      117.1

Canada

     48.0      51.8      55.7      28.4      33.3

Other international

     72.4      66.6      50.9      94.5      161.5
                                  

Totals

   $ 4,165.8    $ 5,180.7    $ 7,786.7    $ 4,861.3    $ 6,863.1
                                  

 

(a) Revenues are attributed to countries based on the location of customers.

 

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NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

 

     Quarter Ended  
     March 31,     June 30,     September 30,     December 31,  
     ($ in millions)  

2008

        

Revenues

        

Advertising

   $ 551.9      $ 530.3      $ 501.7      $ 512.5   

Subscription

     538.8        491.0        470.1        429.4   

Other

     37.6        35.4        34.8        32.3   
                                

Total revenues

     1,128.3        1,056.7        1,006.6        974.2   

Operating income (loss)(a)

     280.1        225.0        258.9        (1,931.7

Net income (loss)

     159.6        126.6        147.4        (1,960.2

Less:    Net loss attributable to noncontrolling interests

     (0.1     (0.3     (0.1     (0.3
                                

Net income (loss) attributable to AOL Inc.

   $ 159.7      $ 126.9      $ 147.5      $ (1,959.9
                                

2007

        

Revenues

        

Advertising

   $ 548.8      $ 521.9      $ 540.3      $ 619.6   

Subscription

     873.1        690.7        635.0        589.1   

Other

     36.3        40.5        43.1        42.3   
                                

Total revenues

     1,458.2        1,253.1        1,218.4        1,251.0   

Operating income(b)

     922.6        357.6        301.7        271.9   

Income from continuing operations

     635.8        221.8        189.2        166.5   

Discontinued operations, net of tax

     (11.3     (12.6     206.6        (0.6
                                

Net income

     624.5        209.2        395.8        165.9   

Less:    Net loss attributable to noncontrolling interests

     (0.2     (0.1     (0.2     (0.2
                                

Net income attributable to AOL Inc.

   $ 624.7      $ 209.3      $ 396.0      $ 166.1   
                                

 

(a) The quarter ended March 31, 2008 includes $3.9 million in amounts incurred related to securities litigation and government investigations. The quarter ended June 30, 2008 includes $4.1 million in amounts incurred related to securities litigation and government investigations. The quarter ended September 30, 2008 includes $4.6 million in amounts incurred related to securities litigation and government investigations. The quarter ended December 31, 2008 includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill, a $13.2 million non-cash impairment associated with certain real estate in Columbus, Ohio and $8.2 million in amounts incurred related to securities litigation and government investigations.

 

(b) The quarter ended March 31, 2007 includes a net pre-tax gain of $668.2 million on the sale of the German access service business and $163.5 million in amounts incurred related to securities litigation and government investigations. The quarter ended June 30, 2007 includes $3.1 million in amounts incurred related to securities litigation and government investigations. The quarter ended September 30, 2007 includes $2.3 million in amounts incurred related to securities litigation and government investigations. The quarter ended December 31, 2007 includes $2.5 million in amounts incurred related to securities litigation and government investigations.

 

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AOL Inc.

Consolidated Balance Sheet

($ in millions)

 

     June 30,
2009
   December 31,
2008
     (Unaudited)     
Assets      

Current assets:

     

Cash

   $ 74.7    $ 134.7

Accounts receivable, net of allowances of $28.6 and $39.8, respectively

     408.8      500.2

Receivables from Time Warner

     38.0      39.5

Prepaid expenses and other current assets

     34.7      33.5

Deferred income taxes

     16.1      25.8

Assets held for sale

     6.7      6.7
             

Total current assets

     579.0      740.4

Property and equipment, net

     740.3      790.6

Long-term receivables from Time Warner

     5.1      37.7

Goodwill

     2,175.3      2,161.5

Intangible assets, net

     305.2      369.2

Long-term deferred income taxes

     666.2      734.2

Other long-term assets

     31.0      27.7
             

Total assets

   $ 4,502.1    $ 4,861.3
             

Liabilities and Equity

     

Current liabilities:

     

Accounts payable

   $ 50.3    $ 52.2

Accrued compensation and benefits

     111.0      51.1

Accrued expenses and other current liabilities

     331.9      302.4

Deferred revenue

     130.9      140.1

Payables to Time Warner

     53.5      58.8

Current portion of obligations under capital leases

     27.5      25.0
             

Total current liabilities

     705.1      629.6

Obligations under capital leases

     40.8      33.7

Long-term obligations to Time Warner

     381.1      377.0

Restructuring liabilities

     21.5      9.0

Deferred income taxes

     4.8      11.5

Other long-term liabilities

     63.9      62.8
             

Total liabilities

     1,217.2      1,123.6
             

Contingencies (See Note 7)

     

Equity

     

Divisional equity

     3,566.2      4,038.6

Accumulated other comprehensive loss, net

     (282.6)      (302.4)
             

Total divisional equity

     3,283.6      3,736.2

Noncontrolling interest

     1.3      1.5
             

Total equity

     3,284.9      3,737.7
             

Total liabilities and equity

   $ 4,502.1    $ 4,861.3
             

See accompanying notes.

 

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AOL Inc.

Consolidated Statement of Operations

Three and six months ended June 30,

(Unaudited; $ in millions)

 

     Three Months Ended    Six Months Ended
     6/30/09    6/30/08    6/30/09    6/30/08

Revenues

           

Advertising

   $ 419.2    $ 530.3    $ 862.2    $ 1,082.2

Subscription

     355.7      491.0      749.2      1,029.8

Other

     28.9      35.4      59.6      73.0
                           

Total revenues

     803.8      1,056.7      1,671.0      2,185.0

Costs of revenues

     464.3      601.6      949.4      1,225.1

Selling, general and administrative

     124.8      180.1      263.1      354.1

Amortization of intangible assets

     34.8      42.1      71.3      79.4

Amounts related to securities litigation and government investigations, net of recoveries

     6.8      4.1      14.2      8.0

Restructuring costs

     14.4      3.8      72.7      13.3
                           

Operating income

     158.7      225.0      300.3      505.1

Other income (loss), net

     5.3      (1.5)      2.2      0.2
                           

Income before income taxes

     164.0      223.5      302.5      505.3

Income tax provision

     73.3      96.9      129.3      219.1
                           

Net income

     90.7      126.6      173.2      286.2

Less: Net loss attributable to noncontrolling interests

     —        (0.3)      (0.2)      (0.4)
                           

Net income attributable to AOL Inc.

   $ 90.7    $ 126.9    $ 173.4    $ 286.6
                           

See accompanying notes.

 

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AOL Inc.

Consolidated Statement of Cash Flows

Six Months Ended June 30,

(Unaudited; $ in millions)

 

     2009    2008

Operations

     

Net income

   $ 173.2    $ 286.2

Adjustments for non-cash and nonoperating items:

     

Depreciation and amortization

     212.3      240.3

Asset impairments

     6.6      4.1

Equity-based compensation

     7.8      4.8

Amounts related to securities litigation and government investigations, net of recoveries

     14.2      8.0

Other non-cash adjustments

     9.3      (1.5)

Deferred income taxes

     9.7      —  

Changes in operating assets and liabilities, net of acquisitions

     165.3      (74.2)
             

Cash provided by operations

     598.4      467.7

Investing Activities

     

Investments and acquisitions, net of cash acquired

     (15.7)      (1,024.8)

Proceeds from disposal of assets and consolidated businesses, net

     —        126.9

Capital expenditures and product development costs

     (67.6)      (100.3)

Other investment proceeds

     0.7      6.8
             

Cash used by investing activities

     (82.6)      (991.4)

Financing Activities

     

Debt repayments

     —        (0.7)

Principal payments on capital leases

     (14.8)      (11.3)

Excess tax benefit on stock options

     —        1.8

Net contribution from (distribution to) Time Warner

     (554.6)      695.5

Other

     (10.3)      5.4
             

Cash provided (used) by financing activities

     (579.7)      690.7

Effect of exchange rate changes on cash

     3.9      —  

Increase (decrease) in cash

     (60.0)      167.0

Cash at beginning of period

     134.7      151.9
             

Cash at end of period

   $ 74.7    $ 318.9
             

Supplemental disclosures of cash flow information

     

Cash paid for interest

   $ 1.5    $ 3.9

Cash paid for taxes

   $ 132.3    $ 387.5

See accompanying notes.

 

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AOL Inc.

Consolidated Statement of Equity

Six Months Ended June 30,

(Unaudited; $ in millions)

 

     2009    2008
     Divisional
Equity
   Non-
controlling
Interest
   Total
Equity
   Divisional
Equity
   Non-
controlling
Interest
   Total
Equity

Balance at beginning of period

   $ 3,736.2    $ 1.5    $ 3,737.7    $ 5,267.2    $ 2.3    $ 5,269.5

Net income

     173.4      (0.2)      173.2      286.6      (0.4)      286.2

Other comprehensive income

     19.8      —        19.8      9.7      —        9.7
                                         

Comprehensive income (loss)

     193.2      (0.2)      193.0      296.3      (0.4)      295.9

Net transactions with Time Warner

     (645.8)      —        (645.8)      661.5      —        661.5
                                         

Balance at end of period

   $ 3,283.6    $ 1.3    $ 3,284.9    $ 6,225.0    $ 1.9    $ 6,226.9
                                         

See accompanying notes.

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

See Note 1 to the Company’s audited consolidated financial statements.

Basis of Presentation

 

  (a) Basis of Consolidation

The interim consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of AOL, all voting interest entities in which AOL has a controlling voting interest (“subsidiaries”), and those variable interest entities for which AOL is the primary beneficiary in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46R”). These financial statements have been prepared as if the legal entity conversion and transfer of assets and liabilities described in the “Description of Business” section in Note 1 to the Company’s audited consolidated financial statements has taken place. Accordingly, these financial statements present the historical results of the business that will be transferred to AOL Inc. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. AOL has a number of related party relationships, the most significant of which are discussed in Note 11 to the Company’s audited consolidated financial statements. As of June 30, 2009, the members of AOL Holdings LLC were Time Warner, TW AOL Holdings Inc., a wholly-owned subsidiary of Time Warner, and Google. Each of the membership interests has the same economic rights and privileges.

For each of the periods presented, AOL was a subsidiary of Time Warner. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented.

In connection with the spin-off, the Company will enter into transactions with Time Warner that either have not existed historically or that are on different terms than the terms of arrangements or agreements that existed prior to the spin-off. In addition, the Company’s historical financial information does not reflect changes that the Company expects to experience in the future as a result of the separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of the business. Further, the historical financial statements include allocations of certain Time Warner corporate expenses. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by AOL if it had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. These allocated expenses relate to various services that have historically been provided to AOL by Time Warner, including cash management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit, accounting and human resources), equity-based compensation plan administration, aviation services, insurance coverage and the licensing of certain third-party patents. During the three and six months ended June 30, 2009, AOL incurred $5.4 million and $10.7 million, respectively, of expenses related to charges for services performed by Time Warner. During the three and six months ended June 30, 2008, AOL incurred $6.9 million and $13.2 million, respectively, of expenses related to charges for services performed by Time Warner.

The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses are included in the consolidated balance sheet as a component of accumulated other comprehensive income, net.

 

  (b) Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the consolidated financial statements include accounting for asset impairments, reserves established for uncollectible accounts, equity-based compensation, depreciation and amortization, business combinations, income taxes, litigation matters and contingencies.

 

  (c) Interim Financial Statements

The interim consolidated financial statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, the results of operations and cash flows for the periods presented in conformity with GAAP applicable to interim periods. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of AOL beginning on page F-3 of this Information Statement.

Recent Accounting Standards

 

  (a) Fair Value Measurements

On January 1, 2009, the Company adopted the provisions of FASB Statement No. 157, Fair Value Measurements (“FAS 157”), related to non-financial assets and liabilities on a prospective basis. FAS 157 establishes the authoritative definition of fair value, sets out a framework for measuring fair value and expands the required disclosures about fair value measurement. On January 1, 2008, the Company adopted the provisions of FAS 157 related to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis. The adoption of the provisions of FAS 157 did not affect the Company’s historical consolidated financial statements and is not expected to have a material impact on the Company’s consolidated financial statements.

The majority of the Company’s non-financial instruments, which include goodwill, intangible assets and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill) such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of historical cost or fair value.

 

  (b) Business Combinations

On January 1, 2009, the Company adopted the provisions of FASB Statement No. 141 (revised 2007), Business Combinations (“FAS 141R”), and is applying such provisions prospectively to business combinations that have an acquisition date on or after January 1, 2009. FAS 141R establishes principles and requirements for how an acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures goodwill acquired in a business combination or a gain from a bargain purchase and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

the business combination. In addition, FAS 141R requires that changes in the amount of acquired tax attributes be included in the Company’s results of operations. While FAS 141R applies only to business combinations with an acquisition date after its effective date, the amendments to FASB Statement No. 109, Accounting for Income Taxes (“FAS 109”), with respect to deferred tax valuation allowances and liabilities for income tax uncertainties have been applied to all deferred tax valuation allowances and liabilities for income tax uncertainties recognized in prior business combinations. The adoption of the provisions of FAS 141R did not affect the Company’s historical consolidated financial statements.

 

  (c) Noncontrolling Interests

On January 1, 2009, the Company adopted the provisions of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (“FAS 160”). The provisions of FAS 160 establish accounting and reporting standards for the noncontrolling interest in a subsidiary, including the accounting treatment upon the deconsolidation of a subsidiary. FAS 160 is being applied prospectively, except for the provisions related to the presentation of noncontrolling interests. Noncontrolling interests have been reclassified to equity in the consolidated balance sheet and excluded from net income in the consolidated statement of operations for all prior periods presented.

 

  (d) Disclosures about Derivative Instruments and Hedging Activities

On January 1, 2009, the Company adopted the provisions of FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“FAS 161”). The provisions of FAS 161 amend and expand the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FAS 133 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The adoption of the provisions of FAS 161 requires prospective disclosures and accordingly did not affect the Company’s historical consolidated financial statements. For more information, see Note 6.

 

  (e) Interim Disclosures about Fair Value of Financial Instruments

On April 1, 2009, the Company adopted the provisions of FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP No. FAS 107-1 and APB 28-1”), on a prospective basis. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The adoption of the provisions of FSP No. FAS 107-1 and APB 28-1 did not affect the Company’s historical consolidated financial statements.

 

  (f) Recognition and Presentation of Other-Than-Temporary-Impairments

On April 1, 2009, the Company adopted the provisions of FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other Than-Temporary-Impairments (“FSP No. FAS 115-2 and FAS 124-2”), on a prospective basis. This FSP incorporates impairment guidance for debt securities from various sources of authoritative literature and clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired. The adoption of the provisions of FSP No. FAS 115-2 and FAS 124-2 did not affect the Company’s historical consolidated financial statements.

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

  (g) Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

On April 1, 2009, the Company adopted the provisions of FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP No. FAS 157-4”), on a prospective basis. This FSP provides additional guidance for estimating fair value in accordance with FAS 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly (i.e., a forced liquidation or distressed sale). The adoption of the provisions of FSP No. FAS 157-4 did not affect the Company’s historical consolidated financial statements.

 

  (h) Subsequent Events

On April 1, 2009, the Company adopted the provisions of FASB Statement No. 165, Subsequent Events (“FAS 165”), on a prospective basis. The provisions of FAS 165 provide guidance related to the accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. Additionally, FAS 165 requires the Company to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. For the three and six months ended June 30, 2009, the Company evaluated, for potential recognition and disclosure, events that occurred prior to the filing of the Registration Statement of which this Information Statement is a part on October 26, 2009. The adoption of the provisions of FAS 165 did not affect the Company’s historical consolidated financial statements.

 

  (i) Hierarchy of Generally Accepted Accounting Principles

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“FAS 168”), which establishes the FASB Accounting Standards Codification as the source of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. The provisions of FAS 168 will be applied prospectively beginning in the third quarter of 2009 and will have no impact on the Company’s consolidated financial statements.

 

  (j) Accounting for Transfers of Financial Assets

In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (“FAS 166”). The provisions of FAS 166 amend FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“FAS 140”), by removing the concept of a qualifying special-purpose entity and removing the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN46”), to variable interest entities that were previously considered qualifying special-purpose entities. The provisions of FAS 166 will become effective for AOL on January 1, 2010. The Company is currently evaluating the impact the provisions of FAS 166 will have on the Company’s consolidated financial statements.

 

  (k) Amendments to FASB Interpretation No. 46(R)

In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”), which amends the definition of the primary beneficiary of a variable interest entity and will require the Company to assess each reporting period if any of the Company’s variable interests give it a controlling financial interest in the applicable variable interest entity. The provisions of FAS 167 will become effective for

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

AOL on January 1, 2010, will be applied prospectively beginning in the first quarter of 2010 and are not expected to have a material impact on the Company’s consolidated financial statements.

 

  (l) Update Regarding Measuring Liabilities at Fair Value

In August 2009, the FASB issued FSP No. FAS 157-f, Measuring Liabilities under FASB Statement No. 157 (“FSP No. FAS 157-f”). FSP No. FAS 157-f clarifies that in the absence of a quoted price in an active market for an identical liability, companies may apply approaches that utilize the quoted price of an investment in the identical liability or that utilize a market or income valuation technique to estimate the fair value of the liability. FSP No. FAS 157-f will become effective for AOL on October 1, 2009, will be applied prospectively beginning in the fourth quarter of 2009 and is not expected to have a material impact on the Company’s consolidated financial statements.

 

  (m) Amendments to Revenue Arrangements with Multiple Deliverables

In September 2009, the FASB issued EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables (“EITF 08-01”) that amends EITF 00-21. EITF 08-01 eliminates the requirement that undelivered elements in an arrangement with multiple revenue-generating deliverables have objective and reliable evidence of fair value before recognition of the portion of the overall arrangement fee that is attributable to items that already have been delivered. EITF 08-01 will become effective for AOL on January 1, 2011 with earlier application permitted, provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently evaluating the timing of adopting EITF 08-01 and the impact that the adoption of EITF 08-01 will have on the Company’s revenue recognition.

Interim Impairment Testing of Goodwill

As discussed in more detail in Notes 1 and 2 to the Company’s audited consolidated financial statements, goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. In the first quarter of 2009, since management determined that it was more likely than not that Time Warner would spin-off AOL, the Company was required under FASB Statement No. 142, Goodwill and Other Intangible Assets, to test goodwill for impairment as of March 31, 2009 (the “interim testing date”).

In determining the fair value of AOL’s single reporting unit for the interim impairment analysis, the Company used a market-based approach. The market-based approach to determine fair value involves the exercise of judgment in identifying the relevant comparable company market multiples. The market multiples identified by the Company were multiplied by our 2009 earnings forecast in determining our estimated fair value. Such fair value exceeded our net book value and therefore did not result in an impairment charge.

If the fair value of AOL had been hypothetically lower by 20% at March 31, 2009, the fair value of AOL would have exceeded its book value. In addition, if the fair value of AOL had been hypothetically lower by 30% at March 31, 2009, the book value of AOL would have exceeded its fair value by approximately $100 million. If the book value of AOL had been greater than its fair value, the second step of the goodwill impairment test would have been required to be performed to determine the ultimate amount of impairment loss to recognize.

NOTE 2 - INCOME TAXES

The effective tax rates for the three and six months ended June 30, 2009 were 44.7% and 42.7%, respectively, compared to 43.4% for the same periods in 2008. The effective tax rates for the three and six

 

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Table of Contents

AOL Inc.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

months ended June 30, 2009, as compared to the same period in 2008, were essentially flat as there were no significant changes in activity in those periods. The effective tax rate for the three and six months ended June 30, 2009 differs from the statutory U.S. Federal income tax rate of 35.0% due primarily to state income taxes, net of the Federal income tax benefit.

NOTE 3 - BUSINESS ACQUISITIONS, DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

Lease of Office Space to Raytheon

In March 2009, the Company executed an agreement whereby the Company will lease to Raytheon Company (“Raytheon”) approximately 600,000 square feet of its owned office space in Dulles, Virginia beginning in October 2009. The lease has an initial term of 10 years with aggregate lease payments of approximately $102.0 million, and provides Raytheon with a series of five-year renewal options for up to an additional 20 years.

Acquisition of Patch Media Corporation

On June 10, 2009, AOL purchased Patch Media Corporation (“Patch”), a news, information and community platform business dedicated to providing comprehensive local information and services for individual towns and communities, for approximately $7.0 million in cash. Approximately $700,000 of the consideration is being held in an indemnity escrow account until the first anniversary of the closing.

At the time of closing, Tim Armstrong, AOL’s Chairman and Chief Executive Officer, held, indirectly, through Polar Capital Group, LLC (“Polar Capital”) (a private investment company which he founded), economic interests in Patch that entitled him to receive approximately 75% of the transaction consideration. Mr. Armstrong’s original investment in Patch, made in December 2007 through Polar Capital, was approximately $4.5 million. In connection with the transaction, Mr. Armstrong, through Polar Capital, waived his right to receive any transaction consideration in excess of his original $4.5 million investment, opting to accept only the return of his initial investment. In addition, Mr. Armstrong elected to return the $4.5 million (approximately $450,000 of which is being held in the indemnity escrow account for a year) that he was entitled to receive in connection with the transaction to AOL, to be held by AOL until after the separation from Time Warner. As soon as legally permissible, following the separation, AOL will cause to be issued to Polar Capital an amount of AOL common stock equivalent to $4.5 million (minus any amounts held in the indemnity escrow account) based on an average of the high and low market prices on the relevant trading day. The payment to Polar Capital of the $4.5 million of consideration is not contingent on the continued employment of Mr. Armstrong with AOL.

The Patch acquisition did not significantly affect AOL’s consolidated financial results for the three and six months ended June 30, 2009.

NOTE 4 - EQUITY-BASED COMPENSATION

 

  (a) Equity-Based Compensation

Until consummation of the separation, AOL employees participate in Time Warner’s equity plans. Time Warner has two active equity plans under which it is authorized to grant equity awards of Time Warner common stock to AOL employees. Options have been granted to employees of AOL with exercise prices equal to the fair market value at the date of grant. Generally, the stock options vest ratably over a four-year vesting period and

 

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

expire ten years from the date of grant. Certain stock option awards provide for accelerated vesting upon an election to retire pursuant to the Company’s defined benefit retirement plans or after reaching a specified age and years of service.

In connection with the legal and structural separation of Time Warner Cable Inc. (“TWC”) from Time Warner (the “TWC Separation”), and as provided for in Time Warner’s equity plans, the number of stock options, RSUs and target PSUs held by AOL employees at March 12, 2009 (the “Distribution Record Date”) and the exercise prices of such stock options were adjusted to maintain the fair value of those awards. The changes in the number of equity awards and the exercise prices (which are reflected in the 2009 grant information provided herein) were determined by comparing the fair value of such awards immediately prior to the TWC Separation to the fair value of such awards immediately after the TWC Separation. In performing this analysis, the only assumptions that changed related to the Time Warner stock price and the employee’s exercise price. Accordingly, each equity award outstanding as of the Distribution Record Date was increased by multiplying the size of such award by 1.35, while the per share exercise price of each stock option was decreased by dividing by 1.35. The modifications to the outstanding equity awards were made pursuant to existing antidilution provisions in Time Warner’s equity plans and did not result in any additional compensation expense.

In addition, the number of equity awards, the grant-date fair value and the per share exercise price for all periods presented herein have been adjusted to reflect the effects of Time Warner’s 1-for-3 reverse stock split which became effective on March 27, 2009. For the six months ended June 30, 2009, 0.8 million Time Warner stock options were granted to AOL employees at a weighted-average grant date fair value per option of $5.40 ($3.35 net of tax). For the six months ended June 30, 2008, 1.5 million Time Warner stock options were granted to AOL employees at a weighted-average grant date fair value per option of $12.09 ($7.50 net of tax).

The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value Time Warner stock options at their grant date.

 

     Six Months Ended
June 30,
     2009   2008

Expected volatility

   38.4%   28.5%

Expected term to exercise from grant date

   4.61 years   5.73 years

Risk-free rate

   1.8%   3.1%

Expected dividend yield

   3.7%   1.7%

Pursuant to these equity plans, Time Warner may also grant shares of common stock or restricted stock units (“RSUs”) to employees of AOL. These awards generally vest between three to five years from the date of grant. Certain RSU awards provide for accelerated vesting upon an election to retire pursuant to Time Warner’s defined benefit retirement plans or after reaching a specified age and years of service. Holders of restricted stock and RSU awards are generally entitled to receive cash dividends or dividend equivalents, respectively, paid by Time Warner during the period of time that the restricted stock or RSU awards are unvested. For the six months ended June 30, 2009, 0.4 million Time Warner RSUs were granted to AOL employees at a weighted-average grant date fair value per RSU of $19.89. For the six months ended June 30, 2008, 0.8 million Time Warner RSUs were granted to AOL employees at a weighted-average grant date fair value per RSU of $44.79.

Time Warner also has a performance stock unit program for senior level executives. Under this program, recipients of performance stock units (“PSUs”) are awarded a target number of PSUs (“Target PSUs”) that represent the contingent (unfunded and unsecured) right to receive shares of Time Warner stock at the end of a

 

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(unaudited)

 

performance period (generally three years) based on the actual performance level achieved by Time Warner. Depending on Time Warner’s total shareholder return relative to the other companies in the S&P 500 Index, as well as a requirement of continued employment, the recipient of a PSU may receive 0% to 200% of the Target PSUs granted based on a sliding scale where a relative ranking of less than the 25th percentile will pay 0% and a ranking at the 100th percentile will pay 200% of the target number of shares. PSU holders do not receive payments or accruals of dividends or dividend equivalents for regular cash dividends paid by Time Warner while the PSU is outstanding. Participants who are terminated by the Company other than for cause or who terminate their own employment for good reason or due to retirement or disability are generally entitled to a pro rata portion of the PSUs that would otherwise vest at the end of the performance period. For accounting purposes, the PSU is considered to have a market condition. The effect of a market condition is reflected in the grant date fair value of the award and, thus, compensation expense is recognized on this type of award provided that the requisite service is rendered (regardless of whether the market condition is achieved). The fair value of a PSU is estimated on the date of the grant by using a Monte Carlo analysis to estimate the total return ranking of Time Warner among the S&P 500 Index companies over the performance period.

For the six months ended June 30, 2009, there were no Time Warner Target PSUs granted to AOL employees. For the six months ended June 30, 2008, 71,300 Time Warner Target PSUs were granted to AOL employees at a weighted-average grant date fair value per PSU of $49.32.

Compensation expense recognized by AOL for its participation in Time Warner’s equity-based compensation plans is as follows ($ in millions):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2009(a)    2008(a)    2009(a)    2008(a)

Stock options

   $   (0.3)    $   2.4    $   2.6    $   0.7

Restricted stock, restricted stock units and performance stock units

     1.9      3.3      5.2      4.1
                           

Total impact on operating income

   $ 1.6    $ 5.7    $ 7.8    $ 4.8
                           

Tax benefit recognized

   $ 0.9    $ 2.5    $ 3.4    $ 2.1

 

(a) The amounts recorded in 2009 and 2008 include changes in estimates related to increases in the Company’s estimated forfeiture rate for stock options.

 

  (b) Treatment Following Spin-Off

In connection with the legal and structural separation of the Company from Time Warner, AOL employees will no longer participate in the Time Warner equity plans once a spin-off has been completed. Employees who hold Time Warner equity awards at the time of the separation will be treated as if their employment with Time Warner was terminated without cause. For most AOL employees, this treatment will result in the forfeiture of unvested stock options and shortened exercise periods for vested stock options and pro rata vesting of the next installment of (and forfeiture of the remainder of) the RSU awards. Time Warner equity awards held by AOL’s Chairman and Chief Executive Officer at the time of the separation will be converted into AOL equity awards with the same terms.

NOTE 5 - RESTRUCTURING COSTS

The Company undertook various restructuring activities in the first half of 2009 in an effort to better align its cost structure with its revenues. As a result, for the three and six months ended June 30, 2009, the Company

 

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

incurred restructuring charges of $14.4 million and $72.7 million, respectively, related primarily to involuntary employee terminations (ranging from senior executives to line personnel) and facility closures. For the three and six months ended June 30, 2008, the Company incurred restructuring charges of $3.8 million and $13.3 million, respectively, related primarily to involuntary employee terminations (ranging from senior executives to line personnel) and facility closures.

A summary of AOL’s restructuring activity for the six months ended June 30, 2009 is as follows ($ in millions):

 

     Employee
Terminations
   Other Exit Costs    Total

Liability as of December 31, 2008

   $ 10.4      $ 20.5      $ 30.9  

Net accruals

     51.4        21.3        72.7  

Non-cash charges

     (9.3)       0.3        (9.0) 

Adjustments to previous estimates

     0.6        1.0        1.6  

Cash paid

     (25.4)       (13.3)       (38.7) 
                    

Liability as of June 30, 2009

   $                 27.7      $       29.8      $                 57.5  
                    

As of June 30, 2009, of the remaining liability of $57.5 million, $36.0 million was classified as a current liability, with the remaining $21.5 million classified as a long-term liability in the consolidated balance sheet. Amounts classified as long-term are expected to be paid through 2014.

NOTE 6 - DERIVATIVE INSTRUMENTS

AOL uses derivative instruments (principally forward contracts), entered into on its behalf by Time Warner, to manage the risk associated with movements in foreign currency exchange rates. Time Warner monitors its positions with, and the credit quality of, the financial institutions that are party to any of its financial transactions. Netting provisions are provided for in existing International Swap and Derivative Association Inc. agreements in situations where Time Warner executes multiple contracts with the same counterparty. The following is a summary of Time Warner and AOL’s foreign currency risk management strategies and the effect of these strategies on AOL’s consolidated financial statements.

Foreign Currency Risk Management

As discussed in more detail in Note 8 to the Company’s audited consolidated financial statements, Time Warner manages certain derivative contracts on AOL’s behalf. Foreign exchange derivative contracts are used by AOL primarily to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates.

At June 30, 2009, AOL had recorded an asset of $0.2 million for net gains on foreign currency derivatives with the offset recorded in accumulated other comprehensive loss, a component of equity. Such amount is expected to be substantially recognized in income over the next 12 months at the same time the hedged item is recognized in income.

NOTE 7 - CONTINGENCIES

 

  (a) Shareholder Derivative Lawsuits

During the summer and fall of 2002, numerous shareholder derivative lawsuits were filed in state and federal courts naming as defendants certain current and former directors and officers of Time Warner, as well as

 

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(unaudited)

 

Time Warner as a nominal defendant. The complaints alleged that defendants breached their fiduciary duties by, among other things, causing Time Warner to issue corporate statements that did not accurately represent that AOL had declining advertising revenues. Certain of these lawsuits were later dismissed, and others were eventually consolidated in their respective jurisdictions. In 2006, the parties entered into a settlement agreement to resolve all of the remaining derivative matters, and the Court granted final approval of the settlement on September 6, 2006. The court has yet to rule on plaintiffs’ petition for attorneys’ fees and expenses. At December 31, 2008, Time Warner’s remaining reserve related to these matters is $9.9 million, which approximates an expected award for plaintiffs’ attorneys’ fees. During the six months ended June 30, 2009 and 2008, AOL reflected $14.2 million and $8.0 million, respectively, of legal fees incurred as an expense in the financial statements herein. While these amounts were historically incurred by Time Warner and reflected in Time Warner’s financial results, they have been reflected as an expense and a corresponding additional capital contribution in AOL’s financial statements. Following the spin-off, these costs will continue to be incurred by Time Warner to the extent that proceeds from a settlement with insurers are available to pay those costs, and thereafter will be borne by AOL or Time Warner to the extent either entity is obligated by its bylaws or otherwise to pay such costs.

 

  (b) Other Matters

On May 24, 1999, two former AOL Community Leader volunteers brought a putative class action, Hallissey et al. v. America Online, Inc., in the U.S. District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (“FLSA”) and New York State law. The plaintiffs allege that, in serving as AOL Community Leader volunteers, they were acting as employees rather than volunteers for purposes of the FLSA and New York State law and are entitled to minimum wages. The court denied the Company’s motion to dismiss in 2006 and ordered the issuance of notice to the putative class in 2008. In February 2009, plaintiffs filed a motion to file an amended complaint, the briefing for which was completed in May 2009, and which the court denied on July 17, 2009. In 2001, four of the named plaintiffs in the Hallissey case filed a related lawsuit alleging retaliation as a result of filing the FLSA suit in Williams, et al. v. America Online, Inc., et al. A related case was filed by several of the Hallissey plaintiffs in the U.S. District Court for the Southern District of New York alleging violations of the retaliation provisions of the FLSA. This case was stayed pending the outcome of the Company’s motion to dismiss in the Hallissey matter discussed above, but has not yet been activated. Also, in 2001, two related class actions were filed in state courts in New Jersey (Superior Court of New Jersey, Bergen County Law Division) and Ohio (Court of Common Pleas, Montgomery County, Ohio), alleging violations of the FLSA and/or the respective state laws. These cases were removed to federal court and subsequently transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.

On January 17, 2002, AOL Community Leader volunteers filed a class action lawsuit in the U.S. District Court for the Southern District of New York, Hallissey et al. v. AOL Time Warner, Inc., et al., against AOL LLC alleging ERISA violations. Plaintiffs allege that they are entitled to pension and/or welfare benefits and/or other employee benefits subject to ERISA. In March 2003, plaintiffs filed and served a second amended complaint, adding as defendants the AOL Time Warner Administrative Committee and the AOL Administrative Committee. On May 19, 2003, AOL filed a motion to dismiss and the Administrative Committees filed a motion for judgment on the pleadings. Both of these motions are pending. The Company intends to defend against all these lawsuits vigorously.

On August 1, 2005, Thomas Dreiling, a shareholder of Infospace Inc., filed a derivative suit in the U.S. District Court for the Western District of Washington against AOL LLC and Infospace Inc. as nominal defendant. The complaint, brought in the name of Infospace, asserts violations of Section 16(b) of the Exchange Act. The plaintiff alleges that certain AOL LLC executives and the founder of Infospace, Naveen Jain, entered

 

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(unaudited)

 

into an agreement to manipulate Infospace’s stock price through the exercise of warrants that AOL LLC received in connection with a commercial agreement with Infospace. The complaint seeks disgorgement of profits, interest and attorneys’ fees. On January 3, 2008, the court granted AOL LLC’s motion and dismissed the complaint with prejudice. Plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit, and the oral argument occurred on May 7, 2009. On August 19, 2009, the Ninth Circuit issued its opinion affirming the District Court’s opinion on all issues. The petitioners’ September 2, 2009 motion for rehearing en banc before the Ninth Circuit was denied on October 13, 2009. The Company intends to defend against this lawsuit vigorously.

On September 22, 2006, Salvadore Ramkissoon and two unnamed plaintiffs filed a putative class action against AOL LLC in the U.S. District Court for the Northern District of California based on AOL LLC’s public posting of AOL LLC member search queries in late July 2006. Among other things, the complaint alleges violations of the Electronic Communications Privacy Act and California statutes relating to privacy, data protection and false advertising. The complaint seeks class certification and damages, as well as injunctive relief that would oblige AOL LLC to alter its search query retention practices. In February 2007, the District Court dismissed the action without prejudice. The plaintiffs then appealed this decision to the Ninth Circuit. On January 16, 2009, the Ninth Circuit held that AOL LLC’s Terms of Service violated California public policy as to any California plaintiffs in the putative class, as it did not allow for them to fully exercise their rights. The Ninth Circuit reversed and remanded to the District Court for further proceedings. On April 24, 2009, AOL LLC filed a motion to stay discovery as well as a motion to implement the Ninth Circuit’s mandate; the former motion was denied on June 22, 2009. AOL LLC filed its answer on June 29, 2009. On July 6, 2009, the District Court found that the plaintiffs’ claims for unjust enrichment and public disclosure of private facts were subject to the forum selection clause in the Terms of Service and thus could not be pursued in that court. Further, the District Court ordered additional briefing on whether the District Court may compel plaintiffs to litigate their claims for alleged violations of the Electronic Communications Privacy Act in a state court. The briefing has been filed by both sides and the Company awaits a ruling from the District Court. The Company intends to defend against this lawsuit vigorously.

Between December 27, 2006 and July 6, 2009, AOL Europe Services SARL (“AOL Luxembourg”), a wholly-owned subsidiary of AOL organized under the laws of Luxembourg, received four assessments from the French tax authority for French value added tax related to AOL Luxembourg’s subscription revenues from French subscribers earned during the period from July 1, 2003 through October 31, 2006. The assessments, including interest accrued through the respective assessment dates, total €187.1 million (approximately $262.8 million based on the euro to dollar exchange rate as of June 30, 2009). The Company recorded an incremental expense of $14.7 million related to this matter in the third quarter of 2009.

In addition to the matters listed above, we are a party to a variety of legal proceedings that arise in the normal course of our business. While the results of such normal course legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of the current pending matters will not have a material adverse effect on our financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on us because of defense costs, diversion of management resources and other factors.

NOTE 8 - RELATED PARTY TRANSACTIONS

Changes to Guarantee Agreements with Time Warner

As discussed in more detail in Note 11 to the Company’s audited consolidated financial statements, AOL LLC guarantees certain debt issued by Time Warner or its subsidiaries on a joint and several basis. On April 15, 2009, Time Warner completed a solicitation of consents (the “Consent Solicitation”) from the holders of this

 

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(unaudited)

 

outstanding public debt, resulting in the adoption on April 16, 2009 of certain amendments to each indenture underlying such debt. As a result of the Consent Solicitation, certain covenant restrictions will no longer apply to the conveyance or transfer by AOL LLC of its properties and assets substantially as an entirety. Such permitted conveyance or transfer by AOL LLC is subject to the concurrent or prior issuance of a guarantee by Time Warner’s wholly-owned subsidiary, Home Box Office, Inc., of the debt issued by Time Warner and its subsidiaries. In connection with the reorganization, AOL LLC will transfer substantially all of its assets and liabilities to AOL (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner, which guarantees will be retained by AOL LLC). Following this transfer of AOL LLC’s assets and liabilities, ownership of AOL LLC will be transferred to, and retained by, Time Warner, and Home Box Office, Inc. will issue such a guarantee of the debt issued by Time Warner and its subsidiaries. Following the spin-off, AOL and its subsidiaries will not guarantee any debt issued by Time Warner or its subsidiaries.

NOTE 9 - SUBSEQUENT EVENTS

Repurchase of Google interest in AOL

On July 8, 2009, Time Warner repurchased Google’s 5% interest in AOL for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in AOL. Following this purchase, AOL became a 100%-owned subsidiary of Time Warner.

Second Tax Matters Agreement with Time Warner

As discussed in more detail in Note 5 to the Company’s audited consolidated financial statements, AOL currently indemnifies Time Warner for certain tax positions related to AOL taken by Time Warner from April 13, 2006 up to the date of the spin-off in its consolidated, combined, unitary or similar tax returns. The aggregate amount of the reserve for uncertain tax positions underlying this indemnification obligation to Time Warner was $359.8 million (which includes estimated related accrued interest and penalties) at June 30, 2009. Effective with the spin-off, the Company intends to enter into a Second Tax Matters Agreement with Time Warner that will govern the respective rights, responsibilities and obligations of Time Warner and AOL after the spin-off with respect to all tax matters. As a member of Time Warner’s consolidated U.S. Federal income tax group, AOL has (and will continue to have following the spin-off) joint and several liability with Time Warner to the IRS for the consolidated U.S. Federal income taxes of the group relating to the taxable periods in which AOL was part of the group.

Under the Second Tax Matters Agreement, however, Time Warner will agree to indemnify AOL against this liability and any similar liability for U.S. Federal, state or local income taxes that are determined on a consolidated, combined, unitary or similar basis for each taxable period in which AOL is included in such consolidated, combined, unitary or similar group with Time Warner. AOL will remain responsible for any foreign income taxes and any income taxes that are not determined on a consolidated, combined, unitary or similar basis with Time Warner.

Upon the effectiveness of the Second Tax Matters Agreement, Time Warner will assume the obligation for certain tax positions taken by Time Warner in its consolidated, combined, unitary or similar tax returns with respect to AOL up to the date of the spin-off. As a result, at the date of the spin-off, AOL expects to reverse the recorded liability to Time Warner related to these tax positions, with an offsetting adjustment to equity.

 

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Transfer of real estate to Time Warner

As discussed in more detail in Note 11 to the Company’s audited consolidated financial statements, in December 2006, AOL sold certain real estate in Columbus, Ohio to Time Warner subject to a leaseback by AOL. The net book value of this real estate was classified as held for sale as of June 30, 2009. As a result of AOL’s decision to exit this facility, AOL has no ongoing operations in the facility as of September 30, 2009. Accordingly, during the third quarter of 2009 the remaining net book value of this facility of $6.7 million was transferred to Time Warner with a corresponding reduction in divisional equity.

 

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SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2006, 2007 and 2008

($ in millions)

 

Description

 

Allowance for Doubtful Accounts

   Balance at
Beginning of
Year
   Additions Charged
to Costs
and Expenses
   Deductions     Balance at
End of Year

2006

   $ 54.5    $ 172.4    $ (182.6   $ 44.3

2007

   $ 44.3    $ 48.1    $ (61.5   $ 30.9

2008

   $ 30.9    $ 30.4    $ (21.5   $ 39.8

 

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