<PAGE>
As filed with the Securities and Exchange Commission on March 14, 2000
Registration No. 333-95051
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
AMERICA ONLINE LATIN AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 7370 65-0963212
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
6600 N. Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
(954) 229-2100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------
Charles M. Herington
Chief Executive Officer
America Online Latin America, Inc.
6600 N. Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
(954) 229-2100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
With copies to:
Michael L. Fantozzi, Esq. Marc S. Rosenberg, Esq.
Peter S. Lawrence, Esq. Cravath, Swaine & Moore
Mintz, Levin, Cohn, Ferris, Worldwide Plaza
Glovsky and Popeo, P.C. 825 Eighth Avenue
One Financial Center New York, NY 10019
Boston, MA 02111 (212) 474-1000
(617) 542-6000
------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered or
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
[COMPANY LOGO]
Shares
America Online Latin America, Inc.
Class A Common Stock
$ per share
--------
America Online Latin America, Inc. is selling shares of its class A
common stock. The underwriters named in this prospectus may purchase up to
additional shares of class A common stock to cover over-allotments.
This is our initial public offering of class A common stock. All of the
shares of class A common stock are being sold by America Online Latin America,
Inc. No public market currently exists for the class A common stock. We
anticipate that the initial public offering price will be between $ and
$ per share. We have applied to have the class A common stock included for
quotation on the Nasdaq National Market under the symbol "AOLA."
--------
Investing in our class A common stock involves risks. See "Risk Factors"
beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
In a concurrent distribution made by a separate prospectus, one of our
principal stockholders, the Cisneros Group of Companies, intends to distribute
up to shares of our class A common stock to some current and former
employees of companies within the Cisneros Group of Companies in recognition of
past employment services. Neither we nor the Cisneros Group of Companies will
receive any proceeds from the distribution by the Cisneros Group of Companies.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to America Online Latin America, Inc., before ex-
penses $ $
</TABLE>
The underwriters are offering the shares in the initial public offering
subject to various conditions. The underwriters expect to deliver the shares to
purchasers in the initial public offering on or about , 2000.
--------
Joint Book-Running Managers
Salomon Smith Barney Donaldson, Lufkin & Jenrette
--------
Lehman Brothers
, 2000
<PAGE>
Outside front cover and outside back cover of prospectus:
. watermark of the AOL-LA logo
Inside front cover of prospectus:
. AOL-LA logo
. text: "Portal"
. screen shot of America Online Brazil portal
. text: "Online Service Welcome Screen"
. screen shot of America Online Brazil online service welcome screen
. Text: "Hi you are online," "Welcome," "You've got mail," "Ready" and
"Downloading completed" in Portuguese
Inside back cover:
. AOL-LA logo
. text: "Our mission is to be a leader in the development in Latin America
of the global interactive medium that is changing the way people
communicate, stay informed, are entertained, learn, shop and conduct
business.
. Map of Latin America
<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to an underwritten public offering by America Online Latin
America, Inc. of an aggregate of shares of class A common stock. The second
prospectus relates to a concurrent distribution of an aggregate of shares of
class A common stock by one of our principal stockholders, the Cisneros Group
of Companies, to some current and former employees of companies within the
Cisneros Group of Companies. The prospectus for the underwritten public
offering and the Cisneros Group of Companies distribution will be identical in
all material respects with the exception that the Cisneros Group prospectus
will have an alternative front cover page and an alternative "Plan of
Distribution" section in place of the "Underwriting" section for the
underwritten public offering prospectus. Additional non-substantive conforming
changes will also be made to the Cisneros Group prospectus to reflect that the
initial public offering is being made by a separate prospectus. The alternative
pages appear in this registration statement immediately following the complete
prospectus for the underwritten public offering. Final forms of each prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 8
Forward-Looking Statements................................................. 22
Use of Proceeds............................................................ 23
Dividend Policy............................................................ 23
Capitalization............................................................. 24
Dilution................................................................... 25
Selected Financial Data.................................................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 27
Business................................................................... 32
Management................................................................. 49
Relationships and Related Transactions..................................... 57
Principal Stockholders..................................................... 62
Description of Provisions of Our Restated
Certificate of Incorporation that Affect the
Scope of Our Business..................................................... 64
Description of Capital Stock............................................... 65
Shares Eligible For Future Sale............................................ 71
U.S. Tax Consequences to Non-U.S. Holders.................................. 72
Underwriting............................................................... 75
Legal Matters.............................................................. 78
Experts.................................................................... 78
Where You Can Find Additional Information.................................. 78
Index to the Consolidated Financial Statements............................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary contains a general discussion of our business, the
offering of class A common stock and summary financial information. It does not
contain all of the information that is important to you in making a decision to
purchase shares of class A common stock. Before deciding to invest in our class
A common stock, you should read this entire prospectus, including "Risk
Factors" and our consolidated financial statements and related notes.
America Online Latin America seeks to become the leading provider of
interactive services in Latin America. We intend to bring to the Latin American
market localized AOL-branded interactive services and the opportunity to join
AOL's global online community of more than 21 million users in 15 countries and
seven languages. We believe that our relationships with our founders and
principal stockholders, America Online, Inc. and the Cisneros Group of
Companies, give us significant competitive advantages. We believe that we will
benefit from the technology, brand name, infrastructure and relationships of
AOL, the world's leader in branded interactive services, and will draw on the
relationships, regional experience and extensive media assets of the Cisneros
Group, one of the leading media groups in the Americas.
Our family of AOL-branded interactive services will include the AOL-LA
country services, our comprehensive online services which will be available to
subscribing members, and the AOL-LA country Internet portals and our Latin
American regional Internet portal. Our network of Internet portals will offer
content, community and e-commerce opportunities to all Internet users.
We believe that our AOL-LA country services will be unique in their seamless
integration of local, regional and global interactive communities and the
Internet, and in their array of interactive tools, content and e-commerce
opportunities. We expect to derive our revenues principally from member
subscriptions to our AOL-LA country services and generate additional revenues
from advertising and e-commerce. Our strategy is to develop AOL-LA brand
recognition, grow our member and user base and expand beneficial relationships
with advertisers, content providers and e-commerce merchants.
We believe that Latin America is one of the fastest growing markets for
Internet use. International Data Corporation projects that the number of
Internet users in Latin America will increase at a compound annual growth rate
of 34% from 1998 to 2003 and the number of Internet accessing devices will
increase at a compound annual growth rate of 41% over the same period. Our
three core target markets are Brazil, Mexico and Argentina. In November 1999,
we concurrently launched our first AOL-LA country service, America Online
Brazil, and our first AOL-LA country Internet portal, our Brazilian portal at
www.americaonline.com.br. In 2000, we plan to introduce localized versions of
the AOL-LA country services and portals in Mexico and Argentina, as well as our
Latin American regional portal. After that, we intend to introduce our
interactive services in additional countries in Latin America.
We believe that our relationships with AOL and the Cisneros Group are
essential to our success and provide us with significant competitive
advantages. Nonetheless, you should be aware that these relationships involve
numerous risks, including limitations on the scope of our rights to offer AOL's
interactive services, which are discussed more fully in the Risk Factors
section.
Our principal executive offices are located at 6600 N. Andrews Avenue, Suite
500, Fort Lauderdale, Florida 33309 and our telephone number at that address is
(954) 229-2100.
------------
4
<PAGE>
The Offering
<TABLE>
<S> <C> <C>
Class A common stock offered by this prospectus...... shares
Class A common stock distributed by the Cisneros
Group to some current and former employees of the
Cisneros Group under a separate prospectus.......... shares
<CAPTION>
Number of Shares Voting Power
---------------- ------------
<S> <C> <C>
Capital stock to be outstanding after this offering
and the concurrent distribution by the Cisneros
Group:
Class A common stock...............................
Series B preferred stock...........................
Series C preferred stock...........................
Total............................................
</TABLE>
Following this offering, all outstanding shares of series B preferred stock
will be held by AOL and all outstanding shares of series C preferred stock will
be held by the Cisneros Group. Shares of our series B preferred stock are
convertible into shares of class B common stock, which are convertible into
class A common stock, in each case at any time on a one-for-one basis. Shares
of our series C preferred stock are convertible into shares of class C common
stock, which are convertible into class A common stock, in each case at any
time on a one-for-one basis. No shares of class B or class C common stock are
currently outstanding.
Concurrently with this offering, the Cisneros Group intends to distribute up
to shares of our class A common stock to some of its current and former
employees. These shares were issued by us to the Cisneros Group as series C
preferred stock and will automatically convert into shares of class A common
stock upon their distribution to the current and former employees of the
Cisneros Group.
Throughout this prospectus, the term B stock refers collectively to our
series B preferred stock and our class B common stock and the term C stock
refers collectively to our series C preferred stock and our class C common
stock.
The number of shares of capital stock outstanding after this offering and
the concurrent distribution by the Cisneros Group does not include:
. shares of class A common stock issuable upon exercise of options that
we will grant to our employees and directors on the effective date of
this offering;
. shares of class A common stock available for future issuance under
our stock option plan; and
. shares of our series B preferred, class A common or class B common
stock issuable to AOL upon its exercise of an immediately exercisable
warrant to be granted upon the effective date of this offering.
Use of proceeds.................
Expansion of our interactive services,
expansion of telecommunications network
capacity and for working capital and
general corporate purposes.
Voting rights...................
Each holder of class A common stock is
entitled to one vote per share.
As the holder of B stock, AOL is entitled
to ten votes for each share of its B
stock and entitled to elect five of our
13 directors.
5
<PAGE>
As the holder of C stock, the Cisneros
Group is entitled to ten votes for each
share of its C stock and entitled to
elect five of our 13 directors.
Following this offering and the
concurrent distribution by the Cisneros
Group, AOL will control % and the
Cisneros Group will control % of the
voting power of all our capital stock. As
a result, they will determine the outcome
of all corporate matters requiring
stockholder approval, including the
election of all our directors, merger
transactions and the sale of all or
substantially all our assets. In
addition, our restated certificate of
incorporation requires the approval of
both AOL and the Cisneros Group to amend
a number of important provisions and to
undertake a wide variety of corporate
actions.
Proposed Nasdaq National Market AOLA
symbol.........................
Currently, our business is conducted by affiliates of AOL Latin America,
S.L., a joint venture between AOL and the Cisneros Group formed in December
1998. Upon the effectiveness of this offering, we will indirectly own all of
AOL Latin America, S.L. and its affiliates through a corporate reorganization.
In the reorganization, AOL will exchange its interests in AOL Latin America,
S.L. and its affiliates for shares of our series B preferred stock. AOL
will also receive the AOL warrant. The Cisneros Group will exchange its
interests for shares of our series C preferred stock. In addition, Cristina
Pieretti and Steven Bandel, executives of the Cisneros Group who are also
directors of AOL-LA, and Eduardo Hauser, a former executive of the Cisneros
Group who is now an executive of AOL-LA, will exchange their interests for an
aggregate of shares of our series C preferred stock. The shares of
series C preferred stock issued to these individuals will be converted into
shares of class A common stock.
Unless the context otherwise requires, throughout this prospectus:
. AOL-LA, we, us, and our refer to America Online Latin America, Inc., our
subsidiaries, and our predecessor, AOL Latin America, S.L. and its
affiliates;
. AOL refers to America Online, Inc; and
. the Cisneros Group of Companies or the Cisneros Group refers to a group
of companies and joint ventures that are associated with two of our
directors, Ricardo and Gustavo Cisneros, and their families.
Unless otherwise indicated, all information contained in this prospectus:
. reflects the reorganization transaction and the adoption of our restated
certificate of incorporation, restated by-laws and stockholders'
agreement upon the effectiveness of this offering;
. reflects the concurrent distribution by the Cisneros Group of shares
of class A common stock to current and former employees of the Cisneros
Group under a separate prospectus; and
. excludes the possible issuance of additional shares of class A common
stock to the underwriters to cover over-allotments.
AOL, America Online, AOL Globalnet, AOL.com, AOL Instant Messenger, AOL
Netfind, AOL Buddy List, AOL Favorite Places and ICQ are trademarks of AOL.
This prospectus also contains trademarks of other companies.
6
<PAGE>
Summary Financial Data
The following table presents our summary statement of operations data for:
. the period from December 15, 1998, the date of our inception, through
June 30, 1999, our first fiscal year end; and
. the six months ended December 31, 1999.
Our summary balance sheet data is presented as of December 31, 1999, on an
actual basis and as adjusted to give effect to our sale of shares of class
A common stock in this offering at an assumed initial public offering price of
$ per share, after deducting the underwriting discount and estimated offering
expenses.
You should read this information in conjunction with our financial
statements and the notes to those financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
Period from
December 15, 1998 Six Months
(date of inception) Ended
to December
June 30, 1999 31, 1999
-------------------- -----------------
(In thousands, except share data)
<S> <C> <C>
Statement of Operations Data:
Revenues:
Subscriptions................................... $ 1,644 $ 2,106
Advertising and e-commerce...................... -- 537
---------------- -----------------
Total revenues................................ 1,644 2,643
Loss from operations.............................. (4,917) (28,696)
Net loss.......................................... $ (5,039) $ (27,934)
================ =================
<CAPTION>
As of December 31, 1999
-----------------------------------------
Actual As Adjusted
-------------------- -----------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 20,213
Working capital................................... 7,944
Total assets...................................... 32,807
Total stockholders' equity........................ 12,489
</TABLE>
7
<PAGE>
RISK FACTORS
AOL and AOL-LA are two separate companies. An investment in AOL-LA is not an
investment in AOL, nor is AOL's investment in AOL-LA a recommendation for you
to purchase shares of AOL-LA's class A common stock. Before purchasing shares
of class A common stock offered by this prospectus, you should carefully
consider the risks described below, in addition to the other information
presented in this prospectus.
RISKS RELATED TO CONTROL BY AOL AND THE CISNEROS GROUP
Because AOL and the Cisneros Group will control AOL-LA following this offering,
investors acquiring shares in this offering will not be able to affect the
outcome of any stockholder vote or exercise any influence over our business
Following this offering and the concurrent distribution by the Cisneros
Group, AOL will control approximately % and the Cisneros Group will control
approximately % of the voting power of our outstanding capital stock.
Investors acquiring shares of class A common stock, which has disparate voting
rights compared to the B stock and C stock held by AOL and the Cisneros Group,
will control only % of the voting power. As a result, AOL and the Cisneros
Group will determine the outcome of all corporate matters requiring stockholder
approval, including the election of all of our directors and transactions such
as mergers. You may disagree with the decisions made by AOL and the Cisneros
Group, and you should be aware that they have business interests that conflict
with your interests. These conflicts are discussed more fully below.
Moreover, AOL and the Cisneros Group will control our business direction and
policies. The Cisneros Group has not previously operated any interactive
services business of the kind that we plan to conduct. AOL and the Cisneros
Group exercise their control over our business through exclusive voting rights
and veto powers granted to them as holders of B stock and C stock. For example,
each of AOL and the Cisneros Group, along with the directors appointed by them
who serve on the special committee of our board of directors, has the power to
veto all amendments to our restated certificate of incorporation and restated
by-laws, the selection of nominees to our board of directors and all issuances
of our capital stock. AOL and the Cisneros Group will each maintain their
exclusive voting and control rights in the future for as long as they own
shares of B stock or C stock equal to at least 50% of the number of shares of
series B or series C preferred stock that we originally issued to them. If AOL
and the Cisneros Group choose to issue or transfer B stock or C stock to
additional strategic stockholders, the 50% threshold would be reduced to allow
them to maintain their exclusive voting and control rights. See "Description of
Provisions of Our Restated Certificate of Incorporation that Affect the Scope
of Our Business," "Description of Capital Stock--Voting Rights," and
"Management--Committees of the Board of Directors--The Special Committee."
AOL and the Cisneros Group have interests that conflict with your interests and
because of the control they exert over us they are free to place their
interests ahead of yours
Because AOL and the Cisneros Group operate in the interactive services and
media industries, their control of AOL-LA creates actual and potential
conflicts of interest between them and us. Neither our restated certificate of
incorporation nor our agreements with AOL and the Cisneros Group prevent them
from pursuing other opportunities that might be advantageous to us, acquiring a
minority interest in businesses that compete with us or, in some instances,
directly competing with us. As a result, they have the power to take actions
that may be directly opposed to our interests and your interests as an
investor.
For example, AOL and the Cisneros Group may each offer Spanish- and
Portuguese-language interactive services targeted to markets outside of Latin
America. AOL may also offer any non-AOL-branded TV- or wireless-based online
services or non-AOL-branded Spanish and Portuguese language portals in Latin
America. Our business would be adversely affected if AOL or the Cisneros Group
were to engage in any of these business opportunities. You should also be aware
that AOL and the Cisneros Group are not restricted from competing with us for
advertising and e-commerce revenues.
8
<PAGE>
Our restated certificate of incorporation does not require AOL or the
Cisneros Group to inform us of any business opportunities or to make any
business opportunities available to us. Moreover, our restated certificate of
incorporation protects AOL and the Cisneros Group and obligates us to indemnify
them against liability for breach of fiduciary duty should they choose to
pursue an opportunity that might be favorable to us or recommend the
opportunity to a third party. Our directors and officers affiliated with AOL
and the Cisneros Group are similarly protected.
In addition, some of our directors and executive officers currently own AOL
common stock or options to purchase AOL common stock. Their interests in AOL's
equity may present them with incentives that are different from your
incentives, which may heighten the conflicts described above.
For as long as we are controlled by AOL and the Cisneros Group, any decisions
regarding our expansion into new types of interactive services, and whether and
when we can offer TV-based and wireless services, will be beyond our control.
These important limitations may impair our ability to compete effectively and
adversely affect our growth or reduce our revenues
Because of restrictions and limitations in our charter documents, we may not
be able to respond quickly, or at all, to new services offered by competitors
or take advantage of new business opportunities, which could adversely affect
our growth or reduce our revenues.
First, we cannot engage in any business activity other than providing PC-
based and AOL-branded TV- and wireless-based interactive services in Latin
America without the approval of AOL and the Cisneros Group for as long as:
. AOL continues to own shares of B stock equal to at least 50% of the
number of shares of series B preferred stock that we originally issued to
it, or shares; and
. the Cisneros Group continues to own shares of C stock equal to at least
50% of the number of shares of series C preferred stock that we
originally issued to it, or shares.
Second, even if AOL acquires or develops AOL-branded TV- and wireless-based
online services, we will not be able to offer these services in Latin America,
although we have the license to do so, without the approval of both of the
directors appointed by AOL and the Cisneros Group who serve on the special
committee of our board of directors. In addition, disputes may arise with AOL
over whether our licensed rights extend to particular services, due to possible
ambiguities in the terms PC-based, TV-based, and wireless-based services.
These limitations on our ability to offer new products and services beyond
AOL-branded PC-, TV- and wireless-based interactive services in Latin America
may prevent us from pursuing potentially lucrative business opportunities. For
example, we are currently prevented from offering our services to Spanish- and
Portuguese-speaking consumers in countries outside of Latin America.
Our rights to offer AOL-branded online services and portals in Latin America
are vital to our success, but they are subject to important conditions and
limitations, which could impair their value to us and hinder our ability to
compete effectively
We have entered into a license agreement with AOL under which we have
exclusive rights to offer AOL-branded PC-based online services and, as they are
developed by AOL, AOL-branded TV-and wireless-based online services in Latin
America. These rights to use AOL's brand name and services are vital to our
success as an interactive services provider. However, they are subject to
important conditions and limitations, some of which are beyond our control,
which could preclude us from exercising them or materially diminish their value
to us and could adversely affect our business.
First, we will lose our exclusivity:
. to AOL-branded PC-based online services, upon the later of December 15,
2003 or the date on which either AOL or the Cisneros Group owns less
than 20% of the outstanding capital stock of AOL-LA;
9
<PAGE>
. to AOL-branded TV- and wireless-based online services, upon the later of
, 2005 or the date on which either AOL or the Cisneros Group owns
less than 20% of the outstanding capital stock of AOL-LA.
We have no control over these factors.
Second, we have no rights to offer AOL-branded wireless-based online
services unless the services are developed by AOL for commercial launch within
four years of the effective date of the registration statement for this
offering. In addition, our rights to offer TV-based services are contingent
upon AOL's developing these services.
Third, AOL may terminate our license agreement if we materially breach its
terms.
In addition, our license to offer a network of Spanish- and Portuguese-
language AOL-branded portals in Latin America is non-exclusive, which means
that if we do not exercise our option to purchase exclusive rights, AOL could
offer competing portals or extend licensed rights to a third party. Except for
CompuServe-branded services, we have no rights to market non-AOL-branded
interactive services owned by AOL, including Netscape, DigitalCity and
MovieFone. These limitations may prevent us from pursuing potentially lucrative
business opportunities.
We depend solely on AOL for all of the proprietary technology and other
services related to providing our AOL-LA interactive services in Latin America,
which means that our ability to maintain commercial operations would be
seriously harmed if AOL is unable, for whatever reason, to meet its obligations
to provide us with technology and services
In addition to our license agreement, we have entered into a services
agreement with AOL under which we pay AOL to provide us with all the technology
and support we require to offer our interactive services in Latin America.
Under the services agreement, AOL has agreed to run our interactive services on
their host computers in the U.S. and to develop the localized versions of our
interactive services that we intend to offer in various countries in Latin
America. Because we do not have the resources, including personnel and
technology, to develop or run our interactive services independently of AOL,
any failure on AOL's part to meet its obligations under the services agreement
would severely affect our business. Further, if AOL delays in localizing our
software, future launches of our interactive services may be postponed, which
would weaken our ability to compete and to grow our business. AOL has no
obligation to reimburse us for losses caused by its failure to deliver any
services under the services agreement, and AOL may terminate the services
agreement if we materially breach its terms. The termination of the services
agreement with AOL would critically impact our business.
If AOL and the Cisneros Group fail to agree on matters related to our business,
our business may be adversely affected for as long as they remain in deadlock
Since AOL and the Cisneros Group jointly control our company through
provisions contained in our restated certificate of incorporation, restated by-
laws, and stockholders' agreement, either AOL or the Cisneros Group can block a
wide variety of actions. Should AOL and the Cisneros Group disagree on any
matter over which each has exclusive veto rights or the direction of AOL-LA,
our business may be adversely affected until the disagreement is resolved. For
example, under our restated certificate of incorporation, AOL, as the holder of
our B stock, and the Cisneros Group, as the holder of our C stock must each
separately approve many corporate and business matters, including:
. our offering AOL-branded TV- and wireless-based online services in
Latin America;
. any expansion of our business beyond offering PC-, TV- and wireless-
based interactive services in Latin America; and
. any changes to significant corporate governance provisions in our
restated certificate of incorporation and restated by-laws.
10
<PAGE>
The list of matters that both AOL and the Cisneros Group must approve is
extensive and extends beyond major corporate governance issues. See
"Management--Committees of the Board of Directors--The Special Committee" and
"Description of Capital Stock--Voting Rights."
Because AOL and the Cisneros Group control us, they can inhibit or prevent a
takeover or change in management that you consider to be beneficial or that
would otherwise favorably impact the market price of your class A common stock
As a result of their controlling interest in AOL-LA, AOL and the Cisneros
Group will have the ability to delay or prevent a change of control or changes
in our management that you may consider favorable or beneficial. Further,
provisions in our restated certificate of incorporation and restated by-laws
may also have the effect of delaying or preventing these changes, including
provisions:
. authorizing the issuance of preferred stock without your approval;
. eliminating the ability of class A stockholders to call special meetings
of stockholders; and
. requiring advance notice in order for class A stockholders to introduce
proposals at stockholder meetings.
If a change of control or change in management is delayed or prevented, the
market price of our class A common stock could decline and you may be deprived
of the opportunity to sell your shares of class A common stock at a premium to
the then current market price of the class A common stock.
FINANCIAL RISKS
We expect to continue to incur losses and we may not achieve or maintain
profitability, which may cause our stock price to decline
We incurred net losses of approximately $33.0 million from inception through
December 31, 1999. We expect to continue to incur net losses as we expend
substantial resources to develop our business. We cannot predict what impact,
if any, continued losses will have on our ability to finance our operations in
the future. We will need to generate significant revenues to achieve
profitability and we may not be able to do so.
Because our short operating history makes it difficult to evaluate our
prospects, our future financial performance may disappoint investors and result
in a decline in our stock price
You must consider our prospects given the risks, expenses and challenges we
might encounter because we are at an early stage of development in a new and
rapidly evolving market. We launched our first AOL-LA country service and our
first AOL-LA country Internet portal in November 1999 in Brazil. As a result,
we have only a limited operating history for you to evaluate our business and
our future financial performance may disappoint investors and result in a
decline in our stock price. Nearly all of our revenues through December 31,
1999 reflect subscription fees attributable to our CompuServe Classic
subscribers that we acquired from AOL. We expect these CompuServe revenues to
decline significantly. You should not evaluate our business or financial
prospects based upon our historical subscription revenues.
AOL has no commitment to fund our future capital requirements and the Cisneros
Group has only limited commitments, and financing from other sources may not be
available on favorable terms or at all, which would adversely affect our
ability to sustain our business
To support our operations to date, both AOL and the Cisneros Group have
provided us with various services, and the Cisneros Group has also provided
cash. However, neither AOL nor the Cisneros Group is obligated to provide any
future funding following this offering except that the Cisneros Group is
committed to provide $25.7 million in quarterly installments through July 2,
2001 under the terms of the stockholders'
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agreement. If the Cisneros Group does not make its contributions as required or
we are unable to obtain additional financing as needed, we may be required to
reduce the scope of our operations or anticipated expansion, which is likely to
have an adverse effect on our business. We cannot accurately predict the timing
and amount of our capital requirements. As a result we may require further
financing sooner than anticipated, in addition to the amounts raised in this
offering and the amounts we expect to receive from the Cisneros Group. Any
additional equity financing may be dilutive to our stockholders, and any debt
financing, if available, may involve restrictions on our financing and
operating activities.
Because we expect that most of our revenues will be paid in Latin American
currencies, the value of our revenues will decline if these currencies
depreciate relative to the U.S. dollar
Although our reporting currency is the U.S. dollar, most of our revenues
will be received in the currencies of the countries in which we offer our
interactive services. The currencies of many Latin American countries,
including Brazil, Mexico and Argentina, have experienced substantial volatility
and depreciation in the past. Our revenues will decline in value if the local
currencies in which we are paid depreciate relative to the U.S. dollar, which
would adversely affect our business. Due to our constantly changing currency
exposure and the potential substantial volatility of currency exchange rates,
we cannot predict the effect of exchange rate fluctuations on our business.
To date, we have not tried to limit our exposure to exchange rate
fluctuations by using foreign currency forward exchange contracts as a vehicle
for hedging. A foreign currency forward exchange contract would obligate us to
exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates and to make or receive an equivalent U.S.
dollar payment equal to the value of the exchange. Our business may be
adversely affected as a result of foreign currency exchange rate fluctuations
if we fail to enter into these hedging transactions or if these transactions
are unsuccessful. In addition, future currency exchange losses may increase if
we become subject to exchange control regulations restricting our ability to
convert local currencies into U.S. dollars.
We may fail to meet market expectations because of fluctuations in our
quarterly results, which could cause our stock price to decline
Because we expect that seasonality will have an effect on our business in
the future, our operating results are likely to fluctuate, which could cause us
to fail to meet market expectations and cause our stock price to decline. We
expect the growth in our member and user base to be highest during our second
fiscal quarter when sales of new computers and computer software are likely to
accelerate due to the holiday season. This may cause fluctuations in our
revenues and operating results and cause us to be disproportionately dependent
on second fiscal quarter results. If our expenses increase during our other
fiscal quarters, we may not be able to generate sufficient revenues to offset
these expenses.
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RISKS RELATED TO OUR MARKET STRATEGY
Free Internet access services, as well as Internet access at lower prices than
we charge, are available to consumers in Latin America and may adversely affect
our ability to attract and retain members, generate revenues from online
subscription fees and acquire market share
We expect to generate the substantial majority of our total revenues from
our online service subscription fees. The availability of lower priced or free
Internet services in Latin America may, however, adversely impact our ability
to attract and retain paying subscribers, generate revenues and acquire
significant market share. As in other markets throughout the world, free
Internet access services are now available in Brazil, Mexico and Argentina, and
providers of these services in Brazil claim to have registered a substantial
number of users. Universo Online, or UOL, Brazil's largest internet service
provider, and Terra Networks, have each introduced free Internet services in
Brazil in addition to their existing subscription services. In addition,
various Brazilian banks, including Bradesco and Unibanco, recently began
offering free limited Internet access services in Brazil to their online
banking customers. Further, UOL reduced the price for its unlimited Internet
subscription plan significantly below the price of our unlimited Internet
access plan. As a result of these developments, we reduced our price by 29% for
our unlimited Internet access plan, and we may need to make further reductions
to our subscription fees in order to be more competitive.
Intense competition in Latin America may adversely affect our ability to
generate revenues and acquire market share
We compete in a rapidly growing marketplace with a wide range of
competitors, including providers of online and Internet access services and
portals. Competition is intense and may increase, which could adversely affect
our ability to generate revenues and acquire market share.
In general, we compete with providers of Spanish- and Portuguese-language
interactive services, including Internet access providers, portals, search
engines and Web directories. Our principal regional market competitors include
El Sitio, in which the Cisneros Group owns a minority interest, StarMedia,
Terra Networks, which is affiliated with Telefonica, a leading
telecommunications provider in Latin America, and UOL. Other competitors in our
core target markets include Telmex in Mexico, which has an alliance with
Microsoft and offers a Prodigy-branded service, and Ciudad Internet in
Argentina. There are currently hundreds of other Internet access providers in
Latin America, including providers of free Internet access services such as
Internet Gratis, and new portals are being launched on a monthly basis. For
example, Yahoo! has recently launched portals in Brazil and Mexico.
Some of our competitors and potential future competitors may have the
following advantages:
. longer operating histories;
. greater name recognition in some markets;
. larger established customer bases; and
. greater financial, technical and marketing resources, including
advantageous relationships with local and long distance telephone
services and telecommunications network providers.
Our competitors may develop interactive services that achieve greater market
acceptance and new competitors may emerge and acquire significant market share.
Future technological improvements may make the Internet easier to navigate and
therefore the factors that differentiate our online services may lose their
relevance. Further, competitors that own or have established alliances with
cable, satellite or telecommunications companies may have distribution,
technical or financial advantages, including the ability to offer free Internet
access or Internet access services at lower prices. These factors could
adversely impact our business.
Because of this intense competition, which may increase, as well as our
limited experience with new AOL Brazil members, we are unable to predict the
retention of AOL Brazil members taking advantage of our free trial period. That
retention rate could be lower than we anticipate, and adversely affect our
ability to generate revenues and acquire market share.
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Past and future media coverage could adversely affect consumer acceptance of
our interactive services, which could affect our ability to acquire market
share and generate revenues
Several Brazilian media have reported that consumer protection authorities
in Brazil received consumer complaints about the installation of America
Online Brazil software on their PCs. A non-governmental private consumer
protection association, ADEC, has filed a complaint against us based on
similar claims. Although we believe that ADEC's claims are without merit and
will continue to contest them vigorously, we may not be successful in
defeating their claims. The Brazilian media has reported ADEC's claim. Past
and future media coverage of our company and our interactive services could
adversely affect consumer acceptance of our interactive services.
Volatile economic, social and political conditions in Latin America could make
it difficult for us to develop our business, generate revenues or achieve or
sustain profitability
Economic, social and political conditions in Latin America are volatile.
This volatility could make it difficult for us to develop our business,
generate revenues or achieve or sustain profitability. Historically,
volatility has been caused by:
. currency devaluations;
. significant governmental influence over many aspects of local economies;
. political, social and economic instability;
. slow or negative economic growth;
. imposition of trade barriers; and
. wage and price controls.
Most or all of these factors have occurred at various times in the last two
decades in our core Latin American markets, Brazil, Mexico and Argentina. We
have no control over these matters. Economic conditions in Latin America are
generally less attractive than those in the U.S. Recent projections indicate
that some Latin American countries, including Brazil and Argentina, will
experience stagnant or negative growth rates in terms of their per capita
gross domestic product for 1999. Poor social, political and economic
conditions may inhibit use of online services and the Internet, create
uncertainty in our operating climate and cause advertisers to reduce or
eliminate their interactive services advertising spending, all of which may
adversely impact our business.
We may not be able to effectively penetrate our target market and future
launches of our interactive services in other countries in Latin America may
be delayed, which would impede the development of our business and reduce our
ability to generate revenues
If we cannot effectively penetrate our target market or if future launches
of our interactive services are delayed, our business objectives would be
compromised. Our success will depend on the growth of the Internet in Latin
America and how well our interactive services are received by our target
market of consumers who already have computers, or who are financially able to
purchase them, and who are able and willing to pay for Internet access. We
intend to launch our interactive services in Mexico and Argentina in 2000.
After that we plan to introduce our interactive services in additional
countries in Latin America.
We have developed our launch schedule based on a number of assumptions,
including assumptions about:
. the number of personal computers owned by individuals within the markets
and the potential for future purchases;
. the accessibility, reliability and cost of telecommunications network
services;
. intensity of price competition for existing and potential Internet
users;
. regulatory developments; and
. the level of current Internet use.
If our expectations in these and other areas are not met, future launches
may be delayed and our business objectives may be compromised.
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Because we expect to generate a portion of our revenues from advertisements on
our online services and Internet portals, our business would be adversely
affected if a market for online service and Internet advertising in Latin
America fails to develop or develops more slowly than we expect
If the market for online service and Internet advertising in Latin America
fails to develop or develops more slowly than expected, our business would be
adversely affected. Currently, there are no widely accepted standards for
measuring the effectiveness of advertising on online services and the Internet.
If the industry does not develop standard measurements to support and promote
online service and Internet advertising in Latin America, existing advertisers
may not maintain their current levels of spending for this type of advertising
and prospective advertisers may be reluctant to advertise on online services
and the Internet, which would reduce potential advertising revenues. Moreover,
advertisers may choose not to advertise on our online services or portals if
they do not perceive our member and user demographics to be desirable.
Furthermore, software programs that limit or prevent advertising from being
delivered to a computer while the user is visiting portals on the Internet are
available. Widespread adoption of this software would adversely affect the
commercial viability of Internet advertising.
Because we expect to generate revenues related to purchases that our members
and users make while using our interactive services, our business would be
adversely affected if e-commerce fails to gain acceptance as a viable means for
transacting business in Latin America
Numerous factors could delay or prevent the emergence of e-commerce in Latin
America, which would impair our ability to generate revenues through our
interactive services and adversely impact our business.
Reasons why e-commerce in Latin America may not gain acceptance among
consumers and merchants include:
. the small percentage of consumers holding credit cards, which are the
primary method of payment for e-commerce transactions in the U.S.;
. perceived lack of security of commercial data, such as credit card
numbers;
. concerns over privacy of consumers' personal data;
. lack of adequate distribution and fulfillment operations for goods
purchased; and
. other legal issues related to the Internet or the timely development and
commercialization of performance improvements, including high-speed
modems.
Moreover, unlike in the U.S., consumers and merchants in Latin America can
be held fully liable for credit card and other losses due to third-party fraud.
The incidence of credit card fraud is higher in Latin America than in the U.S.
Because secure methods of payment for e-commerce transactions have not been
widely adopted in Latin America, both consumers and merchants have a relatively
low confidence level in the integrity of e-commerce transactions. In addition,
many banks and other financial institutions have generally been reluctant to
give merchants the right to process online transactions due to concerns about
credit card fraud. Unless consumer fraud laws in Latin American countries are
modified to protect e-commerce merchants and consumers, and until secure,
integrated on-line payment processing methods are fully implemented across the
region, our ability to generate revenues from e-commerce may be limited, which
could have an adverse effect on our business.
Additionally, customs duties and taxes are imposed on deliveries of
international parcels in many countries in Latin America, making international
e-commerce transactions more costly. Many countries also do not have systems in
place to ensure speedy and reliable delivery of parcels once they have cleared
customs. These problems may deter merchants and consumers from engaging in e-
commerce transactions. If governmental authorities in Latin American countries
fail to deregulate customs duties, or if deregulation occurs slowly, our
ability to generate revenues from e-commerce will be limited, which could have
an adverse effect on our business.
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Most of our arrangements with third party content providers and e-commerce
merchants are of limited duration and are non-exclusive, and our failure to
maintain those relationships or establish new relationships may harm our
ability to attract consumers to use our interactive services and reduce our
revenues
We rely on third party content providers and e-commerce merchants to attract
online service members and portal users, which in turn enables us to generate
revenues from subscription fees and advertising. The success of our
relationships with content providers and e-commerce merchants is therefore
vital to our business, but we expect most of these content and e-commerce
arrangements to be non-exclusive and short-term. Our failure to establish new
relationships, a loss of any existing relationships or a significant increase
in the costs associated with maintaining these relationships may have an
adverse effect on our business. We currently only have one exclusive content
agreement. Moreover, these relationships may not result in sustained business
partnerships, significant use of our interactive services, significant
subscription, advertising and e-commerce revenues or enhancement of our
interactive services, which could adversely impact our business. As competition
intensifies in the interactive services markets, it may become more difficult
or expensive for us to secure and maintain these relationships.
Our inability to manage expansion effectively could cause us to fail to meet
the needs of existing members and users or to attract new members and users
If we fail to manage our growth successfully, our business could be
adversely affected. We will need to expand our operations to support the growth
of our interactive services. However, if our member base grows rapidly, our
managerial, operational and financial resources, systems and internal controls
may be strained significantly. For example, we must be able to manage
concurrently the demands that will be placed on our executive management team
in the U.S. and on our local management teams in Latin America as we launch our
interactive services in our target markets. To accommodate a rapidly expanding
member and user base and manage our growth, we must continue to implement and
improve these systems and controls and effectively hire, train and manage our
employees.
Because competition for qualified personnel is intense, we may not be able to
retain or recruit qualified personnel, which could impact the management and
development of our business
Our success depends in part upon both the continued services of our
executive officers and other key employees and our ability to attract and
retain highly skilled and qualified personnel. The loss of the services of one
or more of our key personnel could adversely impact our business. Since
competition for talented people is intense, we may have difficulty in
attracting and retaining skilled and qualified personnel in each of the
countries where we expect to launch our interactive services. We recently hired
a new president for AOL-LA's Brazilian subsidiary. If our new president fails
to become effective in a timely manner, our business may be adversely affected.
RISKS RELATED TO THE INTERNET AND TECHNOLOGY INFRASTRUCTURE
Our servers, which are owned and maintained by AOL, may be subject to system
failures, computer viruses or other unanticipated problems that may damage our
reputation and result in a loss of members and in a decrease in use of our
portals
Any damage to or failure of AOL's servers could adversely impact our
business. The host computers that run our interactive services, which we refer
to as our servers, are owned and maintained by AOL in three locations within
the U.S. Our operations therefore depend entirely on AOL's ability to protect
this equipment and the information stored there against events such as damage
by fire, power loss, failures by third party service providers, computer
viruses and unauthorized intrusions. Our property and business interruption
insurance for our Brazilian, Mexican and Argentine operations may not
sufficiently cover our losses. Moreover, if AOL experiences frequent or
persistent system failures, our reputation and business could be permanently
harmed even if the failures do not directly affect the systems that run our
interactive services.
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Third party telecommunications network providers, on which we depend to
transmit our online service data, may not function reliably or be able to
accommodate our anticipated growth, which could materially compromise the
quality of our online services or even our ability to make our online services
available to our members
We depend entirely upon third party telecommunications network providers to
transmit data between AOL's servers in the U.S. and our members and content
providers in Brazil and we will be similarly dependent on these providers as we
launch our AOL-LA country services throughout Latin America. If these third
party telecommunications networks do not function properly, the quality of our
online services, or even our ability to deliver our online services, would be
compromised, which would adversely affect our business. Our primary areas of
concern involve the reliability and capacity of these networks.
Currently, most of our data is transmitted between Brazil and the U.S. by
satellite because adequate quantities of fiber optic cable are not yet
available for overseas transmissions between the U.S. and Latin America. Fiber
optic cable offers greater capacity and is generally more reliable than
satellite-based transmissions. If adequate quantities of fiber optic cable do
not become available to our third party network providers for transmissions
between the U.S. and Latin America, our business may be adversely affected.
In addition, if our third party network providers lack the capacity to
accommodate a rapid increase in use of our online services, members may
encounter delays in accessing and using our online services. From time to time
in the past, local and long distance networks in Latin America have experienced
capacity problems. If these third party network providers are unable to meet
their contractual obligations or if our data transmission needs exceed our
projected levels, we would face the challenge of having to arrange for
alternative sources of incremental capacity in a timely fashion and on
favorable commercial terms. If our data transmission needs cannot be regularly
met by our existing or future carriers, or through alternative sources, it
would be difficult, if not impossible, for us to grow our online service
business.
Conversely, our network capacity contracts commit us to purchase a minimum
amount of network capacity and we may be subject to similar minimums as we
expand into other countries in Latin America. If the number of our members, or
their use of our online services, does not increase as we anticipate, our
network costs will not correspondingly decrease.
Underdeveloped local and long distance telephone service may limit the growth
of the Internet in Latin America, which will harm our ability to generate
revenues from our interactive services
If improvements to and expansion of the Latin American local and long
distance telephone service are not made, our ability to deliver our interactive
services to consumers and the market acceptance of online services and the
Internet in Latin America will be jeopardized and our business will suffer.
Members and users of our interactive services initiate access through local and
long distance telephone lines. Local and long distance telephone service in
Latin America is significantly less developed than in the U.S. For example, in
1998, there were approximately 66 telephone lines for every 100 people in the
U.S., compared to approximately 12 in Brazil, 10 in Mexico and 20 in Argentina.
In addition, the quality and availability of local and long distance telephone
service may vary considerably within a particular country, which may affect the
rate at which we are able to expand our interactive services to potential
consumers on a national scale. Moreover, adequate quantities of local and
regional telephone lines may not be readily available should online service and
Internet use increase more rapidly than anticipated.
If the cost of local access calls does not continue to decline in Latin
America, consumers may conclude that our interactive services are not cost
effective, which could reduce our revenues from subscription fees
Unlike in the U.S., local calls are metered in Latin America and online
service and Internet users pay for local calls that connect them to an Internet
access provider in addition to paying Internet access fees. We believe this has
had a negative impact on the growth of online services and Internet use in
Latin America. If
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competition among local and long distance telephone companies in our target
markets does not continue to reduce telephone call charges associated with
Internet use, our business may be adversely affected because consumers may be
unwilling to pay subscription fees for Internet access in addition to the fees
for local calls.
If we fail to adapt our online services to accommodate newer and faster methods
of Internet access or if we fail to keep up with changing technologies such as
TV-based and wireless-based services, we may lose members or fail to attract
new members and our revenues may decline
Unless we can accommodate high-speed Internet and online service access, new
technologies, such as TV- and wireless-based services, and operating system
platforms other than Windows 95 and Windows 98 in a timely manner, our
interactive services will be less appealing to consumers and our revenues may
decline. We expect high-speed Internet and online service access to become more
widely available in Latin America. High speed access offers significantly
faster connections and enhanced features, including the delivery of voice and
full-motion video, as compared to the dial-up online access that we currently
offer. We will be at a competitive disadvantage if we cannot allow our members
to connect to our online services at these higher speeds.
Moreover, although we have the right under our license agreement to offer
AOL-branded TV- and wireless-based online services, our ability to offer these
services depends upon AOL developing them. In the case of wireless-based
services, our rights will only extend to services developed for commercial
launch by AOL within four years of the effective date of the registration
statement for this offering. We will be at a competitive disadvantage if we are
not able to offer our online services over these new technologies.
Additionally, our members can currently access our online services only through
the Windows 95 and Windows 98 operating system platforms.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS
We may become subject to burdensome government regulations affecting
interactive services, which could increase our costs of doing business or
impair our ability to generate revenues by retarding the development of the
Internet in Latin America or preventing us from delivering our interactive
services to our members
The legal and regulatory environment that pertains to interactive services
in Latin America remains uncertain and may change. Latin American countries may
adopt laws and regulations or apply existing laws to interactive services,
including e-commerce and online service and Internet advertising. Uncertainty
and new regulations could increase our costs, prevent us from delivering our
interactive services and could also slow the growth of the Internet
significantly, which could delay growth in demand for our interactive services
and limit our ability to generate revenues.
New and existing laws and the interpretation of existing laws may cover
issues such as:
. libel and defamation or other claims based on the nature and content of
Internet materials;
. copyright, trademark and patent infringement;
. access to networks;
. sales and other taxes;
. user privacy and data protection;
. pricing controls;
. consumer protection; and
. cross-border commerce.
Further, some Latin American countries, including Mexico and Argentina,
currently require Internet access providers to be licensed. While we have
applied for the required licenses in Mexico and Argentina, we cannot assure you
that these licenses will be granted in a timely manner.
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We may be subject to claims based on the content we provide in our interactive
services, which could be costly and time-consuming to defend in Latin America
or adversely affect our reputation
The laws of Latin American countries relating to the liability of
interactive service providers for activities of their members and users are
currently unsettled. Claims have been made against interactive service
providers in the past for defamation, negligence, copyright or trademark
infringement, obscenity, illegal gambling, personal injury and other alleged
violations of laws or regulations relating to the posting of information online
by their members and users. We could be subject to similar claims and incur
significant costs to defend against or settle these claims, which could
adversely affect our financial position or our reputation. In addition, we
could be exposed to liability for the selection of listings that may be
accessible through our interactive services or through content and materials
that our members and users may post in classifieds, message boards or other
interactive services. It is also possible that if any information provided
through our interactive services contains errors, third parties could make
claims against us for losses incurred in reliance on the information. We also
offer e-mail services and instant messaging, which exposes us to potential
liabilities or claims resulting from:
. unsolicited e-mail or instant messages;
. lost or misdirected messages;
. illegal or fraudulent use of e-mail or instant messaging or other claims
related to the content of these messages; or
. interruptions or delays in e-mail or instant messaging services.
Investigating and defending these claims is expensive, even if they do not
result in liability.
Because our licensed rights to AOL's trademarks and domain names are a valuable
asset and integral to our brand identity, unauthorized use of AOL's
intellectual property by third parties could lead to public confusion about our
brand and adversely affect our business
AOL's or our own inability to protect our licensed rights to AOL's
trademarks and domain names against infringement or misappropriation could lead
to public confusion about our brand and adversely affect our business. For
example, AOL has experienced difficulty in obtaining the rights to the domain
names www.aol.com.br in Brazil, www.aol.com.mx in Mexico, and www.aol.cl in
Chile, which incorporate the AOL trademarks that have been licensed to us by
AOL. AOL is currently engaged in or is considering initiating legal proceedings
to obtain these domain names. Similarly, in Brazil, Mexico, Argentina, Chile,
Colombia and Venezuela, AOL has initiated opposition proceedings to prevent
registration of marks by third parties that are confusingly similar to AOL's
marks. We cannot assure you that AOL will prevail in any legal proceedings or
be able to register successfully all of the domain names that relate to its
trademarks.
In addition, given the global reach of the Internet, the trademarks and
other forms of licensed intellectual property that we license from AOL will be
displayed in countries that offer less intellectual property protection than
the U.S. We have distributed and will continue to distribute software, licensed
to us by AOL, for our online services under agreements that grant members a
license to use the software and we rely on the protections afforded primarily
by copyright laws to protect against unauthorized reproduction of the software.
We rely in part on electronic licenses. Our members indicate acceptance of the
terms of these licenses by clicking on a button on their monitor screen but do
not actually sign the license. These licenses may therefore be unenforceable
under the laws of Brazil and other jurisdictions in which we expect to offer
our online services.
Defending against intellectual property infringement claims could be time
consuming and expensive and, if we are not successful, could subject us to
significant liability and disrupt our business
We cannot be certain that our interactive services do not or will not
infringe on valid patents, copyrights or other intellectual property rights
held by third parties. We may incur substantial expense or disruption in
defending against third party infringement claims, regardless of their merit.
Successful infringement claims
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against us may result in substantial liability or materially disrupt the
conduct of our business. From time to time, we have received communications
from third parties asserting that features, content or names related to our
services may infringe patents, copyrights, trademarks and other rights of these
parties. We cannot assure you that third parties will not make infringement
claims against us in the future for current or future features or content of
our interactive services or that any claim would not result in litigation or
require us to enter into royalty and other similar arrangements. Third parties
may also challenge AOL's marks from time to time and these challenges may
result in limitation or loss of our rights to use AOL's proprietary marks.
RISKS RELATED TO THE OFFERING
Our stock price is likely to be highly volatile because our shares of class A
common stock have not been publicly traded before, and as a result you may lose
all or part of your investment
Following this offering, the trading price of our class A common stock,
assuming that a trading market develops, may be highly volatile and may
fluctuate substantially. Failure to meet market expectations because of
quarterly fluctuations in our financial results could cause our stock price to
decline and you could lose all or part of your investment. In addition, factors
that are not related to our operating performance could cause our stock price
to decline. The stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly Internet companies. As a
result, you may experience a decrease in the market value of your class A
common stock or lose all or part of your investment regardless of our operating
performance or prospects.
If our stock price is volatile, we may become subject to securities
litigation, which is expensive and could result in a diversion of our
management's attention and resources. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. Many
companies in our industry have been subject to this type of litigation.
We may use the net proceeds of this offering in ways with which you may not
agree or which prove to be ineffective
We have not committed the net proceeds of this offering to any particular
purpose. We will therefore have significant flexibility in applying the net
proceeds of this offering, including ways with which you may disagree. We may,
when the opportunity arises, use a portion, or all, of the net proceeds to
acquire or invest in businesses, products and technologies. If we do not apply
the funds we receive effectively, our accumulated deficit will increase and we
may lose significant business opportunities.
The substantial number of shares that will be eligible for issuance or sale in
the near future may cause the market price for our class A common stock to drop
significantly, even if our business is doing well
The sale of a substantial number of shares of class A common stock in the
near future, or the perception that sales could occur, could cause the amount
of our stock available, or perceived to be available, for sale in the market to
exceed demand, which could cause the market price of our class A common stock
to drop significantly. Immediately following this offering and the concurrent
distribution by the Cisneros Group, shares of class A common stock will be
outstanding. An additional shares of class A common stock will be issuable
to AOL and the Cisneros Group in exchange for their B stock and C stock, as
well as upon exercise of the AOL warrant. Although AOL, the Cisneros Group, our
officers and directors and the persons acquiring shares in the distribution by
the Cisneros Group have agreed with the underwriters that they will not dispose
of or hedge their shares for 180 days after the date of this prospectus, AOL
and the Cisneros Group have registration rights for the class A common stock
issuable to them. Future sales of class A common stock by AOL, the Cisneros
Group or any other stockholder could also make it more difficult for us to sell
equity or equity-linked securities in the future at an appropriate time and
price. This could adversely affect our ability to fund our current and future
operations. In addition, AOL and the Cisneros Group may seek out one or more
additional strategic principal stockholders to join them as stockholders of
AOL-LA. As a result, we may in the future issue shares of our capital stock to
investors designated by AOL and the Cisneros Group.
20
<PAGE>
The net tangible book value of your class A common stock will be less than the
initial public offering price that you paid for your shares, which means that
you may not receive the full amount of your investment if we are liquidated
The initial public offering price per share of our class A common stock is
substantially higher than the net tangible book value per share of our class A
common stock. You will experience immediate and substantial dilution in net
tangible book value of $ per share, assuming an initial public offering price
of $ per share. As a result, if we are liquidated, you may not receive the
full amount of your investment.
Because we currently do not plan to pay cash dividends on our shares, holders
of our class A common stock will not be able to receive a return on their
shares unless they sell them
We have never declared or paid any cash dividends on our shares of class A
common stock and do not anticipate paying cash dividends in the future. In
addition, our special committee must unanimously approve the payment of any
dividends before our full board of directors can approve a dividend payment.
Further, before the payment of any dividends on our shares of class A common
stock, we must pay dividends, payable in series B and series C preferred stock,
as and when declared by our board of directors, on our shares of series B and
series C preferred stock.
21
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements are
not historical facts, but rather are based on our beliefs, assumptions,
expectations and projections about our industry. These statements are only
predictions and involve known and unknown risks and uncertainties that may
cause our or our industry's actual results to be materially different from any
future results expressed or implied by these forward-looking statements. We
have described these risks in the Risk Factors section and elsewhere in this
prospectus. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, anticipate, believe,
estimate, predict, potential, continue or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. The forward-looking statements made in
this prospectus relate only to events as of the date on which the statements
are made.
This prospectus contains market data related to our business and the
Internet. This market data includes projections that are based on a number of
assumptions. These projections assume that:
. social, political and economic conditions will be stable in our target
markets;
. no catastrophic failure of the Internet will occur;
. the number of people online and the total number of hours spent online
will increase significantly over the next four years;
. the value of online advertising dollars spent per online user hour will
increase;
. the download speed of content will increase significantly; and
. Internet security and privacy concerns will be adequately addressed.
If any one or more of these assumptions turns out to be incorrect, our
actual results may differ from the projections based on these assumptions. In
addition, even if these assumptions turn out to be correct, the markets related
to interactive services may not grow over the next four years at the rates
projected by the market data, or at all. The failure of these markets to grow
at these projected rates may have a material adverse effect on our business and
the market price of our shares of class A common stock.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are not making an offer of the class A common
stock in any state where the offer is not permitted. You should not assume that
the information provided by this prospectus is accurate as of any date other
than the date on the front of this prospectus.
22
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of class A
common stock in this offering will be $ million. If the underwriters
exercise their over-allotment option in full, we estimate that the net
proceeds will be $ million. These estimates reflect the deduction of the
underwriting discount and estimated offering expenses and assume an initial
public offering price of $ per share.
We currently intend to use the net proceeds of this offering for the
following purposes:
. expansion of our interactive services, including marketing, brand and
content development;
. expansion of telecommunications network capacity;
. capital expenditures; and
. for working capital and general corporate purposes, including possible
acquisitions of or investments in complementary businesses, products or
technologies.
At the present time, we have no understandings, commitments or agreements
to make any material acquisitions or investments. Pending our use of the net
proceeds of the offering for the purposes described above, we intend to invest
the net proceeds in short-term, interest-bearing, investment-grade securities.
This discussion is merely an estimate based on our current business plans.
Our actual expenditures may vary depending upon circumstances not yet known.
Neither we nor the Cisneros Group will receive any proceeds from the
distribution by the Cisneros Group.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our shares of class A
common stock. We currently intend to retain any earnings to fund our future
growth and the operation of our business. Therefore, we do not anticipate
paying any cash dividends on our shares of class A common stock in the future.
In addition, the special committee of our board of directors must unanimously
approve the payment of any dividends before our full board of directors can
approve a dividend payment. Further, before the payment of any dividends on
our shares of class A common stock, we must pay dividends, payable in series B
and series C preferred stock, as and when declared by our board of directors,
on our shares of series B and series C preferred stock.
23
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999 on
an actual basis and as adjusted to give effect to:
. our sale of shares of class A common stock in this offering at an
assumed initial public offering price of $ per share, after deducting
the underwriting discount and estimated offering expenses;
. the concurrent distribution of shares of class A common stock by the
Cisneros Group; and
. the conversion of shares of series C preferred stock into shares
of class A common stock by Cristina Pieretti, Steven Bandel and Eduardo
Hauser, who received shares of series C preferred stock in the corporate
reorganization.
You should read this information in conjunction with our financial statements
and the notes to those financial statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31,
1999
---------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents (1)............................ $ 20,213 $
======== =======
Stockholders' equity:
Preferred stock, ; shares authorized (2):
Series B and C cumulative redeemable convertible--
shares of series B and shares of series C
authorized;
shares of series B cumulative redeemable preferred
issued and outstanding on an actual and as adjusted
basis.................................................
shares of series C cumulative redeemable preferred
issued and outstanding on an actual basis; shares
issued and outstanding on an as adjusted basis........
Common stock, ; shares authorized (3):
Class A-- shares authorized; no shares issued or
outstanding on an actual basis; shares issued and
outstanding on an as adjusted basis................... -- --
Class B and C-- shares of class B and shares of
class C authorized; no shares issued or outstanding on
an actual or as adjusted basis........................ -- --
Additional paid-in capital............................. 100,099
Subscription receivable from affiliate (1)............. (54,979)
Accumulated other comprehensive income................. 342
Accumulated deficit.................................... (32,973)
-------- -------
Total stockholders' equity........................... 12,489
-------- -------
Total capitalization............................... $ 12,489 $
======== =======
</TABLE>
- --------
(1) Reflects approximately $45.1 million contributed by the Cisneros Group in
equity capital from our inception through December 31, 1999. Does not
include $29.3 million that we received from the Cisneros Group from
January 2000 through March 2000.
(2) Excludes the AOL warrant, an immediately exercisable warrant to purchase
shares in any combination of our series B preferred, class A common or
class B common stock at an exercise price equal to the initial public
offering price, that we will grant to AOL as of the effective date of this
offering as part of our corporate reorganization.
(3) Excludes options to purchase a total of shares of class A common stock
that we will grant to employees and directors as of the effective date of
this offering.
24
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price of class A
common stock in this offering will exceed the net tangible book value per share
of our capital stock following this offering. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of class A common stock and series B and series
C preferred stock outstanding.
As of December 31, 1999, our net tangible book value was approximately $12.5
million, or $ per share of capital stock.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Net tangible book value per share at December 31, 1999............ $
Increase in net tangible book value per share attributable to new
investors purchasing shares in the offering......................
---
Net tangible book value per share after the offering................
---
Dilution per share to new investors in the offering................. $
===
</TABLE>
The following table summarizes, on an as adjusted basis, as of December 31,
1999, the total number of shares of capital stock purchased from us, the total
cash consideration paid to us and the average cash price per share paid by AOL
for series B preferred stock, paid by the Cisneros Group for series C preferred
stock and paid by new investors for class A common stock, based upon an assumed
initial public offering price of $ per share before deducting the
underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
Total
Shares Purchased Cash Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
AOL .................... % % $
The Cisneros Group .....
Investors in this
offering...............
-------- -------- -------- --------- ---
Total................. 100% 100% $
======== ======== ======== ========= ===
</TABLE>
As of the effective date of this offering, we will issue to AOL the AOL
warrant, an immediately exercisable warrant to purchase any combination of
shares of series B preferred stock or class A or class B common stock at an
exercise price equal to the initial public offering price. We will also grant
options to employees and directors to purchase a total of shares of class A
common stock. No other stock options or warrants have been granted or issued.
These tables assume no exercise of the outstanding stock options or the AOL
warrant.
25
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data presented below in conjunction
with our financial statements and the notes to those financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The statement of
operations and balance sheet data as of and for the period from our inception
to June 30, 1999 are derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations and balance sheet
data as of and for the six months ended December 31, 1999 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
historical results are not necessarily indicative of the operating results to
be realized in the future.
<TABLE>
<CAPTION>
Period from
December 15, 1998 Six Months
(date of inception) Ended
to December 31,
June 30, 1999 1999
------------------- ------------
(In thousands)
<S> <C> <C>
Statement of Operations Data:
Revenues:
Subscriptions.............................. $ 1,644 $ 2,106
Advertising and e-commerce................. -- 537
------- --------
Total revenues........................... 1,644 2,643
------- --------
Costs and expenses:
Cost of revenues........................... 1,091 4,828
Sales and marketing........................ 3,179 19,475
Product development........................ 312 927
General and administrative................. 1,979 6,109
------- --------
Total costs and expenses................. 6,561 31,339
------- --------
Loss from operations......................... (4,917) (28,696)
Other income, net............................ 9 592
------- --------
Loss before (provision) benefit for income
taxes....................................... (4,908) (28,104)
(Provision) benefit for income taxes......... (131) 170
------- --------
Net loss..................................... $(5,039) $(27,934)
======= ========
</TABLE>
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1999 1999
-------- ------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $17,716 $20,213
Working capital........................................... 16,989 7,944
Total assets.............................................. 20,300 32,807
Total stockholders' equity................................ 16,999 12,489
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Consolidated Results of Operations
Revenues. Total revenues consist of subscription revenues, advertising
revenues and e-commerce revenues. The following table presents the components
of our revenues for the period from our inception to June 30, 1999, and for the
six months ended December 31, 1999.
<TABLE>
<CAPTION>
December 15, 1998
(date of
inception) to Six Months Ended
June 30, 1999 December 31, 1999
----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Subscriptions............................. $ 1,644 100.0% $ 2,106 79.7%
Advertising and e-commerce................ -- -- 537 20.3
-------- -------- -------- --------
Total revenues.......................... $1,644 100.0% $ 2,643 100.0%
======== ======== ======== ========
</TABLE>
Subscription revenues. For the periods presented, our subscription revenues
were generated from members paying fees to subscribe to the CompuServe Classic
service. We expect that future subscription revenues will be generated
primarily from members paying fees to subscribe to the AOL-LA country services
and to a lesser extent from the CompuServe Classic service.
AOL-LA subscription revenues. We launched the first AOL-LA country
service in Brazil during November 1999. Members subscribing to an AOL-LA
country service will be able to select from one of several service plans. Our
service plans will include unlimited use plans, which will offer unlimited
online access for a fixed monthly fee, and limited use plans, which will offer
a combination of a fixed monthly fee for a specified number of hours of online
access and the option to spend additional time online, billed at an hourly
rate. AOL-LA subscription revenues will therefore include fixed monthly fees
and fees paid by members for extra hours spent online.
In January 2000, we reduced our monthly fee for unlimited access from
R$35.00 to R$24.95 in response to the availability of free Internet access and
price cuts by our competitors. We may need to make further reductions in the
future.
CompuServe Classic subscription revenues. Through December 31, 1999,
nearly all of our subscription revenues were generated from our CompuServe
Classic service. Due to a declining base of subscribers to the CompuServe
Classic service, subscription revenues from this service have been declining.
The CompuServe subscriber base was approximately 18,000 subscribers when we
acquired them from America Online on December 15, 1998 and approximately 7,000
subscribers at December 31, 1999. We believe that our CompuServe Classic
subscription base has declined because we have not been actively marketing the
service to retain and increase members. Since we do not expect to add new
CompuServe Classic members, we anticipate that our subscription revenues from
the CompuServe Classic service will continue to decline.
We recognize subscription revenues over the period that we provide the
service following the expiration of the member's trial period. Subscription
revenues for the six months ended December 31, 1999 were approximately $2.1
million and approximately $1.6 million for the period from our inception
through June 30, 1999.
At the time we acquired the subscribers to the CompuServe Classic service,
we entered into a contract with a third party to manage and administer the
CompuServe Classic service. In exchange for these services, this third party
retained a portion of these subscription fees. We recorded the net subscription
fees due to us as revenues. In June 1999, we modified the contract to eliminate
the sharing of all subscription fees and to include
27
<PAGE>
the payment of a service fee to the third party. As a result, we have recorded
gross subscription fees due to us from the CompuServe Classic service, and the
related service fees are included in cost of revenues for the six months ended
December 31, 1999.
We anticipate that the majority of our members will pay their subscription
fees using methods of payment, other than credit cards, that are commonly used
in Latin America. For instance the majority of our AOL Brazil customers use a
customary form of payment, under which Brazilian banks that we designate act as
conduits for collecting the payments. We send each member a bill and the member
pays the bill at a local bank. These local banks then send the payments to our
designated banks. This is a common method for payment in Brazil, but is more
costly for us than payment through credit cards and results in a longer
collection cycle.
Advertising and e-commerce revenues. An important component of our business
strategy is to generate advertising and e-commerce revenues from our online
services and our portals.
Advertising revenues will be derived principally from:
. advertising arrangements under which we receive fees based on the number
of advertisements displayed on our interactive services; and
. sponsorship or co-sponsorship arrangements that allow advertisers to
sponsor an area on our interactive services in exchange for a fixed
payment either in cash or, in some instances, in equity.
For advertising arrangements that require us to display a specified number
of advertisements, we recognize advertising revenues ratably in the period in
which the advertisements are displayed, provided that no significant
obligations remain and collection of the resulting receivable is probable. To
the extent that we do not expect to meet any minimum guaranteed advertisement
display levels, we defer recognition of the corresponding revenues until
guaranteed levels are achieved. Payments received from advertisers before we
display their advertisements on our interactive services are recorded as
deferred revenues. We recognize revenues from sponsorship or co-sponsorship
arrangements ratably over the contract term, provided that we have no
significant obligations remaining. As of December 31, 1999, we had deferred
revenues of approximately $5.8 million.
In addition to advertising revenues, we expect to derive revenues from e-
commerce transactions conducted through our interactive services. These
revenues will be in the form of a flat payment, a percentage of each e-commerce
transaction that is attributable to our interactive services, or both. We may
receive cash or, in some instances, equity. We will recognize revenues from e-
commerce transactions when we are notified of sales that are attributable to
our interactive services.
Advertising and e-commerce revenues for the six months ended December 31,
1999 were approximately $537,000. We did not generate any advertising and e-
commerce revenues during the period from our inception through June 30, 1999.
Although we expect advertising and e-commerce revenues to increase in future
periods, we expect to derive the substantial majority of our revenues from
subscriptions to our AOL-LA country services.
We have not recognized any barter revenue to date. We will recognize any
future barter revenue based on the fair value of the advertising that we agree
to provide, where we can demonstrate fair value by reference to recent similar
cash-based transactions.
28
<PAGE>
Costs and expenses. The following table presents the components of our costs
and expenses for the period from our inception to June 30, 1999, and for the
six months ended December 31, 1999.
<TABLE>
<CAPTION>
For the Period
from
December 15, 1998
(date Six Months Ended
of inception) December
to June 30, 1999 31, 1999
----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Costs and expenses:
Cost of revenues........................... $ 1,091 16.6% $ 4,828 15.4%
Sales and marketing........................ 3,179 48.5 19,475 62.1
Product development........................ 312 4.8 927 3.0
General and administrative................. 1,979 30.1 6,109 19.5
-------- -------- -------- -------
Total costs and expenses................. $ 6,561 100.0% $ 31,339 100.0%
======== ======== ======== =======
</TABLE>
Cost of revenues. Cost of revenues includes:
. network-related costs consisting primarily of fees paid to third parties
to carry our data over their telecommunications networks;
. fees we pay to AOL for use of their servers that run our interactive
services;
. fees we pay to AOL and the Cisneros Group for technical support and
training;
. personnel and related costs associated with customer support and product
and content development;
. fees paid to selected content providers; and
. amortization of capitalized product development costs.
For the six months ended December 31, 1999, cost of revenues was
approximately $4.8 million and consisted primarily of costs associated with our
launch of the AOL-LA country service in Brazil as well as the continued
servicing of our CompuServe Classic subscribers. These costs also included
payments made or due to AOL and other third parties for the costs of using
their computer systems, including costs of equipment, operations staffing and
establishing our call centers. These costs include payments made to a third
party for its share of CompuServe subscription fees that we owed to the third
party under our contract. During this period, the cost of services provided by
AOL was approximately $1.5 million. We expect that our cost of revenues will
continue to grow and will exceed or represent a significant portion of our
total revenues as we expand our capacity to accommodate new users of our
interactive services.
For the period from inception to June 30, 1999, cost of revenues was
approximately $1.1 million. These costs, which are primarily payable to AOL,
reflect the costs we incurred to provide service to our CompuServe Classic
subscribers.
Sales and marketing. Sales and marketing expenses include our costs to
acquire and retain our members, the operating expenses associated with our
sales and marketing efforts and other general marketing costs. The costs to
acquire and retain our members include direct marketing costs as well as the
costs of brand advertising on television and in newspapers, magazines and other
media.
For the six months ended December 31, 1999, sales and marketing expenses
were approximately $19.5 million and primarily reflect the costs related to the
launch of our AOL-LA country service in Brazil in November 1999. We engaged in
a significant amount of advertising to promote our brand as well as direct
marketing efforts aimed at acquiring subscribers surrounding the launch of the
service. For the period from inception to June 30, 1999, sales and marketing
expenses were approximately $3.2 million and primarily represent the cost of
acquiring the CompuServe Classic subscribers from AOL. We expense all costs
related to member acquisition as they are incurred. See note 3 to our financial
statements.
29
<PAGE>
We expect that our sales and marketing expenses will increase significantly
as we continue to expand our interactive services and attempt to attract new
members and users.
Product development. Our product development expenses mainly consist of
charges from AOL for personnel and related costs associated with the
localization of our interactive services and any development work that we
request AOL to provide. We expense as incurred product development costs that
we incur before any product or service developed by AOL has reached
technological feasibility. We capitalize costs incurred after technological
feasibility has been established up until completion of beta testing. Once beta
testing is complete and the product or service is commercially available, costs
are again expensed as incurred.
Product development costs expensed for the six months ended December 31,
1999 were approximately $927,000 and approximately $312,000 for the period from
our inception through June 30, 1999. These product development costs represent
research and development costs payable to AOL primarily for localization of our
software and other requested development work. In the six months ended December
31, 1999, a significant portion of these costs was due to an increase in
technical support from AOL for the launch of our AOL-LA interactive services in
Brazil.
General and administrative. For the six months ended December 31, 1999, our
general and administrative costs were approximately $6.1 million. Our general
and administrative expenses increased during this period as we hired additional
management and administrative personnel to support the launch of our
interactive services in Brazil in November 1999. Both AOL and the Cisneros
Group provided us with management and administrative services to support the
launch. As a result, during this period we incurred support fees of
approximately $1.9 million for support services provided by AOL and $120,000
for services provided by the Cisneros Group. We anticipate that our general and
administrative expenses will continue to increase in fiscal 2000 due to the
growth of management and administrative personnel required to support the
anticipated launch of our AOL-LA interactive services in Mexico and Argentina
in 2000.
From inception through June 30, 1999, general and administrative costs were
approximately $2.0 million. Expenses during this period were primarily
attributable to personnel costs, general office expenses and support fees of
approximately $1.0 million payable to AOL and $291,000 payable to the Cisneros
Group.
Income taxes. The (provision) benefit for income taxes was approximately
$170,000 for the six months ended December 31, 1999 and approximately
($131,000) from our inception to June 30, 1999. See note 9 to our financial
statements.
Liquidity and Capital Resources
To date, we have financed our operations primarily through capital
contributed by the Cisneros Group. From inception through March 2000, we
received approximately $74.4 million in cash from the Cisneros Group.
In addition, the Cisneros Group is obligated to pay us an additional $25.7
million through July 2, 2001 in quarterly installments.
We have used our capital to finance ongoing operations and to fund marketing
and the development of our interactive services. We plan to continue to invest
in member acquisition and retention and brand marketing to expand our member
and user base. We will also continue to purchase telecommunications network
capacity under contracts with third party telecommunications network providers,
incur capital expenditures and pay AOL fees for use of their servers and
software localization. We anticipate that cash on hand, together with cash
provided by this offering and cash obligated to be provided by the Cisneros
Group, will be sufficient to fund our operations through December 31, 2001. To
the extent necessary, we may seek to sell additional equity or debt securities
or to enter into a credit facility. We may use a portion of our cash for the
acquisition and subsequent funding of technologies, products or businesses
complementary to our business. We anticipate that any major acquisition may
require additional funding and we cannot assure you that we will be able to
obtain this funding on favorable terms.
30
<PAGE>
Current assets were approximately $24.9 million at December 31, 1999 and
$20.3 million at June 30, 1999, while current liabilities were approximately
$16.9 million and $3.3 million at those same dates. At December 31, 1999, we
had working capital of approximately $8.0 million, compared to working capital
of approximately $17.0 million at June 30, 1999.
The increase in current assets was primarily attributable to an increase in
cash and cash equivalents contributed by the Cisneros Group. The increase in
current liabilities was due to increases in amounts payable to external vendors
as well as to AOL and the Cisneros Group, primarily for increases in accrued
telecommunications and marketing costs, as well as an increase in deferred
revenues and support services.
At December 31, 1999, our material operating commitments were approximately
$31.2 million, which represents our minimum obligations under third party
telecommunications network contracts through the end of fiscal 2003 and
obligations under leases for office space.
Year 2000 Compliance
To date we have experienced few problems as a result of the year 2000
problem, and we have either addressed or are in the process of addressing the
problems that have been identified. We are not aware of any remaining
significant year 2000 problems but we are continuing to monitor the status of
our vendors' and suppliers' year 2000 compliance. We cannot assure you that we
or one of the entities with which we do business will not experience a year
2000 problem that could have an adverse effect on us.
31
<PAGE>
BUSINESS
Overview
Our mission is to be a leader in the development in Latin America of the
global interactive medium that is changing the way people communicate, stay
informed, are entertained, learn, shop and conduct business. Our family of AOL-
branded interactive services will include the AOL-LA country services, our
comprehensive online services which will be available to subscribing members,
and the AOL-LA country Internet portals and our Latin American regional
Internet portal.
Our interactive services will be developed on a country-by-country and
regional basis and will be tailored to local interests. We expect to derive our
revenues principally from member subscriptions to our AOL-LA country services
and will seek to build our online service member base and portal user base to
generate additional revenues from advertising and e-commerce.
The AOL-LA country services will provide our members with easy and reliable
access to local, regional and global online communities, localized versions of
AOL's interactive products, content and e-commerce opportunities. In addition,
our AOL-LA country services will seamlessly integrate the Internet, enabling
members to access and explore the Internet without leaving the service. We
believe the AOL-LA country services will encourage members to participate in
interactive communities through tools such as Spanish and Portuguese versions
of AOL Instant Messenger, Buddy Lists, e-mail, public bulletin boards, online
meeting rooms, conversations, or chat, and auditorium events. Members can also
personalize their online experience through a variety of features, including
customized news and stock portfolio updates and parental and e-mail controls.
Our AOL-LA country services will also provide members with local and regional
content organized into channels, making areas of interest easy to find, as well
as access to the extensive proprietary global content of the AOL service.
Our AOL-LA country Internet portals and our Latin American regional Internet
portal will offer Internet users local, regional and global communities,
content and e-commerce opportunities. We will provide Internet users with a
forum for exchanging information, opinions and ideas by offering some of the
same community building tools that will be available on the AOL-LA country
services, including AOL Instant Messenger and Buddy Lists. Our portals will
feature the AOL Netfind tool, which will provide users with what we believe
will be an easy and efficient way to search and navigate the wealth of content
and e-commerce opportunities on the Internet. In addition, we will draw on
local cultures and interests to aggregate and organize content tailored to our
local communities.
We currently have the exclusive right to offer AOL-branded PC-based online
services in Latin America. Under our license agreement with AOL, we also have
the exclusive right to offer AOL-branded TV-based online services in Latin
America if AOL develops these services. In addition, we have the exclusive
right to offer in Latin America any AOL-branded wireless-based online services
developed by AOL for commercial launch within four years of the effective date
of the registration statement for this offering. We do not have the right to
offer Netscape, Digital City, MovieFone or any other non-AOL branded
interactive services except for CompuServe.
Our three core target markets in Latin America are Brazil, Mexico and
Argentina. In November 1999, we concurrently launched our first AOL-LA country
service, America Online Brazil, and our first AOL-LA country Internet portal,
our Brazilian portal at www.americaonline.com.br. As of December 31, 1999, our
network provided for access to our America Online Brazil service in nine cities
in Brazil. In 2000, we plan to expand our network in Brazil and introduce
localized versions of the AOL-LA country services and portals in Mexico and
Argentina as well as our Latin American regional portal. After that, we intend
to introduce our interactive services in additional countries in Latin America.
Our Opportunity
Latin America and the Internet.
In less than a decade, the Internet has become a global mass medium that
allows millions of people worldwide to find information, interact with others,
be entertained and conduct business electronically. Latin
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America is comprised of more than 20 Spanish- and Portuguese-speaking
countries in North, Central and South America and the Caribbean with a total
population of approximately 500 million people. Although Internet use in Latin
America is in a relatively early stage of development, we believe that the
region is one of the fastest growing Internet markets. The table below
illustrates the projected compound annual growth rate, or CAGR, of all
Internet users and Internet access devices in Latin America and our core
target markets. Because we expect the majority of our members and users to be
residential customers, our potential member and user base will not include all
Internet users in these markets.
<TABLE>
<CAPTION>
Number of Internet
Number of Internet Users Accessing Devices
------------------------------- ----------------------------
CAGR from CAGR from
1998 2003 1998 to 2003 1998 2003 1998 to 2003
------- -------- ------------- ------ ------- ------------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Total Latin America..... 5.7 24.3 34% 3.2 17.7 41%
Brazil ................. 2.7 9.0 27 1.4 6.4 35
Mexico.................. 0.9 5.5 43 0.6 4.5 48
Argentina .............. 0.4 2.9 49 0.2 2.1 55
</TABLE>
The source of the data in this table is a 1999 report published by the
International Data Corporation, or IDC.
Numerous factors are contributing to the increased use of the Internet in
Latin American markets such as Brazil, Mexico and Argentina. We believe that
these include:
. Internet accessing device penetration. The installed Internet accessing
device base is growing rapidly in Latin America, due in part to the
increased affordability of these devices and advances in access device
and modem speed and performance;
. Increased awareness. Increased promotion of the Internet and other
interactive services has led to heightened awareness of the Internet;
. Latin America-focused products and services. Improvements in the
availability of Spanish and Portuguese content and products on the
Internet have made the Internet more attractive to Latin American
consumers;
. Telecommunications improvements. Privatization and deregulation of
telecommunications providers are facilitating network infrastructure
improvements and reducing local and long distance telephone rates; and
. Demand for information. We believe that demand in Latin America for
unlimited access to news and other information has led to increased use
of the Internet.
Advertising and e-commerce.
Fueled by the growth of Internet use, the Internet has emerged as an
attractive new medium for advertising and an important channel for merchants
to conduct e-commerce. It provides advertisers with a vehicle of mass
communication that enables them to target desired demographic groups in
specific geographic locations and captures valuable data about consumer buying
patterns and preferences. We believe that online merchants are able to operate
with reduced infrastructure and overhead, while providing consumers with a
convenient method to evaluate and buy a broad selection of goods and services.
The table below presents the projected growth of e-commerce and Internet
advertising revenues in Latin America and our core target markets.
<TABLE>
<CAPTION>
E-commerce Spending Internet Advertising Spending
---------------------------- --------------------------------------
CAGR from CAGR from
1998 2003 1998 to 2003 1998 2003 1998 to 2003
------ -------- ------------ ---------- ----------- ---------------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Latin America..... $166.8 $8,021.2 117% $ 24.0 $ 949.0 109%
Brazil.................. 93.0 2,700.8 96 15.0 509.0 102
Mexico.................. 21.8 1,877.2 144 5.0 241.0 117
Argentina............... 12.8 1,223.5 149 1.0 38.0 107
</TABLE>
In this table, the source of the data for e-commerce spending is IDC and
the source of the data on Internet advertising spending is Forrester Research,
Inc.
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Our Competitive Advantages
We believe that our America Online-branded interactive services, our
association with our founders and our experienced management team will give us
significant competitive advantages.
The AOL-LA Country Services.
We believe that our AOL-LA country services will be unique in their seamless
integration of local, regional and global interactive communities and the
Internet, and in their array of interactive tools, content and e-commerce
opportunities.
The AOL Commitment.
. The AOL brand. We believe that the AOL brand has become synonymous with
high quality and easy-to-use interactive services and will help us to
attract members and users.
. AOL technology. Our online services and portals are being developed
using AOL's technology and expertise and contain proven tools and
features that we believe differentiate our interactive services from
other services. In addition, we expect to benefit from AOL's future
technological developments in the areas of TV- and wireless-based online
services. AOL will provide us with new AOL-branded products and services
tailored for our local markets, including the next version of the online
service software, AOL 5.0, which we plan to launch in Brazil in 2000. We
will pay AOL to localize these new services, but we are not obligated to
reimburse AOL for the costs that it incurred to develop the new services
for the U.S. market.
. AOL infrastructure. We will use AOL's servers, located in the U.S., to
exchange information with our members, users and content providers,
store information and operate our interactive services. By sharing this
infrastructure with AOL and its other international affiliates, we can
reduce our own operating costs because AOL allocates the cost of the
infrastructure across an aggregate base of approximately 21 million
members. We believe that we will also benefit from AOL's expertise in
infrastructure maintenance and development. We expect to benefit from
the reliability and scale of the AOL infrastructure and believe AOL's
existing servers will be able to accommodate our projected growth. In
addition, AOL's infrastructure will enable us to provide better service
to our members. For example, we will be able to provide members who
travel with access to their local online service from more than 120
countries through AOL's Globalnet roaming network.
. Global community and content. Members of the AOL-LA country services
will have access to AOL's and its international affiliates' worldwide
online services, including:
--extensive proprietary global content on AOL's channels; and
--the ability to interact with AOL's global community of over 21
million members.
. AOL's relationships. We expect to benefit from the numerous
relationships AOL has established with telecommunications companies,
content providers, advertisers and e-commerce merchants during its 14
years in the interactive services industry.
The Cisneros Group Commitment.
In Latin America, the Cisneros Group, through its various member companies,
joint ventures, partnerships and investments, is, we believe, a leading active
participant in broadcast television, direct-to-home satellite television,
pay-TV programming and other entertainment, media and communications
enterprises. Through its participation in these Latin American enterprises, we
believe that the Cisneros Group possesses market intelligence and expertise. We
plan to take advantage of the Cisneros Group's insights into Latin American
markets. The Cisneros Group has made the following commitments:
. Capital contribution. The Cisneros Group has agreed to contribute an
aggregate amount of approximately $100 million to AOL-LA, the balance of
which, $25.7 million, will be contributed in quarterly installments
through July 2, 2001.
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. Use of the Cisneros Group's media assets to advertise our interactive
services. The Cisneros Group has agreed, on a best efforts basis, to
help us obtain access to advertising and promotional opportunities
available through its Latin American media and communication assets. It
will attempt to obtain advertising and promotional air time for us at
rates at least as favorable to those charged to any other person, other
than affiliates.
. Content creation. The Cisneros Group has agreed to use its best efforts
to provide assistance to develop online content based on the Cisneros
Group's extensive programming line-up and pay-TV channels, such as Much
Music and Locomotion.
We believe that the following companies are the principal entities
affiliated with the Cisneros Group which offer advertising, promotional and
content opportunities that may help us to develop our interactive services
business in Latin America. Except for Venevision, the Cisneros Group does not
own a controlling interest in any of the companies listed. We have not entered
into agreements with any of these companies at this time. The Cisneros Group
has agreed to attempt, on a best efforts basis, to provide us with access at
rates at least as favorable as those charged to anyone else, except for
affiliates. However, we have no assurance that their efforts will be
successful. As a result, we may not receive access at favorable rates or at
all.
. Venevision is, we believe, Venezuela's leading television network.
Through its international distribution network, programming produced or
acquired by Venevision and its affiliates reaches viewers throughout
Latin America. The Cisneros Group has agreed to provide us with cross-
promotion opportunities and to allow us to purchase advertising on
Venevision.com, the website of Venevision. In addition, the Cisneros
Group has agreed that Venevision will make commercially reasonable best
efforts to arrange for its exclusive celebrities to take part
periodically in AOL-LA's online meeting rooms.
. Galaxy Latin America, or GLA, provides DirecTV, a direct-to-home
satellite television service, to viewers in Latin America. Approximately
53 Galaxy Latin America channels provide pay-per-view movies and events,
which are available on demand, while the remaining 111 channels offer
continuous programming. In addition, GLA offers 66 channels of CD-
quality music. Members of the Cisneros Group have equity investments in
the local operating companies that are licensed by GLA for the day-to-
day operation of the DirecTV service in Brazil, Venezuela, Colombia,
Costa Rica, Ecuador, Panama, Nicaragua and Puerto Rico. Our
stockholders' agreement provides that the Cisneros Group will use its
commercially reasonable best efforts to cause GLA to promote our
interactive services in GLA's programming line-up and electronic
programming grid. Moreover, in Brazil, we have already distributed
approximately 74,000 CDs through GLA distributors to DirecTV's Brazilian
subscribers.
. Cisneros Television Group, or CTG, is, we believe, one of the leading
pay-TV programming channel groups in Latin America, including channels
such as Much Music, Locomotion, AEI Latin America, Cl@se, HTV, and
Chilevision. The Cisneros Group has agreed to make commercially
reasonable best efforts to promote our services in country-specific
programming through its affiliated programming properties in Latin
America, including CTG's channels.
. Imagen Satelital is, we believe, one of the leading pay-TV programming
producers and distributors in Argentina and Chile. Imagen Satelital owns
or represents an aggregate of 17 pay-TV channels including I-Sat, Space,
Infinito, Uniseries and Jupiter Comic. The Cisneros Group has agreed to
use commercially reasonable best efforts to promote our services in
country-specific programming in these channels.
. Chilevision is, we believe, currently the fourth largest Chilean
broadcast television network. The Cisneros Group will make commercially
reasonable best efforts to obtain promotion from Chilevision through its
affiliated channels.
Our Management.
We have an experienced senior management team that provides valuable
insights into the interactive services industry and the needs and demands of
the Latin American markets. In our core markets, we are continuing to assemble
local management teams of comparable caliber. Our management teams will benefit
from working closely with AOL and the Cisneros Group, drawing on their
collective expertise and experience in the interactive services, media and
telecommunications industries.
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Our Strategy
Our strategy is to develop AOL-LA brand recognition, grow our member and
user base and expand beneficial relationships with advertisers, content
providers and e-commerce merchants.
Provide superior online services. We intend to establish the AOL-LA country
services as high quality online services that provide:
. Seamless integration of local, regional and global online interactive
communities and the Internet, easy-to-use tools and features, and
content and e-commerce opportunities of local interest;
. Reliable connections to our online services by contracting for ample
network capacity with multiple providers. We have entered into
agreements with Netstream and Embratel in Brazil to provide us with
network capacity that exceeds our anticipated needs for the near term;
and
. Online and offline customer service, available free of charge 24 hours a
day, 7 days a week.
Implement a three-phase approach to the introduction of our interactive
services in Latin America. We intend to launch our interactive services in
Latin America in three phases. Based on forecasts of key indicators of Internet
growth, we identified Brazil, Mexico and Argentina as presenting the most
favorable market opportunities for the initial launches of our interactive
services. The table below presents forecasts of these indicators in our core
target markets as a percentage of the total Latin American market:
<TABLE>
<CAPTION>
Number of Internet
Internet Number of E-commerce Advertising
Population Users Internet Accessing Spending Spending
(1998) (2003) Devices (2003) (2003) (2003)
---------- --------- ------------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Brazil....... 33% 37% 36% 34% 54%
Mexico....... 19 23 25 23 25
Argentina.... 7 12 12 15 4
--- ---- ---- ---- ----
Total...... 59% 72% 73% 72% 83%
=== ==== ==== ==== ====
</TABLE>
In this table, the source of the population data is International
Telecommunications Union, the source of the Internet advertising spending data
is Forrester Research and IDC provided all other data.
We launched our interactive services in Brazil in November 1999. Our second
phase, beginning in 2000, will focus on the launch of our interactive services
in Mexico and Argentina. In our third phase, we plan to offer our interactive
services in additional countries in Latin America, depending on the market
readiness of each country.
Localize and customize our interactive services. As we launch our
interactive services in various countries throughout Latin America, we will
localize and customize our online services and portals specifically for each
country. While each AOL-LA country service will share common technology, we
will tailor each service to cater to local interests and preferences:
. our services will be in local languages;
. tools and features will be customized to appeal to local members;
. content will be provided by local content providers and will be designed
to appeal to the shared interests and cultures of local members;
. e-commerce opportunities will be selected to reflect local interests and
tastes;
. members will, in many instances, have local dial-up numbers to connect
to our online services; and
. customer service representatives will be available through a local toll-
free number.
Establish a presence on the Internet. We will use our AOL-LA country
Internet portals and Latin American regional Internet portal to establish our
brand name, promote the AOL-LA country services and generate advertising and e-
commerce revenues on the Internet. We believe that by establishing a presence
on
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<PAGE>
the Internet, we will have the flexibility to introduce new services on either
our online services or our portals, depending on the nature of the service and
the demands of our members and users. We anticipate that our portals will be a
cost-effective method of enhancing our brand identity.
Aggressively build our member and user base.
. We intend to make it convenient and efficient for consumers to try our
online services. In Brazil, we are distributing approximately 20 million
CDs containing the America Online Brazil service software through
various marketing channels. We will also pursue other innovative
marketing initiatives. For example, we plan to launch a sign-on-a-friend
program in Brazil that will involve paying members a fee for each
additional member they refer to our America Online Brazil service;
. We will use extensive traditional advertising campaigns, including
broadcast television, radio, print publication and outdoor, and other
marketing campaigns to increase awareness of the AOL-LA brand and
attract members and users; and
. We will enter into agreements with leading companies that will enable us
to market our interactive services to a significant number of existing
and potential Internet users. In Brazil, we have entered into agreements
for the bundling of our software with IBM PCs and 3Com modems and have
entered into agreements with companies such as Banco Itau, Galaxy Brasil
Ltda., Sony Music and ICQ for the promotion of our interactive services.
Expand our family of AOL-branded services to new technologies. We intend to
expand our family of AOL-branded services beyond PC-based online services. We
will offer in Latin America TV- and wireless-based services as these services
are developed by AOL and as our license agreement with AOL and restated
certificate of incorporation permit. We also plan to work with AOL to introduce
new localized versions of the software for the AOL-LA country services that
will enable members to connect through high-speed technologies, including
digital subscriber line, cable and satellite and provide additional online
content to members connecting through these high-speed technologies.
Our Services
The AOL-LA Service.
Our AOL-LA country services will offer the following features:
Seamless Access to the Internet. We will provide our members with access to
and use of the Internet without having to leave our online services. A simple
tool bar on the AOL-LA country services will allow members to move seamlessly
between the features and content on our online service and the Internet. Access
to the Internet also includes newsgroups and file transfer capabilities.
Online Community Features. We believe that our AOL-LA country services will
promote interactive online communities through the following features:
E-Mail: Enables members to send messages to other members' private
electronic mailboxes, or to non-subscribers through e-mail.
Public Bulletin Boards: Facilitate the sharing of information and opinions
on subjects of general or specialized interest.
Buddy Lists: Enable members to keep an up-to-the moment account of whether
fellow members and users of the Web version of AOL Instant Messenger are
online, with an optional blocking feature.
AOL Instant Messenger, or AIM: Allows members and users of the Web version
of AIM to exchange private, personalized electronic text messages in real
time without having to access an electronic mailbox. When a message is sent
by AIM, the message pops up on the receiver's screen.
Online Community Center: Serves as a country-specific, regional or global
place for AOL-LA members to interact with each other. Our online community
center includes a member directory that provides a quick way to find
family, friends or colleagues on our online services.
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Interactive Conversations, or Chat: Allows members to engage in discussions
covering topics such as current events, family, parenting, romance, the
arts, finance and sports in existing or self-created public or private
meeting rooms.
AOL Live: Features interviews with celebrities and other personalities. The
interviews will be structured to operate like live auditorium events, with
members asking questions of the celebrity while exchanging views among
themselves.
Amor@AOL: Enables members to publish personal ads in Spanish or Portuguese
to find romance or friendship and will provide links to AOL's Love@AOL,
which facilitates international friendship and romance.
Channel Line-Up. We plan to develop customized channels for each AOL-LA
country service, with the following channels forming the basis of each
service's line-up:
AOL Today: Communicates the day's news, entertainment and financial
headlines to members when they log onto the service. The channel also
provides information about local weather, horoscopes, online events and
highlights of special features on other content channels.
News: Provides comprehensive current local, regional and international
news, including headlines and highlights and in-depth articles authored by
leading news providers. News content developed by our in-house content
development team will include "week-in-review" and "current events"
sections and political news discussions.
Finance: A compilation of local and regional financial news, stock quotes,
investment tips and other business information provided by financial
analysts and respected journals. This channel will also focus on educating
members about local and international economic policies.
Entertainment: Contemporary music, movie and TV articles and reviews,
celebrity news and gossip, and entertainment events. This channel will also
feature daily polls on member views and interests.
Internet: Provides current Internet news, advances in technology, tips to
navigating the Internet and website reviews.
Kids: Kids-oriented entertainment, featuring special articles, animated
celebrities, superheroes and games.
Sports: Local and international sports news, including real-time scores,
commentaries, sport celebrity interviews, team and player profiles and an
area recapping the week's top sports events.
Computing: Computing news, tips and product reviews. This channel will also
have areas for downloading software and areas with information about
computer viruses.
Travel: Recommendations and information on local and global travel
destinations, fare-finders, trip planners, travel tips and virtual tours.
Education: Features research tools, encyclopedias and dictionaries,
homework helpers and advice on many education-related issues, including
preparatory guides.
Local: A guide to the local area and its largest cities, including movie
and restaurant reviews, traffic reports, maps and entertainment guides.
International: Connects members to AOL's international services and offers
international news, business, culture and country information, foreign
newspapers, world maps and other extensive global content.
Lifestyles: Health and fitness tips, medical and nutritional advice,
parenting information, personals, fashion news, teenager-focused content
and special interest features.
Shopping: Extensive consumer information and links to stores, enabling
members to browse and buy a variety of products, including books, music and
food. We will also work with e-commerce merchants to bring members online
promotions and bargains.
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Personalization and Control Features. Members will be able to personalize
their experience on our AOL-LA country services through a number of features
and tools, including:
. Multiple screen names, or e-mail accounts, per membership, allowing up
to five members of a household to use the service at no additional
charge.
. Parental controls to help parents guide their children's online
experience, including tools that limit access to particular areas or
features on the AOL-LA country services.
. Mail controls that allow members to limit who may send them e-mail and
to block specific types of e-mail.
. A reminder service that sends an e-mail in advance of important events.
. Stock portfolios that automatically update market prices.
. Favorite places, which allow members to mark particular Internet sites
or areas on our online services to facilitate subsequent visits to those
sites or areas.
. Portfolio direct and news profiles, which send stories of particular
interest to members.
. Marketing preferences that enable members to elect not to receive
selected marketing offers.
. A Web security browser that will encrypt confidential information,
providing more secure online shopping.
Online and Offline Help. We will offer our members both online help and
offline customer support services. Our AOL-LA country services' help feature
will assist members with their inquiries online. Offline, we will have call
centers providing free customer service 24 hours a day, 7 days a week.
Service Plans and Pricing. Members will be able to select from one of
several competitively priced service plans. Our service plans will include:
. unlimited use plans, which will offer unlimited online access for a
fixed monthly fee; and
. limited use plans, which will offer a combination of a fixed monthly fee
for a specified number of hours of online access and the option to spend
additional time online, billed at an hourly rate.
For example, in Brazil, we currently offer three service plans priced in
the Brazilian currency, the real:
. unlimited access for a fixed monthly fee of R$24.95, or approximately
$14.30;
. 20 hours of access for a monthly fee of R$19.95, or approximately
$11.43, and additional time online billed at R$1.30, or approximately
$0.74, per hour;
. 10 hours of access for a monthly fee of R$14.95, or approximately $8.57,
and additional time online billed at R$1.95, or approximately $1.12, per
hour; and
. 5 hours of access for a monthly fee of R$9.95, or approximately $5.70,
and additional time online billed at R$2.95, or approximately $1.69, per
hour.
In January 2000, we reduced our fee for unlimited access in response to the
availability of free Internet access and price cuts by our competitors, and we
may need to make additional reductions in the future. Our current fee for
unlimited access is R$24.95, which is R$10.05, or approximately $5.76, lower
than the fee we charged since we launched the AOL Brazil country service in
November 1999.
Free Trial. We intend to make our AOL-LA country services, including
Internet access, available to new members on a free trial basis for a limited
period of time. In Brazil, we currently offer our new members 250 hours of free
service during their first 30 days of membership. During this trial period,
consumers can explore our service without discontinuing their current Internet
access service, if any, and without incurring any fees or other hidden costs.
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AOL-LA Web Portals.
We intend to establish a regional Latin American portal and a network of
country Internet portals that will be freely available to all Internet users.
We launched our first country Internet portal in Brazil at
www.americaonline.com.br in November 1999. Our portal network will also have
links to the worldwide network of AOL portals, including AOL's flagship portal
in the U.S. at www.aol.com, and portals in the United Kingdom, Canada, Germany,
France, Australia, Japan, Hong Kong and Sweden. Each portal will be a
destination for users seeking a broad array of community features, local
content and e-commerce opportunities. We also intend to provide Internet users
with a simple and efficient way to search the Internet and a forum for
exchanging information, opinions and ideas by offering some of the same tools
and features that will be available on the AOL-LA country services, including:
. AOL Netfind, an Internet search engine, which enables easy searching and
navigation of the Web;
. Web directory, which integrates popular websites and features into user-
friendly information centers; and
. AOL Instant Messenger, which enables Internet users to communicate in
real-time with their friends, family and colleagues.
Regional Portal. We plan to launch a Latin American regional Internet portal
in 2000. Drawing on the common cultures and languages of the entire region,
this portal will be a hub focusing on the shared interests of Spanish and
Portuguese speaking people. We believe it will serve as both a destination for
users seeking a regional perspective and regional community experience and a
gateway to our country-specific portals. The community, content and e-commerce
products and features will be tailored to the region and will be accessible in
Spanish or Portuguese depending on the user's preference. The regional portal
will initially link to the Brazilian portal and then to the Mexican and
Argentine portals. As we develop and launch additional country Internet portals
throughout Latin America, we will link them to our regional portal to provide
comprehensive access to information and services throughout the region.
Country Portals. We plan to launch a network of country Internet portals in
Latin America. We launched our Brazilian portal at www.americaonline.com.br in
November 1999 and currently have promotional portals in Mexico and Argentina.
We plan to launch our Mexican and Argentine portals in 2000. Our country
Internet portals will provide local community features, as well as content and
e-commerce opportunities to Spanish and Portuguese speaking Internet users.
Each portal will be tailored to reflect local tastes and interests and provide
a resource for persons seeking country-specific information and services. We
will draw on the content and programming of our localized AOL-LA country
services to provide in-depth content on our portals that will include local and
global news, finance, entertainment, Internet news, kids' entertainment,
sports, computers, travel, education, lifestyles and shopping. In addition,
each portal will provide users with the opportunity to download the AOL-LA
country online services software.
The ICQ Service.
AOL has granted us the right in Latin America to promote its ICQ service,
which features communications software and an associated portal. The ICQ
service enables its worldwide community of approximately 50 million users,
including approximately 5 million in Latin America, to find and communicate
with each other in real-time. It also allows users to:
.determine when other users are online;
.exchange files or voice messages;
.conduct Internet searches;
.communicate with a friend while surfing the same Internet site;
.collaboratively work on a document or play a game;
.send and receive free e-mail;
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.send greeting cards; and
.create personal reminders.
The global ICQ service will be accessible to our members through a button on
our online services toolbar and to users of our network of Internet portals.
CompuServe.
We have the right to market the CompuServe brand in Latin America. We intend
to service our existing base of subscribers and will actively market this brand
if we choose to offer a more value-oriented product in Latin America.
Customer Service
One of our key strategies is to focus on customer service. We intend to
implement this strategy by offering comprehensive online and offline customer
support.
Offline Customer Service. We have established a local call center in Brazil
and plan to establish local call centers in Mexico and Argentina in 2000. As we
launch our interactive services in additional countries in Latin America, we
intend to establish regional call centers to maximize quality and shared
infrastructure. We plan to staff each call center with knowledgeable customer
service representatives who will be available 24 hours a day, 7 days a week to
assist our members in their local language with inquiries relating to products,
technical support, billing, online security and online community monitoring. We
also intend to establish overflow facilities, as we did at the time of the
launch of the America Online Brazil service and portal, to handle increased
call volumes, particularly during major initiatives. Our customer service is
free of charge and will be provided through a toll-free number. Currently, our
call center in Brazil is staffed with 176 Portuguese-speaking customer
representatives, comprised of both employees and independent contractors.
Online Help. In addition to our call centers, our AOL-LA country services
will provide extensive help features to assist new users coming online for the
first time. In addition, members will be able to reach customer service
representatives by e-mail and AOL Instant Messenger. The services will also
have the Notify AOL feature that allows members to contact us for security
assistance and the Download Sentry Alert feature that reminds members not to
download files attached to e-mails sent from strangers.
Content
We have adopted AOL's strategies for selecting, categorizing and searching
local, regional and global content. Our AOL-LA interactive services will
feature content obtained from leading content providers, proprietary content
developed by our in-house content development team working with various
independent contractors, and member-generated content, including movie and book
reviews, message board commentary and online discussions.
Our agreements with third party content providers range from simple links
between our interactive services and the provider's website to an integration
of their content into our interactive services. We select our content providers
based on the quality and depth of their content. In some instances, our content
providers will license their content to us in exchange for marketing,
advertising and e-commerce opportunities on our interactive services. In other
instances, we pay our content providers cash for licensing their content to us.
In addition, our agreements with our content providers may involve their
marketing our services to their clients, sharing the advertising revenues
generated by the advertisements displayed on their content pages or giving us
advertising space on their content pages. In some cases we may also receive
cash payments from our content providers or an equity interest as payment, or
partial payment, for arrangements entered into with content providers that are
development stage companies.
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We have entered into regional anchor tenancy agreements with two content
providers, Hollywood.com and LatinStocks.com. Anchor tenants are content
providers whose content we prominently display in fixed locations on our
interactive services that we believe are frequently viewed by our members and
users. As regional anchor tenants, Hollywood.com's content will be displayed on
each of our AOL-LA interactive services' entertainment channels, and
LatinStock.com's content will be displayed on each of our finance channels. In
Brazil, we have also entered into agreements with approximately 35 content
providers, including a variety of anchor tenancy and other agreements with
local providers, including Jornal do Brasil, Gazeta Mercantil, CBS
Telenoticias, Reuters, Gazeta Esportiva, Canal Web, 89 Rockwave and Editora
Delta.
Advertising and e-commerce
In addition to revenues from member subscriptions, we will seek to generate
revenues from advertising and e-commerce on our online services and portals. We
intend to rapidly increase the number of our members and users, which will
afford advertisers and e-commerce merchants an attractive audience to whom they
can advertise and sell their products. In addition, we believe that advertisers
and e-commerce merchants will benefit as members and users of AOL and its
international affiliates explore our AOL-LA country services and portals.
Our relationship with AOL may also give us the option to participate in many
of the global advertising and e-commerce arrangements into which AOL enters. We
will evaluate any opportunities to complement our existing portfolio of
advertisers and e-commerce merchants on a case-by-case basis.
Advertising. The country-specific and regional focus of our interactive
services will enable advertisers to execute advertising and marketing campaigns
that take advantage of the common languages, cultures and interests of the
region while retaining the ability to tailor their campaigns to specific
demographic groups. We will offer our advertisers a variety of customized
programs for the marketing of products and services, including:
. advertising arrangements under which we receive fees based on the number
of advertisements displayed on our interactive services; and
. sponsorship or co-sponsorship arrangements that allow advertisers to
sponsor an area on our interactive services in exchange for a fixed
payment.
In return for these advertising arrangements, we will receive cash payments,
the opportunity for revenue sharing, or both. In addition, we may enter into
barter arrangements, including co-marketing and cross-promotion agreements. We
may also choose to accept an equity interest as payment, or partial payment,
for arrangements entered into with development stage companies.
We have established, and will continue to establish, a wide variety of
relationships with local and global advertisers. In Brazil, the advertisers on
our pre-launch promotional site included IBM, Citibank, Sul America, Telefonica
and PageNet. Current sponsors of channels on our America Online Brazil service
and portal include Sony Music, Banco Itau, Galaxy Brasil Ltda., Citibank, and
Banco Real.
E-commerce. The interactive nature of our services permits e-commerce
merchants to capture valuable data about consumer buying patterns and
preferences. In addition, we believe that e-commerce merchants will be able to
operate with minimal infrastructure and reduced overhead, while providing
customers with a convenient method to evaluate and buy a broad selection of
goods and services. We will offer e-commerce merchants an opportunity to sell
their products through our interactive shopping channels and promote their
products on our online service and portals.
In return for these e-commerce arrangements, we will receive either a flat
payment, a percentage of each e-commerce transaction that is attributable to
our interactive services, or both. We may also choose to accept an equity
interest as payment, or partial payment, for arrangements entered into with
development stage companies. In Brazil, we currently have arrangements with
approximately 25 e-commerce merchants, including Xerox, 3Com, Sony Music and
Mercado Libre.
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Marketing
Our marketing goals are to attract consumers to subscribe to, and retain
existing members of, our online services, and attract Internet users to our
portals by building brand awareness and encouraging consumers to try our
interactive services.
We plan to make it convenient for consumers to try our online services. Each
time we launch our online service in a new market or release a new version of
the online service software, we intend to distribute CDs containing the
software for our localized online service. These CDs will offer consumers the
opportunity to use our online service free of charge for a limited trial
period. We will distribute these CDs through a broad range of distribution
vehicles. In Brazil, we are distributing approximately 20 million CDs
containing our America Online Brazil service software through a variety of
channels including direct mail, magazines and newspapers, shopping malls,
schools and other promotions. We have also entered into an agreement with Sony
Music, one of the sponsors of our America Online Brazil service and portal, for
the distribution of our software CDs with a selection of its music CDs. Our CDs
will also be available through a local toll-free telephone number and consumers
will be able to download our online services software from our portals.
We will use extensive traditional advertising campaigns, including
television, radio and print publication, to increase consumer awareness of the
AOL-LA brand and attract members and users. Our advertising campaign for the
launch of our America Online Brazil service and portal included a series of
billboard, print and television advertisements centered around a number of
well-known Brazilian celebrities. We intend to continue to use similar
campaigns in the promotion of our products and services in Brazil and for the
promotion of our interactive services in Mexico and Argentina when we launch in
those markets.
We are also seeking to build alliances that will enable us to market our
interactive services to a significant number of existing and potential Internet
users. We intend to enter into agreements with PC, software and modem
manufacturers for the bundling of our online service software with their
products. In Brazil, we have entered into agreements for the bundling our
America Online Brazil service software with IBM PCs and 3Com modems.
In addition, we intend to utilize other innovative marketing strategies. We
plan to launch a sign-on-a-friend program in Brazil that will involve paying
members a fee for each additional member they refer to our America Online
Brazil service.
Local and Long Distance Telephone Service, Telecommunications Network Capacity
and Technology
Local and Long Distance Telephone Service. In each of our Latin American
target markets, our members will initiate access to our online services through
local and long distance telephone lines. These lines are owned and operated by
local and regional telephone service companies. Adequate and affordable
telephone service in Latin America is central to the development of our
business.
The telephone service industry in Latin America is undergoing considerable
change. Many of the largest countries, including Brazil, Mexico and Argentina,
have begun to deregulate and privatize their telephone industries. As a result,
many Latin American telephone companies in recent years have undertaken
significant investments in their infrastructure. These investments have
resulted in an improvement in the quality of telephone service in these
countries. Although the telephone service industry in Latin America is
significantly less developed than in the U.S., we believe that the local and
long distance telephone service available is of adequate quality and sufficient
quantity to meet the needs of our prospective members. Moreover, we believe
that the current trend of investment by the largest telephone service companies
will continue, adding additional capacity in our target markets to service the
increasing demands placed on the telephone service industry by the growth in
Internet use. However, adequate quantities of local and regional telephone
lines may not be readily available should Internet use increase more rapidly
than anticipated.
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Additionally, local and long distance telephone charges are expected to
decline as a result of increased competition created by deregulation.
Nevertheless, because local calls in most Latin American countries are metered,
the total cost of Internet access in Latin America is substantially higher than
in the U.S.
Telecommunications Network Capacity. Third party telecommunications network
providers will transmit our online services data between the local and long
distance telephone services used by our members in Latin America and AOL's
servers, which run all our interactive services, in the U.S. These third party
networks provide the modems that allow our members to establish a connection to
our online services. They also carry our data between Latin America and the
U.S. by satellite and through fiber optic cable.
We will contract with third parties for the necessary telecommunications
network capacity, including a sufficient number of modems, to provide our
online services. In Brazil, we have a high capacity lease with Netstream, an
affiliate of AT&T, and Embratel, an affiliate of MCI WorldCom, to provide the
modems through which our members will connect to our America Online Brazil
service and to carry our data within Brazil. Netstream and Embratel also carry
our data from Brazil to the U.S. through their affiliates and third party
suppliers. Our network leases with Netstream and Embratel will provide access
to our America Online Brazil service in 25 cities in Brazil, which account for
approximately 19% of the Brazilian population, and afford us what we believe to
be excess network capacity for the near term. Our contracts with Netstream and
Embratel expire on October 18, 2002 and May 3, 2002. As of December 31, 1999,
our network provided access to our America Online Brazil service in nine cities
in Brazil, and we intend to expand this network in 2000. In each of our target
markets we intend to work closely with our network providers to ensure
satisfactory network performance. We intend to seek out network providers that
have multiple operations centers for network monitoring, and we intend to
develop quality control standards that our providers must meet.
Fiber optic cable is our preferred means of transmitting data between Latin
America and the U.S. because it offers greater capacity and is generally more
reliable than satellite-based transmissions. However, most of our data is
currently transmitted between Brazil and the U.S. by satellite because adequate
quantities of fiber optic cable are not yet available for these transmissions.
We anticipate that additional fiber optic cable will become available during
2000 to handle data transmissions between the U.S. and Latin America. We have
arranged with Netstream and Embratel for all data currently transmitted between
Brazil and the U.S. by satellite to be transmitted through fiber optic cable
when it becomes available, and we believe this change will improve our network
performance and the response time of our America Online Brazil service.
In Brazil, we believe that we have secured adequate network capacity through
our contracts with Netstream and Embratel. However, this capacity is based on
our projections of use in particular geographic areas. If our assumptions are
incorrect, members of our AOL-LA country services may experience delays in, or
be prevented from, accessing our online services. Our contracts with Netstream
and Embratel commit us to purchase a minimum amount of network capacity and we
may enter into similar network contracts as we expand into other countries in
Latin America.
Technology. Our servers are owned and maintained by AOL in three locations
in the United States: Reston, Dulles, and Manassas, Virginia. The AOL-LA
content and the tools to operate our online services are located on these
servers. Our Brazilian portal is also hosted on these servers. In the future,
we plan to install servers in Brazil and in other countries in Latin America to
further improve the performance of our interactive services.
Our members can access our online services only through personal computers
using the Windows 95 and 98 operating systems and our Windows-compatible online
service software. Our online services will support the V.90 standards for high-
speed access at 56 kbps, or kilobits per second. We currently offer AOL 4.0 to
subscribers of our America Online Brazil service. AOL 5.0, the latest version
of the AOL online software available in the U.S., will be introduced in 2000.
AOL 5.0 will enable members to connect to our AOL-LA country services through
high-speed technologies as they are introduced by local telecommunications
network
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providers, including digital subscriber line, cable and satellite. High speed
access offers significantly faster connections and allows for enhanced
features, including the delivery of voice and full-motion video games, music
and online catalogue shopping.
Competition
We operate in the highly competitive and rapidly evolving businesses of
online services and Internet access, advertising and e-commerce. However, we
believe that our AOL-LA country services will be unique in their seamless
integration of local, regional and global interactive communities and the
Internet, and in the array of interactive tools, content and e-commerce
opportunities offered on the services. We will compete with providers of
Spanish- and Portuguese-language interactive services, including Internet
access providers, portals, search engines and Web directories. We compete in
the broader Latin American regional market as well as in country specific local
markets. Our principal regional market competitors include El Sitio, in which
the Cisneros Group owns a minority interest, StarMedia, Terra Networks, an
affiliate of Telefonica, and UOL. Our primary local competitors in our core
target countries include UOL in Brazil, Telmex in Mexico, which has an alliance
with Microsoft for the development of content and offers a Prodigy-branded
service, and Ciudad Internet in Argentina. We also compete for advertising
revenues with traditional media such as newspapers, magazines, radio and
television.
We believe the principal factors in competing for members in the interactive
services industries include service features and performance, ease of use,
marketing and distribution channels, brand recognition, reliability and price.
Our Brazilian online service subscription fees are generally higher than those
offered by our competitors. Moreover, free Internet access is now widely
available. Please see "Risk Factors--Risks Related to Our Market Strategy".
Further, we believe that the principal competitive factors in generating
advertising and e-commerce revenue include the number of visitors to an online
service or Internet site, duration and frequency of visits and demographics of
visitors. We believe that we have the ability to compete effectively in these
areas.
The AOL License Agreement, Intellectual Property and Proprietary Rights
Our license.
Under our license agreement with AOL, we have:
. a royalty free, exclusive license to offer AOL-branded PC-based online
services in Latin America;
. the exclusive right to offer AOL-branded TV-based online services in
Latin America if AOL develops these services;
. the exclusive right to offer in Latin America any AOL-branded
wireless-based online services developed by AOL for commercial launch
within four years of the effective date of the registration statement
for this offering;
. a non-exclusive license to offer a localized network of AOL-branded
portals in Latin America, with an option to license exclusively any
Spanish- or Portuguese-language AOL-branded portals that AOL may
develop for the Latin American market, subject to our payment of a
license fee.
In addition, we have the rights to use all related AOL proprietary software
and technology as well as AOL registered domain names and principal trademarks
in Latin America.
We have agreed to interconnect our America Online Brazil country service and
all future AOL-LA country services to the services provided by AOL and its
international affiliates. This interconnection will provide our members with
access to the AOL services and AOL international interactive services and will
permit AOL members worldwide to access the AOL-LA country services. AOL is
obligated to license to us, or to use
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commercially reasonable efforts to obtain for us, the license rights it has in
third party software products used in operating the AOL-branded interactive
services. These third-party licenses may be royalty-free or may require
payments by us.
We have the same rights to offer CompuServe-branded services. We only have
the right to offer AOL- and CompuServe-branded interactive services. We also
have a non-exclusive right to market and promote AOL's ICQ service in Latin
America. We do not have the right to offer Netscape, DigitalCity, MovieFone or
any other non-AOL-branded interactive service.
Termination of our exclusive rights.
We will lose the exclusivity of our licensed rights:
. to AOL-branded PC-based online services, upon the later of December
15, 2003 or the date on which either AOL or the Cisneros Group owns
less than 20% of the outstanding capital stock of AOL-LA.
. to AOL-branded TV-based and wireless-based online services, upon the
later of five years from the effective date of the registration
statement for this offering or the date on which either AOL or the
Cisneros Group owns less than 20% of the outstanding capital stock of
AOL-LA.
These 20% thresholds may be lowered if:
. an additional strategic stockholder is admitted as a stockholder of
AOL-LA;
. we issue more shares of our capital stock; or
. AOL exercises its warrant.
AOL may terminate our rights under the license if we materially breach its
terms.
Trademarks and domain names.
AOL has granted us rights to use its registered domain names, www.aol.com,
www.americaonline.com, and related domain names in Latin America. We believe
that AOL is taking appropriate steps to protect its rights in these and other
related domain names in Latin America. For example, third parties have
registered the domain names www.aol.com.br in Brazil, www.aol.com.mx in Mexico,
and www.aol.cl in Chile and AOL is currently involved in or is considering
initiating legal proceedings to protect these domain names. In Brazil, Mexico,
Argentina, Chile, Colombia and Venezuela, AOL has initiated opposition
proceedings to prevent registration of marks by third parties that are
confusingly similar to AOL's marks. Although AOL intends to protect its rights
vigorously, we cannot assure you that AOL will be able to register successfully
all of the domain names that relate to the trademarks.
We rely on a combination of contract provisions and patent, copyright,
trademark and trade secret laws to protect our rights in our online services as
licensed to us by AOL. We have distributed and will continue to distribute
software, licensed to us by AOL, for our online services under agreements that
grant members a license to use the software and we rely on the protections
afforded primarily by copyright laws to protect against the unauthorized
reproduction of the software. We rely in part on electronic licenses. Our
members indicate acceptance of the terms of the license by clicking a button on
their monitor screen but do not actually sign the license. The licenses may
therefore be unenforceable under the laws of Brazil and other jurisdictions in
which we expect to offer our online services. In addition, we attempt to
protect our trade secrets and other confidential information through agreements
with employees and consultants. Although we intend to protect our rights
vigorously, we cannot assure you that these measures will be successful.
Policing unauthorized use of the software for our online services is difficult
and the steps taken may not prevent the misappropriation of our licensed
technology and intellectual property rights. In addition, effective patent,
trademark, trade secret and copyright protection may be unavailable or limited
in Latin America.
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AOL has obtained U.S. federal trademark registrations of a number of marks,
including AOL, America Online, Buddy List, and AOL's triangle design logo, and
has trademark rights in the U.S. and abroad in many other proprietary names,
including www.aol.com, AOL Instant Messenger, AOL Netfind, You've Got Mail and
CompuServe.
We believe that our exercise of our licensed rights under our agreement with
AOL does not infringe on the proprietary rights of third parties. From time to
time, however, we have received communications from third parties asserting
that features, contents or names of some of our services may infringe their
patents, copyrights, trademarks and other rights. We are not involved in any
litigation of this type that would have a material adverse effect on our
ability to develop, market and sell or operate our services. We cannot assure
you that in the future third parties will not make infringement claims against
us for current or future features or content of our services or that any claim
would not result in litigation or require us to enter into royalty or other
similar arrangements. Third parties may also challenge AOL's marks and these
challenges may result in limitation or loss of our licensed rights to AOL's
proprietary marks.
Government Regulation and Legal Uncertainties
We believe that current government regulations will not materially restrict
our ability to offer our interactive services in our core target countries.
In Brazil, there are no license or registration requirements applicable to
interactive services. However, the Brazilian legislature is currently
considering a law governing e-commerce that will subject web hosting service
providers to civil and criminal sanctions if they have actual knowledge of an
offer of illegal goods, services or information made through their service and
they do not immediately suspend or interrupt access. This bill would also
require Internet access providers to keep confidential all non-public
information transmitted or stored on their networks, unless a court orders that
the information be disclosed.
In Mexico, the federal telecommunications law requires providers of value-
added services, including Internet access services, to register with the
Mexican federal telecommunications commission. We filed for registration in
July 1999 and are currently in the process of obtaining approval.
In Argentina, Internet access providers must hold a correspondent license
from the Argentine telecommunications authority. We are preparing the
documentation and information required to apply for this license and expect to
receive it before the launch of our services in Argentina. The Argentine
national government does not specifically regulate information available on the
Internet. However, Argentine laws and regulations on consumer protection,
contract, competition and advertising generally apply to portal and e-commerce
service providers. In addition, the Argentine constitution protects an
individual's right to know what information about him is contained in any
public registry or database. In addition, an individual has the right to demand
that any false or discriminatory information be changed, removed, kept
confidential or updated.
We intend to support proposals designed to enhance market access and
competition in the offering of both dial-up and high-speed interactive services
in our target markets and believe that the adoption of these proposals would
have a beneficial effect on the development of interactive services. We are
unable, at this time, to predict whether any of these proposals will be
adopted.
Employees
As of February 28, 2000, we had 135 full-time employees, of whom 57 were
located in Brazil, 16 in Florida, 41 in Mexico and 21 in Argentina. Of our
full-time employees, 17 worked in sales and marketing, 66 in editorial, 36 in
finance and administration, 4 in technology and services and 12 in member
services. We consider our relations with our employees to be good. We also have
245 independent contractors working in our Brazilian call center.
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Facilities
Our principal executive office is located in approximately 9,000 square feet
of office space in Fort Lauderdale, Florida, under a lease that expires in
2004. Our Brazilian headquarters and call center is located in Santo Andre in
approximately 11,700 square feet of office space under a lease expiring in
August 2004 and our business development and marketing office is located in Sao
Paulo in approximately 4,800 square feet of office space under a lease expiring
in June 2002. As we expand into other countries in Latin America, we anticipate
establishing sales offices and call centers regionally and locally, including
offices in Mexico City and Buenos Aires before the projected launch of our
interactive services in Mexico and Argentina in 2000.
Legal Proceedings
On December 28, 1999, ADEC, a non-governmental, private consumer protection
association, filed a complaint against us in the Brazilian State of Rio de
Janeiro seeking monetary damages and a preliminary restraining order. ADEC is
seeking R$10 million, or approximately $5.7 million, in damages on behalf of
consumers who have allegedly complained about the installation of our America
Online Brazil software on their PCs. The preliminary restraining order would
have required us to stop distributing our CD software in Brazil. While ADEC
obtained the order, we were successful in having it revoked. Although we
believe that ADEC's claims are without merit and will continue to contest them
vigorously, we may not be successful in defeating their claims.
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MANAGEMENT
Executive Officers and Directors
After completion of this offering, the individuals listed below will be our
executive officers or members of our board of directors. Our board of directors
will have 13 members.
AOL and the Cisneros Group are each entitled to elect five directors.
AOL has elected:
.Miles R. Gilburne;
.J. Michael Kelly;
.Michael Lynton;
.Robert W. Pittman; and
.Gerald Sokol, Jr.
The Cisneros Group has elected:
.Steven I. Bandel;
.Gustavo A. Cisneros;
.Ricardo J. Cisneros;
.Robert S. O'Hara, Jr.; and
.Cristina Pieretti.
The identities of the remaining three directors are not currently known.
They will be appointed by the board immediately after the offering and remain
in office until our annual meeting, at which time they will be elected by the
holders of our outstanding capital stock. Because AOL and the Cisneros Group
will together control % of the voting power of our capital stock following
this offering and the concurrent distribution by the Cisneros Group, they will
have the power to elect these three directors at our annual meetings.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles M. Herington.... 40 President and Chief Executive Officer
Javier Aguirre.......... 41 Chief Financial Officer
Travis Good............. 39 Vice President, Technology and Operations
Guy Garcia.............. 44 Vice President, Content Strategy
John D. Gardiner........ 34 Vice President, Business Development and General Counsel
Eduardo Hauser.......... 30 Vice President, Corporate Development
Steven I. Bandel........ 46 Director
Gustavo A. Cisneros..... 54 Director
Ricardo J. Cisneros..... 52 Director
Miles R. Gilburne....... 48 Director
J. Michael Kelly........ 43 Director
Michael Lynton.......... 40 Director
Robert S. O'Hara, Jr. .. 60 Director
Cristina Pieretti....... 48 Director
Robert W. Pittman....... 46 Director
Gerald Sokol, Jr. ...... 37 Director
</TABLE>
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Charles M. Herington. Mr. Herington has been our president and chief
executive officer since February 1999. Before joining AOL-LA, Mr. Herington
served as president of Revlon America Latina from January 1998 to February
1999. From 1990 through 1997, Mr. Herington held a variety of senior management
positions with PepsiCo Restaurants International, including regional vice
president of KFC, Pizza Hut and Taco Bell for South America, Central America
and the Caribbean from September 1995 to September 1997, regional vice
president of KFC for Latin America from February 1994 to September 1995,
general manager of KFC Puerto Rico from February 1992 to February 1994, general
manager of Franchise Markets for KFC Latin America from February 1991 to
February 1992 and marketing director for KFC for Latin America from May 1990 to
February 1991. Between 1981 and 1990, Mr. Herington served in various
managerial positions at Procter & Gamble.
Javier Aguirre. Mr. Aguirre is our chief financial officer, a position he
has held since June 1999. From September 1998 to June 1999, Mr. Aguirre was the
finance director for Wal-Mart Argentina. Before joining Wal-Mart Argentina, Mr.
Aguirre was senior director of finance and administration of PepsiCo
Restaurants International in Sao Paulo, Brazil, from May 1996 to August 1998.
From May 1994 to April 1996, Mr. Aguirre was the director of finance and
planning of PepsiCo Restaurants International in Mexico City. Between 1979 and
1994, Mr. Aguirre held several managerial positions at Ford Motor Company in
Michigan and in Mexico City.
Travis Good. Mr. Good has been our vice president of technology and
operations since March 1999. From May 1995 to February 1999, he held a variety
of management positions at AOL, including general manager for AOL's Global
Network Navigator and director of product marketing for AOL Client Software.
From January 1995 to May 1995 he was director of Internet services for Cable &
Wireless. From March 1994 to January 1995, Mr. Good served as general manager
of GE Information Services' distributorship in Mexico. From December 1987 to
March 1994, he served in a variety of positions at General Electric
Corporation.
Guy Garcia. Mr. Garcia has served as our vice president of content strategy
since August 1999. From March 1998 to July 1999, he was director of programming
at AOL Interactive Properties and director of creative & editorial development
at AOL Studios. From November 1997 to February 1998, Mr. Garcia served as
executive producer for Digital City Inc. During this time, he also served as
the founding editor for Digital City New York. In February 1995, Mr. Garcia co-
founded the Total New York website and served as the site's editor and site
director until October 1997. From February 1994 to February 1995, Mr. Garcia
was a freelance writer contributing to various magazines.
John D. Gardiner. Mr. Gardiner has served as our vice president of business
development and general counsel since March 1999. From May 1995 to March 1999,
Mr. Gardiner was employed in the legal department at AOL, holding the position
of assistant general counsel. From January 1993 to May 1995, Mr. Gardiner was
an associate at the law firm of Shaw, Pittman, Potts and Trowbridge in
Washington, D.C.
Eduardo Hauser. Mr. Hauser is our vice president of corporate development, a
position he has held since March 1999. Before joining AOL-LA, Mr. Hauser was
employed from September 1988 to March 1999 by different companies in the
Cisneros Group, serving in a variety of positions, including vice president,
news of Venevision from September 1997 to March 1999, and as managing director
of Highgate Properties, a company within the Cisneros Group, from September
1993 to September 1997.
Steven I. Bandel. Mr. Bandel has been a member of our board of directors
since January 2000 and was appointed to the board by the Cisneros Group. Since
January 1995, Mr. Bandel has held several senior management positions at
companies within the Cisneros Group, with responsibilities in the areas of
finance, communications and corporate development. Mr. Bandel has the title of
president and chief operating officer of the Cisneros Group. Mr. Bandel is also
a director of Pueblo Xtra International, Inc., a company within the Cisneros
Group.
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Gustavo A. Cisneros. Mr. Cisneros has been a member of our board of
directors since January 2000 and was appointed to the board by the Cisneros
Group. Since 1975, Mr. Cisneros has overseen the management and operations of
the Cisneros Group and is an executive officer and director of many of its
constituent companies. Mr. Cisneros, together with members of his family, or
trusts established for their benefit, owns direct or indirect beneficial
interests in the companies forming the Cisneros Group. Mr. Cisneros is a
director of Evenflo & Spalding Holdings Corp., RSL Communications Ltd., Pueblo
Xtra International, Inc. and Pan American Beverages, Inc. Mr. Cisneros is a
founding member of the International Advisory Board of the Council on Foreign
Relations, as well as a member of the board of trustees of the Museum of
Television & Radio. He is a director of the Chairman's Council of the Americas
Society and serves on the International Advisory Council of Power Corporation
of Canada. He is also a charter member of the AEA Investors, Inc. Advisory
Board. Mr. Cisneros is a trustee of Rockefeller University, a member of the
board of directors of Georgetown University, a member of the International
Advisory Board of Columbia University and a founding member of the Advisory
Committee for the David Rockefeller Center for Latin American Studies at
Harvard University. He is a director of the Joseph H. Lauder Institute of
Management and International Studies of the Wharton School of the University of
Pennsylvania.
Ricardo J. Cisneros. Mr. Cisneros has been a member of our board of
directors since January 2000 and was appointed to the board by the Cisneros
Group. Since 1975, he has served as an executive officer and a director of a
number of the companies within the Cisneros Group, including Venevision and
Operadora Sercra C.A. Mr. Cisneros has also been a director of several
financial institutions in Venezuela and the United States. He serves on the
boards of the Simon Bolivar Foundation and is also the director of the
Fundacion Diego Cisneros in Venezuela.
Miles R. Gilburne. Mr. Gilburne has been a member of our board of directors
since January 2000 and was appointed to the board by AOL. From February 1995
through December 1999, he served as senior vice president, corporate
development of AOL. Before joining AOL, Mr. Gilburne was a founding attorney of
the Silicon Valley office of the law firm of Weil, Gotshal & Manges. Mr.
Gilburne is also a partner in the Cole-Gilburne Fund, a venture capital fund.
Mr. Gilburne is also a director of AOL.
J. Michael Kelly. Mr. Kelly has been a member of our board of directors
since January 2000 and was appointed to the board by AOL. Mr. Kelly has been
senior vice president and chief financial officer of AOL since July 1998.
Before joining AOL, he had been executive vice president of finance and
planning and chief financial officer of GTE Corporation since June 1997. Mr.
Kelly was appointed GTE's senior vice president of finance in 1994.
Michael Lynton. Mr. Lynton has been a member of our board of directors since
January 2000 and was appointed by AOL. He has served as president of AOL
International since January 2000. From September 1996 to December 1999, Mr.
Lynton was chairman and chief executive officer of the Penguin Group. From
September 1993 to June 1996, Mr. Lynton served as president of Disney
Publishing--Magazines and Books, and between 1987 and 1993 he served as
president of Hollywood Pictures for The Walt Disney Company.
Robert S. O'Hara, Jr. Mr. O'Hara has been a member of our board of directors
since January 2000 and was appointed to the board by the Cisneros Group. Since
1974, Mr. O'Hara has been a member of Milbank, Tweed, Hadley & McCloy LLP, a
law firm in New York, N.Y.
Cristina Pieretti. Ms. Pieretti has been a member of our board of directors
since January 2000 and was appointed to the board by the Cisneros Group. From
1992 to March 1995, and since February 1996, Ms. Pieretti has held a number of
senior management positions with marketing and operations responsibilities at
companies within the Cisneros Group in the consumer goods, retail and
telecommunications industries. From March 1995 to February 1996, Ms. Pieretti
was a partner at Booz-Allen & Hamilton, a consulting firm. Ms. Pieretti has the
title of vice president of operations of the Cisneros Group. Ms. Pieretti is
also a director of Pueblo Xtra International, Inc., a company within the
Cisneros Group.
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Robert W. Pittman. Mr. Pittman has been a member of our board of directors
since January 2000 and was appointed to the board by AOL. He has been president
and chief operating officer of AOL since February 1998. Previously, he was
president and chief executive officer of AOL Networks, a division of AOL, from
November 1996 until February 1998. He held the positions of managing partner
and chief executive officer of Century 21 Real Estate Corp. from October 1995
to October 1996. Before that time, Mr. Pittman had been president and chief
executive officer of Time Warner Enterprises, a division of Time Warner
Entertainment Company, LP, between 1990 and 1995, and chairman and chief
executive officer of Six Flags Entertainment Corporation from December 1991 to
September 1995. Mr. Pittman founded MTV in 1981 and became president of MTV
Networks in 1985. He is also a director of AOL, Cendant Corporation and
barnesandnoble.com inc.
Gerald Sokol, Jr. Mr. Sokol has been a member of our board of directors
since January 2000 and was appointed to the board by AOL. He has served as
senior vice president and general manager of AOL International since September
1999 and before that was vice president of finance of AOL International since
February 1999. From August 1996 to January 1999, Mr. Sokol held several
positions with NTN Communications, Inc., most recently serving as president,
chief executive officer and chairman of the board of directors. From July 1987
to May 1996, Mr. Sokol held several positions with Tele-Communications, Inc.,
most recently serving as vice president and treasurer. Mr. Sokol is also a
director of Chinadotcom Corporation and 8848.net.
Board of Directors
Our restated certificate of incorporation fixes our board of directors at 13
members. Each year at our annual meeting, our stockholders will elect our
directors to a one-year term of office. AOL, the holder of all of our B stock
and the Cisneros Group, the holder of all of our C stock, are each entitled to
elect five members to our board of directors. The holders of all outstanding
shares of our capital stock, voting together as a single class, are entitled to
elect the remaining three members to the board of directors. Although these
three directors initially will be appointed by our board following this
offering, they subsequently will be elected by our stockholders at our annual
meetings. By virtue of controlling % of the voting power of our capital
stock, AOL and the Cisneros Group will have the power to elect these remaining
three members at our subsequent annual meetings.
Committees of the Board of Directors
The Special Committee. Before or immediately following this offering, we
will establish a special committee of the board of directors. The special
committee will consist of two members, one of whom will be selected by the
directors elected by AOL as the holder of B stock and one of whom will be
selected by the directors elected by the Cisneros Group as the holder of C
stock. The initial members of the special committee will be and . The
special committee will evaluate corporate actions such as:
. amendments of our restated certificate of incorporation and restated by-
laws;
. amendments of our stockholders' agreement;
. mergers and acquisitions;
. any issuance of, or change in, any of our capital stock;
. the transfer of any of our material assets;
. loans by us in excess of $50,000;
. capital expenditures in excess of $50,000;
. borrowings by us in excess of $50,000;
. the declaration of any dividends on our securities;
. the selection of nominees to be recommended by our board for election by
all outstanding shares of our capital stock voting together;
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. the admission of additional strategic stockholders;
. our launch of AOL-branded TV- and wireless-based online services in
Latin America, as well as any agreements between us and third parties
that relate to these launches;
. the adoption and modification of business plans;
. the appointment or dismissal of our independent auditors;
. the establishment of any subsidiary or any material change in a
subsidiary's business;
. the commencement of litigation by us that involves amounts in excess of
$100,000 or that is adverse to either AOL or the Cisneros Group;
. our establishment of, or any significant modification to, any
significant investment or cash management policies;
. our discontinuance of any material business activity;
. our entering into any partnership, joint venture or consortium;
. our issuance of press releases containing material non-public
information;
. our entering into agreements outside of the ordinary course of our
business;
. the approval of the final annual audited consolidated financial
statements of any subsidiary;
. our filing for bankruptcy or our decision not to prevent or oppose any
involuntary filing for bankruptcy;
. adoption of or material amendment to any employee benefit or executive
compensation plan or severance payment; and
. hiring or firing any personnel with an annual salary in excess of
$100,000 or increasing their compensation above $100,000.
Each of these actions will require the unanimous approval of the special
committee before being submitted for approval by the full board of directors.
As a result, both AOL and the Cisneros Group effectively have the power to veto
these corporate actions. If either AOL or the Cisneros Group loses its right to
representation on the special committee, the special committee will be
dissolved. If the special committee is dissolved, the approval of the board of
directors as a whole will be required to approve any corporate actions
previously evaluated by the special committee.
The Audit Committee. We will also establish an audit committee of the board
of directors, which will consist of two or more unaffiliated and independent
directors, before or promptly following this offering. The audit committee will
review, act on and report to the board of directors on various auditing and
accounting matters, including the selection of our auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices.
The Compensation Committee. Before this offering, we will also establish a
compensation committee of the board of directors, which will consist solely of
two or more unaffiliated and independent directors. The compensation committee
will determine the salaries and incentive compensation of our officers and
provide recommendations for the salaries and incentive compensation of our
other employees and consultants. The compensation committee will also
administer our stock option plan, which is described below.
Compensation of Directors
Each member of our board of directors will be issued an option to purchase
60,000 shares of our class A common stock when he joins the board. The
directors may receive additional compensation in a manner to be determined by
our board. Directors will also be reimbursed for actual reasonable costs
incurred in attending our board and committee meetings.
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Compensation Committee Interlocks and Insider Participation
Following this offering, the compensation committee of our board of
directors will consist of and , none of whom has been an officer or
employee of our company at any time since our inception. No executive officer
of AOL-LA will serve as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of our board of directors or compensation committee. Before the
formation of the compensation committee, the board of directors will make
decisions about the compensation of our executive officers.
Executive Compensation
The following table presents the total compensation paid or accrued during
the fiscal year ended June 30, 1999 to our chief executive officer. None of our
other executive officers earned greater than $100,000 in our fiscal year ended
June 30, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------
Other Annual
Name and Principal Position Year Salary ($) (1) Bonus ($) Compensation ($) (2)
- --------------------------- ---- -------------- --------- --------------------
<S> <C> <C> <C> <C>
Charles M. Herington........ 1999 145,833 200,000 33,463
President and Chief
Executive Officer
</TABLE>
- --------
(1) Mr. Herington began his employment with us in February 1999. His current
annual base salary is $358,000.
(2) Includes Mr. Herington's automobile allowance and payment of membership
fees.
We did not grant any options to Mr. Herington during the fiscal year ended
June 30, 1999. Mr. Herington did not exercise any options during the fiscal
year ended June 30, 1999 and did not hold any options at June 30, 1999.
Employment Agreements
Charles M. Herington. Mr. Herington serves as our president and chief
executive officer. His annual base salary is $358,000. Upon the commencement of
his employment, Mr. Herington received a bonus of $200,000, and received an
additional $200,000 bonus on February 26, 2000, the first anniversary of his
employment with us. Mr. Herington is eligible to receive an annual bonus of up
to 130% of his base salary, based on his performance and the achievement of
specified financial targets, which AOL-LA and Mr. Herington have not yet agreed
upon.
As long as Mr. Herington continues to be employed by us, on each of January
13, 2000, 2001 and 2002, we will grant him an option to purchase $2.0 million
worth of class A common stock at the then current fair market value. All
options will vest on the third anniversary of each grant date. Mr. Herington
also holds options to purchase AOL common stock.
If we terminate Mr. Herington during the first two years of his employment
with us, for any reason other than:
. his willful and material violation of AOL-LA's company policy, which is
not cured within 30 days after he has received written notice from the
board of directors;
. his failure to comply with the lawful direction of the board of
directors;
. his commission of a material act of dishonesty or fraud; or
. his conviction or plea of no contest to a felony,
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he is entitled to receive his salary for 36 months following termination as
well as a portion of his annual bonus. If this termination occurs after the
first two years of his employment with us, he is entitled to receive his salary
for 24 months following termination, as well as a portion of his annual bonus.
Options granted to Mr. Herington before his termination will continue to vest
during the applicable severance payment period.
Javier Aguirre. Mr. Aguirre is our chief financial officer. His annual base
salary is $151,000 and he also received a signing bonus of $68,250. Mr. Aguirre
is eligible to receive an annual bonus of up to 35% of his base salary, based
on his performance and on the achievement of specified performance objectives.
He is also eligible to receive options to purchase AOL-LA class A common stock.
Travis Good. Mr. Good serves as our vice president of technology and
operations and receives an annual base salary of $126,000. He is also eligible
to receive an annual bonus of up to 25% of his base salary, based on his
performance and on the achievement of specified performance objectives. He is
also eligible to receive options to purchase AOL-LA class A common stock. Mr.
Good holds options to purchase AOL common stock.
Guy Garcia. Mr. Garcia is our vice president of content strategy. He
receives an annual base salary of $105,000 and is also eligible to receive an
annual bonus of up to 35% of his base salary, based on his performance and on
the achievement of specified performance objectives. He is also eligible to
receive options to purchase AOL-LA class A common stock.
John D. Gardiner. Mr. Gardiner serves as our vice president of business
development and our general counsel, and receives an annual base salary of
$157,000. Mr. Gardiner is also eligible to receive an annual bonus of up to 35%
of his base salary, based on his performance and on the achievement of
specified performance objectives. He is also eligible to receive options to
purchase AOL-LA class A common stock. Mr. Gardiner holds options to purchase
AOL common stock.
Eduardo Hauser. Mr. Hauser serves as our vice president of corporate
development and receives an annual base salary of $153,000. On the one-month
anniversary of his employment, Mr. Hauser received a bonus of $36,250 and he
will receive an additional $36,250 on the one-year anniversary of his
employment. Mr. Hauser is eligible to receive an annual bonus of up to 35% of
his base salary, based on his performance and on the achievement of specified
performance objectives. He is also eligible to receive options to purchase AOL-
LA class A common stock.
Stock Plan
2000 Stock Option Plan
Our 2000 stock option plan was approved by our board of directors and by our
stockholders, AOL and the Cisneros Group, in March 2000. Under the stock plan,
we may grant stock options to our employees, consultants and directors. A total
of shares of class A common stock has been reserved for issuance under the
stock option plan. As of the effective date of this offering, we will grant
options to purchase a total of shares of class A common stock. No other
stock options have been granted.
The stock option plan will be administered by the compensation committee,
which will determine the terms of stock options, including:
. the determination of which employees, directors and consultants will be
granted options;
. the exercise price and the number of shares subject to a stock option;
and
. the schedule upon which options become exercisable.
The maximum term of options granted under the stock option plan is ten years.
Upon a change of control of AOL-LA, the compensation committee will provide
that outstanding options under the plan will be:
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. assumed by the successor corporation or replaced with a comparable
option to purchase shares of capital stock of the successor corporation;
. exercisable for a specified number of days, after which they will
terminate if they have not been exercised; or
. terminated in exchange for a cash payment equal to the difference
between the option exercise price and the fair market value of the
shares that can be purchased under the option.
If any of the treatments of options described above would make a change of
control transaction ineligible for a pooling-of-interest accounting, the
compensation committee may substitute shares of class A common stock or other
items. However, the compensation committee can do this only if the substitution
is of equal value to the cash or other items that would have been paid under
the chosen treatment. If there is a change of control, all outstanding options
may, in the discretion of the board of directors, become fully vested.
Limitation of Liability and Indemnification
The Delaware General Corporation Law authorizes corporations to limit or
eliminate, subject to specified conditions, the personal liability of directors
to corporations and their stockholders for monetary damages for breach of their
fiduciary duties. Our restated certificate of incorporation limits the
liability of our directors to the fullest extent permitted by Delaware law.
Our restated certificate of incorporation and restated by-laws also provide
that we will indemnify any of our directors and officers who, by reason of the
fact that he is one of our officers or directors, is involved in a legal
proceeding of any nature. We will repay specified expenses incurred by a
director or officer in any civil or criminal action or proceeding, specifically
including derivative suits, which are actions brought by stockholders in our
name. These indemnifiable expenses include, to the maximum extent permitted by
law, attorney's fees, judgments, civil or criminal fines, settlement amounts
and other expenses customarily incurred in legal proceedings. A director or
officer will not receive indemnification if he is found not to have acted in
good faith and not in a manner he reasonably believed to be in, or not opposed
to, our best interest.
This limitation of liability and indemnification does not affect the
availability of equitable remedies. In addition, we have been advised that in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
therefore may not be enforceable.
Our restated certificate of incorporation also protects AOL and the Cisneros
Group against liability for breach of fiduciary duty should they choose to
pursue an opportunity that might be favorable to us or recommend the
opportunity to someone else. Our directors and officers affiliated with or
appointed by AOL and the Cisneros Group are similarly protected. We are
required to indemnify AOL and the Cisneros Group and our directors and officers
affiliated with or appointed by each of them for any liabilities a court may
impose on them for breach of fiduciary duty for their failure to make
opportunities available to us.
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RELATIONSHIPS AND RELATED TRANSACTIONS
The Reorganization
Before this offering, the business of AOL-LA has been conducted by
affiliates of AOL Latin America, S.L. AOL Latin America, S.L. is a limited
liability company organized in Spain in December 1998. AOL Latin America, S.L.
was formed by AOL and the Cisneros Group as a joint venture. AOL contributed
royalty free license rights in exchange for its ownership interest in AOL Latin
America, S.L. We recorded AOL's non-cash capital contribution of these rights
at AOL's historical cost basis, which was zero. The Cisneros Group agreed to
contribute an aggregate amount of approximately $100 million through July 2,
2001 in exchange for its ownership interest. The Cisneros Group subsequently
sold at its cost 1.96% of the shares of the company holding its interest in AOL
Latin America S.L. to Eduardo Hauser, Cristina Pieretti and Steven Bandel.
Upon the effectiveness of this offering, AOL-LA will become the holding
company of, and will indirectly own all of, AOL Latin America, S.L. and its
affiliates through a corporate reorganization. Under the corporate
reorganization, AOL and the Cisneros Group will exchange their interests in AOL
Latin America, S.L. and its affiliates for shares of our series B
preferred stock and shares of our series C preferred stock. In addition,
Eduardo Hauser, Cristina Pieretti and Steven Bandel will exchange their
minority interest in AOL Latin America S.L. for shares of our series C
preferred stock. In the corporate reorganization, the shares of series C
preferred stock that these individuals will receive will be converted into
shares of class A common stock. AOL will also receive the AOL warrant.
We plan to conduct our operations in Latin America through various
subsidiaries. For example, we are conducting our operations in Brazil through
our indirectly wholly-owned subsidiary, AOL Brazil Ltda., a Brazilian limited
liability company.
The Stockholders' Agreement
We have entered into a stockholders' agreement with AOL and Riverview Media
Corp., a company within the Cisneros Group, that contains various provisions
that will affect the way we operate our business and govern many important
aspects of the relationships among AOL, the Cisneros Group and us. The
following summary of key provisions of the stockholders' agreement is qualified
by reference to the actual agreement, which has been filed as an exhibit to the
registration statement, of which this prospectus forms a part.
Voting Agreement. AOL and the Cisneros Group have agreed to vote all of
their shares of B and C stock, which collectively represent % of the voting
power of our outstanding capital stock, to elect the three directors nominated
by our special committee for election by the holders of all shares of our
outstanding capital stock, voting together.
Non-Compete. AOL, the Cisneros Group and any entity in which either of them
owns a 35% or greater interest may not acquire more than a 35% interest in a
competitor of AOL-LA. The Cisneros Group may, however, own up to a 50% interest
in RSL-LA or Galaxy Latin America, regardless of whether these companies are
providing competitive online services. Any entity that provides PC-based online
services in Latin America to a substantial consumer base is considered a
competitor of AOL-LA. After the later of December 15, 2003 or the date on which
either AOL or the Cisneros Group owns less than 20% of our outstanding capital
stock, these restrictions will no longer apply to AOL, the Cisneros Group and
their affiliates.
Until the later of five years from the effective date of the registration
statement for this offering or the date on which either AOL or the Cisneros
Group owns less than 20% of our outstanding capital stock:
. neither the Cisneros Group, nor any entity in which it owns at least a
35% interest, may acquire more than a 35% interest in a competitor that
provides TV- or wireless-based online services in Latin America. However,
the Cisneros Group may own up to a 50% interest in RSL-LA or Galaxy Latin
America, regardless of whether these companies are providing competitive
online services; and
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. AOL may not offer in Latin America any AOL-branded TV-based online
services or any AOL-branded wireless-based online services that it
develops for commercial launch within four years of the effective date of
the registration statement for this offering.
The 20% threshold described above will be lowered in some instances,
including:
.if an additional principal stockholder is admitted as a stockholder of AOL-
LA;
. if we issue more shares of our capital stock; or
. if AOL exercises the AOL warrant.
If either AOL or the Cisneros Group breaches these non-compete provisions,
then:
. if the Cisneros Group is the breaching party, we will have the option to
purchase all of the capital stock held by the Cisneros Group at its fair
market value, less any damages resulting from the breach, in cash or by
delivery of a promissory note, payable over a three-year term; or
. if we do not exercise this option, AOL will have the option to purchase
the shares from the Cisneros Group at their fair market value, less any
damages resulting from the breach, in cash or in freely tradeable shares
of AOL common stock in installments over a three-year period; and
. if AOL is the breaching party where PC-based online services are
involved, the Cisneros Group will have the option to require AOL to
purchase the Cisneros Group's shares at their fair market value, plus
any damage resulting from the breach, in cash or in freely tradeable
shares of AOL common stock, in installments over a three-year period.
Restrictions on Transfer. Neither AOL nor the Cisneros Group may transfer
their shares of B stock and C stock except:
. to their wholly-owned affiliates or to each other;
. through the sale of their businesses;
. through the admission of another principal stockholder as described in
"Admission of Additional Principal Stockholders" below;
. up to 20% of their shares may be transferred to their employees and, in
the case of the Cisneros Group, to designated Cisneros family members.
Unless the transferred shares are converted into class A common stock,
AOL or the Cisneros Group will retain the voting rights to those shares;
. shares of class A common stock that are issuable upon conversion of
shares of B stock or C stock can be sold in a registered offering or
under Rule 144 of the Securities Act as described in "Shares Eligible
For Future Sale;" and
. to another party, other than to a competitor, provided that they first
offer their shares on the same terms to the other stockholder.
Any transfer of B stock or C stock will subject the person acquiring the
shares to the provisions of the stockholders' agreement.
Admission of Additional Principal Stockholders. AOL and the Cisneros Group
may admit one or more additional stockholders of AOL-LA. Any additional
stockholder would either receive new shares of our capital stock or would
acquire shares owned by AOL or the Cisneros Group. If the new stockholder is a
"strategic stockholder," the Cisneros Group's ownership interest in AOL-LA will
be reduced at a disproportionately greater rate than AOL's ownership interest
in AOL-LA. To achieve the reduction, for example, either we or AOL would
purchase shares held by the Cisneros Group at their fair market value.
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Standstill Provisions. Until December 15, 2003, neither AOL nor the Cisneros
Group may acquire any additional shares of our capital stock except:
. shares in an amount equal to 5% of the sum of our outstanding shares of
capital stock at the closing of this offering, including shares issuable
under the over-allotment option;
. shares issuable to AOL upon the exercise of the AOL warrant;
. shares of capital stock that we issue to them as payment for an asset or
right sold to us;
. shares of capital stock acquired in a tender or exchange offer for all
of our securities; and
. as approved by the party not acquiring the shares and the disinterested
members of our board of directors.
The Cisneros Group Funding. From our inception through December 31, 2000, we
received approximately $45.1 million in cash from the Cisneros Group. In
addition, the Cisneros Group paid us $29.3 million through March 2000.
Riverview Media Corp., a company within the Cisneros Group, is obligated to pay
us an additional $25.7 million in the following quarterly installments:
<TABLE>
<CAPTION>
Installment Due Date Amount
-------------------- -------------
<S> <C>
July 3, 2000 $ 7.7 million
October 2, 2000 $ 6.0 million
January 2, 2001 $ 6.0 million
April 2, 2001 $ 3.0 million
July 2, 2001 $ 3.0 million
</TABLE>
Venevision International Limited, a British Virgin Islands company within
the Cisneros Group, has guaranteed these payments under a guarantee agreement
dated as of December 15, 1998. This guarantee is unconditional.
Venevision International Limited has consented to the exclusive jurisdiction
of New York courts under the guarantee agreement. However, Venevision
International Limited is not incorporated in the United States and we may have
difficulty collecting on any judgment obtained in the United States to the
extent that Venevision International Limited may not have assets in the United
States.
If Riverview Media does not make one or more of these payments, we will be
entitled to sue Riverview Media and Venevision to receive the payment. In
addition, AOL will be entitled to:
. receive from the Cisneros Group an irrevocable proxy to vote all of the
shares of our capital stock then held by them, including their C stock
and, if the payment is more than 30 days late, vote the proxy to effect
the conversion of their C stock into class A common stock; or
. make the payment on behalf of the Cisneros Group, and treat the payment
as a loan from AOL to the Cisneros Group.
Commitments made by the Cisneros Group. The Cisneros Group has agreed to
provide the services described in "Business--Our Competitive Advantages--The
Cisneros Group Commitment." As of December 31, 1999, we incurred $411,000 for
services, including personnel, travel and legal services, provided by the
Cisneros Group. Some of these services were provided and will be provided in
the future at varying charges depending upon the type of service.
Indemnification provision. Our stockholders' agreement contains provisions
requiring us to indemnify AOL and the Cisneros Group for liabilities imposed
upon them for breach of fiduciary duty based upon their appropriation of our
business opportunities. These provisions, along with provisions in our license
and services agreements requiring us to indemnify AOL, are substantially
similar to those contained in our restated certificate of incorporation.
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Term and Termination. The stockholders' agreement will terminate when:
. AOL and the Cisneros Group no longer hold any shares of our capital
stock;
. the parties mutually terminate the stockholders' agreement; or
. June 30, 2048, whichever occurs first.
In addition, either AOL or the Cisneros Group may terminate the
stockholders' agreement if the other stockholder no longer holds at least 10%
of our outstanding capital stock.
The AOL Warrant
We have agreed to issue a warrant to AOL to purchase shares in any
combination of our series B preferred, class A common or class B common stock
at a per share exercise price equal to the initial public offering price. The
number of shares for which the warrant is exercisable is 6% of the sum of our
outstanding shares of capital stock at the closing of this offering, including
shares issuable under the over-allotment option, plus the shares of class A
common stock issuable under our stock option plan. The warrant will be
immediately exercisable and will have a ten year term. The number of shares
issuable under the warrant may be increased if we, AOL or the Cisneros Group
issue or transfer shares to one or more additional strategic stockholders. The
warrant allows AOL to pay the exercise price due under the warrant by tendering
to us a portion of the shares subject to the warrant instead of paying the
exercise price in cash.
The Registration Rights Agreement
We have agreed to provide AOL and the Cisneros Group with registration
rights for the shares of class A common stock issuable upon conversion of their
B stock and C stock, and in the case of AOL, upon the exercise of the AOL
warrant. See "Description of Capital Stock--Registration Rights" for a
description of the registration rights agreement.
The AOL License Agreement
We have entered into a license agreement with AOL. See "Business--The AOL
License Agreement, Intellectual Property and Proprietary Rights" for a
description of this license agreement.
The AOL Services Agreement
We have entered into a services agreement with AOL under which AOL provides
various services to us, including:
. localization of AOL software and software updates;
. development and installation services, including requested
modifications, enhancements and revisions to AOL's software;
. host computer services;
. network connections from our services to the AOL servers;
. technical support;
. training in areas such as marketing, business development, member
support, public relations, finance and accounting; and
. support and maintenance for third-party software licensed to us by AOL.
We have agreed to compensate AOL for these services at rates at least as
favorable as those charged by AOL to any other party, including joint venture
affiliates, but excluding affiliates that are at least 75% owned by AOL.
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We have agreed to interconnect our America Online Brazil country service and
all future AOL-LA country services to the services provided by AOL and its
international affiliates. This interconnection, which will be provided free of
charge, will provide our members with access to the AOL service and AOL
International interactive services and will permit AOL members worldwide to
access the AOL-LA country services.
As of December 31, 1999, we had incurred expenses totaling approximately
$7.5 million payable to AOL under our services agreement.
The ICQ Promotion Agreement
We have entered into an agreement with AOL under which we have the right in
Latin America to promote AOL's ICQ service. As local versions of the ICQ
service are developed, we will engage in other marketing and cross-promotion
activities with AOL.
Relationships with Officers of AOL
Four members of our board of directors appointed by AOL are also executive
officers of AOL and one member of our board of directors is also a director of
AOL.
. Robert W. Pittman is the president and chief operating officer of AOL;
. J. Michael Kelly is the senior vice president and chief financial
officer of AOL;
. Michael Lynton is the president of AOL International;
. Gerald Sokol, Jr. is the senior vice president and general manager of
AOL International; and
. Miles R. Gilburne is a director of AOL.
Relationships with Officers of the Cisneros Group
Four of the five members of our board of directors appointed by the Cisneros
Group are also executive officers and directors of companies within the
Cisneros Group.
. Gustavo A. Cisneros oversees the management and operations of the Cisneros
Group and is an executive officer and director of many of its constituent
companies;
. Ricardo J. Cisneros is an executive officer and director of many of the
constituent companies of the Cisneros Group;
. Steven I. Bandel holds several senior management positions in companies in
the Cisneros Group and has the title of president and chief operating officer
of the Cisneros Group; and
. Christina Pieretti holds a number of senior management positions in
companies in the Cisneros Group and has the title of vice president of
operations of the Cisneros Group.
AOL-LA's Purchase of AOL's Latin American CompuServe Classic Subscribers
In December 1998, we acquired AOL's Latin American CompuServe Classic
subscribers for approximately $3.2 million. The cost to acquire these
subscribers was determined pursuant to a formula that was based on the number
of Latin American CompuServe subscribers at December 15, 1999. This cost is
included as a sales and marketing expense for the period ended June 30, 1999.
We initially paid AOL approximately $4.0 million for these subscribers, but are
owed approximately $800,000 by AOL as a result of the decline in the number of
CompuServe Classic subscribers between December 1998 and December 1999. This
amount due from AOL is included in our balance sheet in receivable from
affiliate.
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PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership of
our class A common stock as of , 2000 by:
. the executive officer listed in the summary compensation table;
. each individual who has been selected to be a director following this
offering;
. all current directors and executive officers as a group; and
. each stockholder known by us to own beneficially more than 5% of our
class A common stock.
This table includes beneficial ownership of shares of class A common stock
that the holder has the right to acquire within 60 days of , 2000,
including shares subject to options or conversion rights.
For purposes of calculating the percentage beneficially owned, the number of
shares of capital stock outstanding before this offering and the concurrent
distribution by the Cisneros Group consists of shares that were
outstanding as of , 2000. The number of shares of capital stock
outstanding after this offering and the concurrent distribution by the Cisneros
Group includes an additional shares of class A common stock, which reflects
shares issued in this offering and the concurrent distribution by the
Cisneros Group.
For purposes of calculating the number and percentage of outstanding shares
held by each holder named below, any shares which that holder has the right to
acquire within 60 days of , 2000 are considered to be outstanding, but
shares which may be similarly acquired by other holders are considered not to
be outstanding.
After this offering and the concurrent distribution by the Cisneros Group:
.AOL will control % of the voting power of our capital stock; and
.the Cisneros Group will control % of the voting power of our capital
stock.
If AOL exercises the AOL warrant:
. AOL will control % of the voting power of our capital stock; and
. the Cisneros Group will control % of the voting power of our capital
stock.
Each share of series B and series C preferred stock and class B and class C
common stock entitles the holder to ten votes. The voting power of shares of
series B preferred stock and shares of series C preferred stock is included
in the calculation of the total voting power of AOL and the Cisneros Group.
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Except as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment power for all
shares of class A common stock shown to be beneficially owned by them based on
information they have provided to us. The address for AOL is 22000 AOL Way,
Dulles, Virginia 20166. The address for the stockholders affiliated with the
Cisneros Group is c/o Final Avenida La Salle, Edificio Venevision Urbanivacion
Colina de Los Caobos, Caracas, Venezuela.
<TABLE>
<CAPTION>
Shares of Shares of
Class A Common Stock Class A Common Stock
Beneficially Beneficially
Owned Before Owned After
the Offering the Offering
and Distribution and Distribution
----------------------- -----------------------
Beneficial Owner Number Percent Number Percent
---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Directors and Executive
Officers
Charles M. Herington.... % %
Steven I. Bandel (1)....
Gustavo A. Cisneros
(2)....................
Ricardo J. Cisneros
(2)....................
Miles R. Gilburne.......
J. Michael Kelly........
Michael Lynton..........
Robert S. O'Hara, Jr. ..
Cristina Pieretti (1)...
Robert W. Pittman.......
Gerald Sokol, Jr........
All current executive
officers and directors
as a group
(16 persons)...........
Five Percent Stockhold-
ers
America Online, Inc.
(3)....................
The Cisneros Group of
Companies (4)..........
</TABLE>
- --------
(1) Steven Bandel and Cristina Pieretti received the shares beneficially owned
by them in the corporate reorganization by which AOL-LA became the holding
company for AOL Latin America, S.L.
(2) The Cisneros Group's shares are owned by Riverview Media Corp., a company
within the Cisneros Group. Gustavo Cisneros and Ricardo Cisneros each
beneficially own 50% of Riverview Media Corp.
(3) Consists of shares of series B preferred stock and the AOL warrant.
(4) Consists of shares of series C preferred stock. These shares are held by
Riverview Media Corp.
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DESCRIPTION OF PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION
THAT AFFECT THE SCOPE OF OUR BUSINESS
AOL, the Cisneros Group and a number of their affiliates engage in
businesses substantially similar to ours. Our restated certificate of
incorporation contains various provisions that address our rights and access to
potential business opportunities. The following summary of material aspects of
those provisions is qualified by reference to our restated certificate of
incorporation, which we have filed as an exhibit to the registration statement
of which this prospectus is a part.
Limitations on the Scope of Our Business. We cannot engage in any business
activity other than providing PC-based and AOL-branded TV- and wireless-based
interactive services in Latin America without the approval of AOL and the
Cisneros Group. This limitation on the scope of our business will continue for
as long as:
. AOL continues to own shares of B stock equal to at least 50% of the
series B preferred stock that we originally issued to it; or
. the Cisneros Group continues to own shares of C stock equal to at least
50% of the series C preferred stock that we originally issued to it.
Further, if AOL develops AOL-branded TV- and wireless-based online services,
we will not be able to offer these services in Latin America, even though we
have a license to do so, without the approval of the directors appointed by AOL
and the Cisneros Group who serve on the special committee of our board of
directors.
Allocation of Business Opportunities with AOL and the Cisneros Group. Our
restated certificate of incorporation does not require AOL or the Cisneros
Group to inform us of any business opportunities or to make any business
opportunities available to us. We may only pursue these opportunities if AOL
and the Cisneros Group decide not to pursue the opportunity or to recommend it
to a third party and they consent to our engaging in that business activity. We
may only pursue business opportunities, without first offering them to AOL and
the Cisneros Group, if:
. they are presented or become known to one of our officers who is also not
an officer or director of AOL or the Cisneros Group;
. the opportunity occurs or arises solely in Latin America; and
. the opportunity relates to activities or operations that we are then
conducting or pursuing.
Moreover, if we are offered the opportunity to pursue a particular business
activity that is beyond the scope of our permitted business activities, we must
first offer that opportunity to both AOL and the Cisneros Group. If they each
decide not to pursue the opportunity or to offer the opportunity to a third
party, we may request that they consent to our engaging in that business
activity. However, they are under no obligation to lend their approval and may
compete with us even if they consent to our engaging in that business
opportunity.
Our restated certificate of incorporation also provides that AOL and the
Cisneros Group will not be liable to us or our stockholders if they
successfully obtain our corporate opportunities or if they otherwise compete
with us. If a legal action is brought against AOL or the Cisneros Group or
their officers, directors, agents, stockholders, members, partners, affiliates
or subsidiaries based on an alleged breach of their fiduciary for competing
with us, we will indemnify them for all damages if their action or inaction is
permitted by our restated certificate of incorporation.
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DESCRIPTION OF CAPITAL STOCK
The following summary, which includes all material information about our
capital stock and the relevant provisions of our restated certificate of
incorporation and restated by-laws, is qualified by reference to our restated
certificate of incorporation and restated by-laws, which are included as
exhibits to the registration statement of which this prospectus is a part.
Our authorized capital stock consists of :
. shares of class A common stock;
. shares of class B common stock;
. shares of class C common stock;
. shares of series B preferred stock;
. shares of series C preferred stock; and
. shares of undesignated preferred stock.
Upon completion of this offering and the concurrent distribution by the
Cisneros Group, there will be:
. shares of class A common stock outstanding;
. shares of series B preferred stock outstanding;
. shares of series C preferred stock outstanding; and
. no shares of class B common stock, class C common stock or
undesignated preferred stock outstanding.
As of the effective date of this offering, we will grant options to purchase
shares of class A common stock and will issue to AOL the AOL warrant, a
warrant to purchase shares in any combination of our series B stock, class
A common or class B common stock.
We refer to our series B preferred stock and our class B common stock as B
stock and to our series C preferred stock and our class C common stock as C
stock.
Voting Rights
The holders of class A common stock are each entitled to one vote per share.
Holders of B stock and C stock are each entitled to ten votes per share and
have been granted the exclusive right to vote on a number of important
provisions of our restated certificate of incorporation and restated by-laws.
Actions requiring a majority vote of B stock and C stock, voting separately.
The affirmative vote of a majority of the outstanding shares of B stock,
voting separately as a class, and a majority of the outstanding shares of C
stock, voting separately as a class, is required to amend or repeal the
provisions of our restated certificate of incorporation relating to:
. the expansion of our business beyond PC-, TV- or wireless-based services;
. the extent to which our stockholders, including AOL and the Cisneros
Group, may compete with us for business;
. access to corporate opportunities that may be taken by AOL and the
Cisneros Group;
. the limitation of AOL's and the Cisneros Group's liability to us if they
successfully obtain our corporate opportunities;
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. our indemnification of AOL and the Cisneros Group, as well as any of
their officers, directors, agents, stockholders, members, partners,
affiliates or subsidiaries, if they incur damages for lawsuits based on
claims that they breached their fiduciary duty to us by appropriating our
corporate opportunities;
. the terms of our authorized capital stock, including voting, dividend and
conversion rights;
. the election and removal of our directors;
. our special committee; and
. the commencement of litigation by us that is adverse to either AOL or the
Cisneros Group.
For as long as any shares of B stock or C stock remain outstanding, the
holders of class A common stock and our board of directors will have no voting
rights on these matters, unless required under Delaware law.
In addition, the affirmative vote of the holders of a majority of the
outstanding shares of B stock and C stock, each voting separately as a class,
is required to approve any amendment to the provisions our restated by-laws as
they relate to our board of directors and its committees and the
indemnification of our officers and directors.
In addition, unless otherwise required under Delaware law, the holders of B
stock and C stock have the exclusive right to approve the following:
. mergers and acquisitions;
. any issuance of, or change in, any of our capital stock;
. the transfer of any of our material assets;
. loans by us in excess of $50,000;
. capital expenditures in excess of $50,000;
. borrowings by us in excess of $50,000;
. the establishment of any subsidiary or any material change in a
subsidiary's business;
. the adoption and modification of business plans;
. our establishment or amendment of any significant investment or cash
management policy;
. our discontinuance of any material business activity;
. our entering into any partnership, joint venture or consortium; and
. our filing for bankruptcy or our decision not to prevent or oppose an
involuntary filing for bankruptcy.
As long as any shares of B stock or C stock remain outstanding, these
matters require the affirmative vote of a majority of the outstanding shares of
B stock and C stock, each voting separately as a class.
Voting rights for the election of directors.
The voting rights for the election of the 13 members of our board of
directors are as follows:
. The holders of B stock are entitled to elect five directors;
. The holders of C stock are entitled to elect five directors; and
. The holders of all shares of our outstanding capital stock, voting
together as a single class, are entitled to elect the remaining three
directors.
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Vote required to amend our restated certificate of incorporation.
Any amendment to our restated certificate of incorporation, other than those
over which the holders of B stock and C stock have exclusive voting rights,
must be approved by the affirmative vote of 75% of the voting power of our
outstanding capital stock. In addition, amendments that would adversely alter
or change the powers, preferences or special rights of any class or series of
our capital stock must also be approved by the affirmative vote of the holders
of a majority of the outstanding shares of B stock and C stock, each voting
separately as a class.
Vote required to amend our restated bylaws.
Our restated by-laws may be amended by a majority vote of the board of
directors, subject to the prior approval by our special committee. Unless the
holders of B stock or C stock have exclusive rights to vote on the amendment,
our restated by-laws may also be amended after obtaining the following votes:
. the affirmative vote of a majority of the voting power of all of our
capital stock, voting as a single class;
. the affirmative vote of a majority of the B stock, voting together as a
single class, but only if a director appointed by the holders of the B
stock is entitled to be a member of our special committee; and
. the affirmative vote of a majority of the C stock, voting together as a
single class, but only if a director appointed by the holders of the C
stock is entitled to be a member of our special committee.
Dividends
Holders of series B and series C preferred stock are entitled to receive a
cumulative annual dividend, payable in shares of series B and series C
preferred stock, equal to $ per share, as and when declared by the board of
directors and before the payment of any dividend to the holders of the class A
common stock. After that, the holders of class A common stock, together with
the holders of B stock and C stock, will share ratably, based on the number of
shares of common stock and preferred stock held, in any dividend declared by
the board of directors. Dividends consisting of shares of class A common stock,
B stock and C stock may be paid only as follows:
. shares of class A common stock may be paid only to holders of class A
common stock;
. shares of class B common stock may be paid only to holders of class B
common stock;
. shares of class C common stock may be paid only to holders of class C
common stock;
. shares of series B preferred stock may be paid only to holders of series
B preferred stock;
. shares of series C preferred stock may be paid only to holders of series
C preferred stock; and
. the number of shares of each class or series of capital stock payable
per share of that class or series of capital stock shall be equal in
number.
Conversion of B stock and C stock
AOL, the holder of all the series B preferred stock and the Cisneros Group,
the holder of all the series C preferred stock, each have the right, at any
time, to convert their shares into shares of class B common stock and class C
common stock on a one-for-one basis. AOL and the Cisneros Group would then have
the right to convert their shares of class B common stock and class C common
stock into shares of class A common stock at any time on a one-for-one basis.
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Any shares of B stock transferred by AOL, or any shares of C stock
transferred by the Cisneros Group, will automatically convert into shares of
class A common stock unless the shares are transferred:
. to a wholly owned affiliate;
.through the sale of their businesses;
. through the admission of additional strategic stockholders;
. by AOL to the Cisneros Group;
. by the Cisneros Group to AOL;
. to an employee, but only if the number of shares transferred is less than
20% of the shares held by them and they retain the voting rights to those
shares;
. by the Cisneros Group to designated Cisneros family members, but only if
the number of shares being transferred is less than 20% of the shares
held by it and it retains the voting rights to the shares.
If at any time the B stock held by AOL, its wholly-owned affiliates and its
employees or C stock held by the Cisneros Group, its wholly-owned affiliates
and its employees constitutes less than 50% of the number of shares that we
originally issued to them, then each share will automatically convert into one
share of class A common stock.
Liquidation Preference
Our series B and series C preferred stock each has a liquidation preference
equal to $ per share. If upon any dissolution, liquidation or winding up
of AOL-LA, the liquidation preference of the series B and series C preferred
stock cannot be paid in full, the holders of the series B and series C
preferred stock will share ratably in a distribution of all our legally
available assets. After that, all of our common stockholders, together with all
our series B and series C preferred stockholders, on an as converted basis, are
entitled to share ratably in any of our assets and funds legally available for
distribution to common stockholders. Neither the sale of all or substantially
all of our property or business, other than through the winding up of our
business, nor the merger or consolidation of us into or with any other
corporation, will be a dissolution, liquidation or winding up of AOL-LA.
Mandatory Redemption of Series B and Series C Preferred Stock
On the fifth anniversary of the effective date of this offering, we must
redeem our series B and series C preferred stock. We have the option to redeem
these shares in cash, by delivery of fully paid and nonassessable shares of
class B or class C common stock or by any combination of cash and shares of
class B or class C common stock. The redemption price will be an amount equal
to the liquidation preference, or $ per share, plus all accumulated and
unpaid dividends through the redemption date. However, AOL or the Cisneros
Group may each elect to convert their shares of series B or series C preferred
stock into an equal number of shares of class B or class C common stock at any
time before the date on which the redemption is to occur.
After the redemption date, unless we are then in default of payment of the
redemption price:
. dividends on the series B and C preferred stock shall cease to
accumulate;
. the series B and series C stock shall no longer be outstanding; and
. all rights of the holders of our series B and C preferred stock, except
the right to receive the redemption price and accumulated dividend
amounts and liquidation penalties, if any, through the redemption date,
will cease.
Antidilution
The series B preferred stock and series C preferred stock are entitled to
customary antidilution protection if there is a stock dividend, split or
recapitalization of our common stock. If a dividend is paid or distribution is
made to any holders of any class of common stock, the same dividend or
distribution shall be made to each outstanding share of common stock,
regardless of class.
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Other Rights
Upon the closing of the offering and the concurrent distribution by the
Cisneros Group, all the outstanding shares of class A common stock, series B
preferred stock and series C preferred stock will be legally issued, fully paid
and nonassessable.
Undesignated Preferred Stock
Following the offering, our board of directors will be authorized, subject
to the approval of the holders of the B stock and C stock, to issue from time
to time up to an aggregate of shares of preferred stock. The board is
authorized to issue these shares in one or more series and to fix the numbers,
powers, designations, preferences and any special rights of each series,
including:
. dividend rights and rates;
. conversion rights;
. voting rights;
. terms of redemption, including any sinking fund provisions, and
redemption price or prices;
. liquidation preferences; and
. the number of shares constituting any series and the designation of the
series.
We have no present plans to issue any additional shares of preferred stock.
However, the issuance of additional shares of preferred stock, or the right to
purchase preferred stock, could:
. decrease the amount of earnings and assets available for distribution to
current stockholders;
. adversely affect the rights and powers, including voting rights, of the
outstanding capital stock; and
. delay or prevent a change of control of AOL-LA or an unsolicited
acquisition proposal.
Options
As of the effective date of this offering, we will grant options to
employees and directors to purchase a total of shares of class A common
stock. No other stock options have been granted.
The AOL Warrant
Upon the effectiveness of this offering and as part of our corporate
reorganization, we will issue a warrant to AOL to purchase shares in any
combination of our series B preferred, class A common or class B common stock
at a per share exercise price equal to the initial public offering price. The
number of shares for which the warrant is exercisable is 6% of the sum of our
outstanding shares of capital stock at the closing of this offering, including
shares issuable under the over-allotment option, plus the number of shares of
class A common stock issuable under our stock option plan. The warrant will be
immediately exercisable and will have a ten year term. The number of shares
issuable under the warrant may be increased if AOL and the Cisneros Group admit
one or more strategic stockholders. The warrant allows AOL to pay the exercise
price due under the warrant by tendering to us a portion of the shares subject
to the warrant instead of paying the exercise price in cash.
Registration Rights
AOL and the Cisneros Group have rights to cause us to register shares of
class A common stock issued to them upon conversion of their shares of B stock
and C stock, and in the case of AOL, upon exercise of the AOL warrant.
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The registration rights agreement provides that AOL and the Cisneros Group
and persons to whom they transfer their shares, other than the persons
receiving shares in the concurrent distribution by the Cisneros Group, have
unlimited rights to include any shares of class A common stock that they hold
in registration statements that we file. In addition, AOL and the Cisneros
Group may each demand that we register their shares of class A common stock,
provided that the amount of shares subject to each demand is equal to at least
one percent of the number of outstanding shares of class A common stock or has
a market value at least equal to $50 million. There are no limits on the number
of times AOL and the Cisneros Group can exercise their demand rights. We are
obligated to pay the costs associated with the exercise of their registration
rights.
Delaware Law and Charter and Restated By-Law Provisions
The provisions of Delaware law and of our restated certificate of
incorporation and restated by-laws discussed below could discourage or make it
more difficult to accomplish a proxy contest or other change in our management
or the acquisition of control by a holder of a substantial amount of our voting
stock. It is possible that these provisions could make it more difficult to
accomplish, or could deter, transactions that stockholders may otherwise
consider to be in their best interests or the best interests of AOL-LA.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. For nominations to the board of directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the
proposal in writing to our secretary. For an annual meeting, a stockholder's
notice generally must be delivered not less than 45 days nor more than 75 days
before the anniversary of the mailing date of the proxy statement for the
previous year's annual meeting. For a special meeting, the notice must
generally be delivered by the later of 90 days before the special meeting or
ten days following the day on which public announcement of the meeting is first
made. A detailed description of the form of the notice and information required
in the notice are specified in the restated by-laws. If it is determined that
business was not properly brought before a meeting as required by our restated
by-laws, the item of business will not be conducted at the meeting.
Special Meeting of Stockholders. Special meetings of the stockholders may be
called only by our board of directors by a resolution adopted by a majority of
all directors.
Super-Majority Stockholder Vote required for Certain Actions. Our restated
certificate of incorporation requires the affirmative vote of the holders of at
least 75% of our outstanding voting stock to amend or repeal any of the
provisions discussed in this section of the prospectus or to reduce the number
of authorized shares of common stock or preferred stock. This 75% stockholder
vote is in addition to any separate class vote that is required for different
classes of capital stock.
Section 203 of the Delaware General Corporation Law regulating takeovers
generally makes it more difficult for a third party to take control of a
company. The provisions of Section 203 prohibit a third party owning more than
15% of the company's stock from entering into transactions with the company
unless the transaction is approved in a prescribed manner. We have elected not
to be subject to the provisions of Section 203.
Transfer Agent and Registrar
The transfer agent and registrar for the class A common stock will be
EquiServe Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for the shares of
class A common stock. Upon the completion of this offering and the concurrent
distribution by the Cisneros Group, we will have shares of class A common
stock issued and outstanding. In addition, the following shares of class A
common stock will be issuable in the future:
. shares of class A common stock may be issued upon conversion of
outstanding shares of B stock and C stock on a one-for-one basis at any
time following the completion of this offering.
. shares of class A common stock will be issuable to AOL upon exercise
of the AOL warrant. The per share exercise price will be equal to the
initial public offering price.
. shares of class A common stock will be issuable upon exercise of
outstanding options granted under our stock plan.
The shares of class A common stock being sold in this offering and the
shares of class A common stock being distributed by the Cisneros Group will
be eligible for immediate public resale following the completion of the
offering and the concurrent distribution, except for any shares acquired by our
affiliates. AOL and the Cisneros Group and our directors and executive officers
are considered to be our affiliates.
Rule 144.
The shares of class A common stock issuable upon conversion of shares
of B stock and C stock will be restricted shares within the meaning of Rule 144
under the Securities Act. These restricted shares, as well as any other shares
held by our affiliates, may only be sold in compliance with Rule 144, unless we
register them under the Securities Act.
Registration Rights.
All shares of class A common stock issuable upon conversion of shares of our
B stock and C stock and exercise of the AOL warrant will have registration
rights attached to them. Registration of these shares under the Securities Act
would result in their becoming freely tradable without restrictions immediately
upon the effectiveness of a registration statement.
Lock-Up Agreements.
Until 180 days after the date of this prospectus:
. AOL and the Cisneros Group and all of their affiliates;
. our directors and executive officers; and
. current and former employees of the Cisneros Group receiving shares in the
concurrent distribution by the Cisneros Group
will not dispose of or hedge any shares of our class A common stock or any
securities convertible into or exercisable for our class A common stock.
Transfers can be made sooner if approved by Salomon Smith Barney Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation.
Stock Options.
We anticipate that a registration statement on Form S-8 covering the class A
common stock that may be issued upon the exercise of options under our stock
plan will be filed promptly following the offering. The shares of class A
common stock covered by the Form S-8 registration statement generally may be
resold in the public markets without restrictions, except in the case of our
affiliates. Following the expiration of the 180 day lock-up period, our
affiliates generally may only resell these shares under the provisions of Rule
144, except for the holding period requirement.
71
<PAGE>
U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our class A
common stock by a non-U.S. holder. As used in this prospectus, the term non-
U.S. holder is a person other than:
. a citizen or individual resident of the U.S. for U.S. federal income tax
purposes;
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the U.S.;
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust, in general, if it is subject to the primary supervision of a
court within the U.S. and the control of one or more U.S. persons.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences;
. specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our class A common stock may be affected by determinations made at the
partner level;
. the tax consequences for the shareholders or beneficiaries of a non-U.S.
holder;
. special tax rules that may apply to non-U.S. holders, including banks,
insurance companies, dealers in securities and traders in securities who
elect to apply a mark-to-market method of accounting; or
. special tax rules that may apply to a non-U.S. holder that holds our
class A common stock as part of a straddle, hedge, or conversion
transaction.
The following is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, applicable Treasury regulations, and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which may change, retroactively or prospectively. The following summary is for
general information. Each non-U.S. holder should consult a tax advisor to
determine the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our class A
common stock.
Dividends
If dividends are paid on shares of class A common stock, dividends paid to a
non-U.S. holder of class A common stock generally will be subject to
withholding of U.S. federal income tax at a 30% rate, or a lower rate as
provided by an applicable income tax treaty. Non-U.S. holders should consult
their tax advisors to determine their entitlement to benefits under a relevant
income tax treaty.
Generally, dividends are subject to U.S. federal income tax on a net income
basis at regular graduated rates if they are:
. effectively connected with a non-U.S. holder's conduct of a trade or
business in the U.S. or,
. if an income tax treaty applies, attributable to a permanent
establishment, or in the case of an individual, a fixed base, in the
U.S., as provided in that treaty,
These dividends are not generally subject to the 30% withholding tax if the
non-U.S. holder files the appropriate U.S. Internal Revenue Service form with
the company paying the dividends. Any U.S. trade or
72
<PAGE>
business income received by a non-U.S. holder that is a corporation may also be
subject to an additional branch profits tax at a 30% rate or a lower rate as
specified by an applicable income tax treaty.
Dividends paid before January 1, 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding previously discussed and for
purposes of determining the applicability of a tax treaty rate. For dividends
paid after December 31, 2000:
. a non-U.S. holder of class A common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
. in the case of class A common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide
information, including a U.S. taxpayer identification number; and
. look-through rules will apply for tiered partnerships.
A non-U.S. holder of class A common stock that is eligible for a reduced
rate of U.S. withholding tax under an income tax treaty may obtain a refund or
credit of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
Gain on Disposition of Class A Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
for gain recognized on a disposition of class A common stock unless:
. the gain is U.S. trade or business income;
. the non-U.S. holder is an individual who holds the class A common stock
as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code, is present in the U.S. for more than 182 days in the
taxable year of the disposition and meets other requirements;
. the non-U.S. holder is subject to tax under the provisions of the U.S.
tax law applicable to some U.S. expatriates; or
. we are or have been a U.S. real property holding corporation for federal
income tax purposes at any time during the shorter of the five-year
period ending on the date of disposition or the period that the non-U.S.
holder held our class A common stock.
If the gain is U.S. trade or business income, the branch profits tax described
above may also apply to a corporate non-U.S. holder.
Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. We believe that
AOL-LA has not been and is not currently, and we do not anticipate our
becoming, a U.S. real property holding corporation for U.S. federal income tax
purposes.
Federal Estate Tax
Class A common stock owned or treated as owned by an individual who is a
non-U.S. holder at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax or
other treaty provides otherwise.
73
<PAGE>
Information Reporting and Backup Withholding Tax
Under specified circumstances, U.S. treasury regulations require information
reporting and backup withholding at a rate of 31% on some payments on class A
common stock. Under currently applicable law, non-U.S. holders of class A
common stock generally will be exempt from these information reporting
requirements and from backup withholding on dividends paid before January 1,
2001 to an address outside the U.S. For dividends paid after December 31, 2000,
however, a non-U.S. holder of class A common stock that fails to certify its
non-U.S. holder status in accordance with applicable U.S. treasury regulations
may be subject to backup withholding at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of class A common stock:
. by a holder to or through the U.S. office of a broker or through a non-
U.S. branch of a U.S. broker generally will be subject to information
reporting and backup withholding at a rate of 31% unless the holder
either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption;
. to or through a non-U.S. office of a non-U.S. broker will not be subject
to backup withholding or information reporting unless the non-U.S.
broker is a U.S. related person; and
. by or through a non-U.S. office of a broker that is a U.S. person or a
U.S. related person, information reporting, but currently not backup
withholding, on the payment applies unless the broker receives a
statement from the owner, signed under penalty of perjury, certifying
its non-U.S. status or the broker has documentary evidence in its files
that the holder is a non-U.S. holder and the broker has no actual
knowledge to the contrary.
For this purpose, a U.S. related person is:
. a controlled foreign corporation for U.S. federal income tax purposes;
. a foreign person 50% or more of whose gross income is derived from the
conduct of a U.S. trade or business; or
. effective after December 31, 2000, a foreign partnership if, at any time
during its taxable year, (A) at least 50% of the capital or profits
interest in the partnership is owned by U.S. persons, or (B) the
partnership is engaged in a U.S. trade or business.
Effective after December 31, 2000, backup withholding may apply to the
payment of disposition proceeds by or through a non-U.S. office of a broker
that is a U.S. person or a U.S. related person. However, back-up withholding
will not apply if certification requirements are satisfied or an exemption is
otherwise established and the broker has no actual knowledge or reason to know
that the holder is a U.S. person. Non-U.S. holders should consult their own tax
advisors to determine the application of the information reporting and backup
withholding rules to them, including changes to these rules that will become
effective after December 31, 2000.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
74
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has individually agreed to purchase, and we have
agreed to sell to each underwriter, the number of shares appearing opposite the
name of each underwriter.
<TABLE>
<CAPTION>
Number
Name of shares
---- ---------
<S> <C>
Salomon Smith Barney Inc. ......................................
Donaldson, Lufkin & Jenrette Securities Corporation ............
Lehman Brothers Inc. ...........................................
-----
Total ........................................................
-----
</TABLE>
Purchase of shares.
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to approval of
various legal matters by counsel and to other conditions. The underwriters are
obligated to purchase all the shares, other than those covered by the over-
allotment option described below, if they purchase any of the shares.
Sale of shares to the public.
The underwriters, for whom Salomon Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price on the cover page of this prospectus and some of the
shares to various dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow, and these dealers may
reallow, a concession not in excess of $ per share on sales to other
dealers. If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
Over-allotment option.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of class A
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering this
offering's over-allotments, if any. If this option is exercised, each
underwriter will be obligated, subject to various conditions, to purchase a
number of additional shares approximately proportionate to its initial purchase
commitment.
Directed share program.
At our request, the underwriters will reserve up to approximately shares
of class A common stock to be sold at the initial public offering price under
our directed share program. The number of shares of class A common stock
available for sale to the general public will be reduced if participants in the
directed share program purchase reserved shares. The underwriters will offer
any reserved shares which are not so purchased to the general public on the
same basis as the other shares offered in this prospectus.
Lock-up agreements.
Until 180 days after the date of this prospectus:
. AOL and the Cisneros Group and all of their affiliates;
75
<PAGE>
. our officers and directors; and
. current and former employees of the Cisneros Group receiving shares in
the concurrent distribution by the Cisneros Group
will not dispose of or hedge any shares of our class A common stock or any
securities convertible into or exchangeable for class A common stock. Transfers
can be made sooner with the prior written consent of Salomon Smith Barney Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation. The underwriters, in
their sole discretion, may release any of the securities subject to these lock-
up agreements at any time without notice.
Determination of the initial public offering price.
Before this offering, there has been no public market for the class A common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering price were:
. our record of operations;
. our current financial condition;
. our future prospects;
. our markets;
. the economic conditions in and future prospects for the industry in which
we compete;
. our management; and
. currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded
companies considered comparable to us. We cannot assure you, however,
that the prices at which the shares will sell in the public market after
this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the class A common
stock will develop and continue after this offering.
Nasdaq listing.
We have applied to have the class A common stock included for quotation on
the Nasdaq National Market under the symbol "AOLA."
Underwriting discount and commissions.
The following table shows the underwriting discount and commissions to be
paid to the underwriters by us for this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of class A common stock.
<TABLE>
<CAPTION>
Paid by AOL-LA
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>
Salomon Smith Barney Inc. or Donaldson, Lufkin & Jenrette Securities
Corporation, on behalf of the underwriters, may purchase and sell shares of our
class A common stock in the open market. These transactions may include over-
allotment, syndicate covering transactions and stabilizing transactions. Over-
allotment involves syndicate sales of class A common stock in excess of the
number of shares to be purchased by the underwriters in the offering, which
creates a syndicate short position. Syndicate covering transactions involve
purchases of the class A common stock in the open market after the distribution
has been completed in order to
76
<PAGE>
cover syndicate short positions. Stabilizing transactions consist of specific
bids or purchases of class A common stock made for the purpose of preventing or
retarding a decline in the market price of the class A common stock while this
offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. or Donaldson, Lufkin & Jenrette Securities
Corporation, in covering syndicate short positions or making stabilizing
purchases, repurchases shares originally sold by that syndicate member.
Any of these activities may cause the price of the class A common stock to
be higher than the price that otherwise would exist in the open market in the
absence of these transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $ .
The representatives have performed investment banking and advisory services
for AOL and the Cisneros Group from time to time for which they have received
customary compensation and reimbursement of expenses. The representatives may,
from time to time, engage in transactions with, and perform services for, AOL-
LA, AOL and the Cisneros Group in the ordinary course of business.
Indemnification.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make as a result of those
liabilities.
77
<PAGE>
LEGAL MATTERS
The validity of the issuance of the class A common stock offered by us in
this offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., Boston, Massachusetts. The underwriters have been represented
by Cravath, Swaine & Moore, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of June 30, 1999 and for the period from December 15,
1998, our date of inception, to June 30, 1999, as set forth in their report. We
have included our consolidated financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the class A common stock offered by this
prospectus. This prospectus, which is part of the registration statement, does
not contain all of the information, exhibits, schedules and undertakings in the
registration statement. For further information pertaining to us and our class
A common stock, we refer you to our registration statement and its exhibits and
schedules. Statements contained in this prospectus about the contents or
provisions of any documents referred to in this prospectus do not always
provide a complete description of the provisions of the document and in each
instance where a copy of the document has been filed as an exhibit to the
registration statement, we refer you to the exhibit for a more complete
description of the matters involved.
The registration statement can be inspected and copied at the Securities and
Exchange Commission's following locations:
Public Reference Room Northeast Regional Midwest Regional
Office Office Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
In addition, the registration statement is publicly available through the
Securities and Exchange Commission's site on the Internet's world wide web,
located at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may
obtain copies of the documents that we file electronically with the Securities
and Exchange Commission through the Securities and Exchange Commission's
website located at http://www.sec.gov. You can also request copies of these
documents, for a copying fee, by writing to the Securities and Exchange
Commission.
78
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Changes in Stockholders' Equity.................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to The Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
America Online Latin America, Inc.
We have audited the accompanying consolidated balance sheet of America
Online Latin America, Inc. as of June 30, 1999, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the period December 15, 1998 (the Company's inception) to June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the 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 misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 America Online
Latin America, Inc. at June 30, 1999, and the consolidated results of its
operations and its cash flows for the period December 15, 1998 (the Company's
inception) to June 30, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
January 20, 2000,
except as to Note 1,
as to which the date is .
McLean, Virginia
The foregoing report is in the form that will be signed upon completion of
the reorganization described in Note 1 to the financial statements.
/s/ Ernst & Young LLP
McLean, Virginia
March 14, 2000
F-2
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, 1999
1999 (unaudited)
-------- ------------
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $17,716 $20,213
Trade accounts receivable, less allowances of $180 and
$498.................................................... 1,448 2,865
Receivable from affiliate................................ 833 879
Other receivables........................................ 53 262
Prepaid expenses and other current assets................ 240 631
------- -------
Total current assets................................... 20,290 24,850
Property and equipment at cost, net...................... 9 2,633
Investments including available-for-sale securities...... -- 4,378
Product development costs, net........................... -- 745
Other assets............................................. 1 201
------- -------
Total assets........................................... $20,300 $32,807
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................... $ 40 $ 6,498
Payable to affiliates.................................... 2,685 5,262
Other accrued expenses and liabilities................... 183 1,643
Deferred revenue......................................... -- 2,443
Accrued personnel costs.................................. 262 1,006
Income taxes payable..................................... 131 54
------- -------
Total current liabilities.............................. 3,301 16,906
------- -------
Long-term liabilities:
Deferred revenue......................................... -- 3,365
Other liabilities........................................ -- 47
------- -------
Total liabilities...................................... 3,301 20,318
------- -------
Stockholders' equity:
Preferred stock, $.01 par value; shares
authorized: -- --
Series B and C cumulative redeemable convertible--
and shares authorized; shares of series B and
shares of series C issued and outstanding at
June 30, 1999 and December 31, 1999 ($ liquidation
value)................................................
Common stock, $.01 par value; shares
authorized: -- --
Class A-- shares authorized; no shares issued or
outstanding at June 30, 1999 and December 31, 1999.... -- --
Class B and C-- and shares authorized; no shares
issued or outstanding at June 30, 1999 and December
31, 1999..............................................
Additional paid-in capital............................... 100,099 100,099
Subscription receivable from affiliate................... (77,979) (54,979)
Accumulated other comprehensive (loss) income............ (82) 342
Accumulated deficit...................................... (5,039) (32,973)
------- -------
Total stockholders' equity............................. 16,999 12,489
------- -------
Total liabilities and stockholders' equity............. $20,300 $32,807
======= =======
</TABLE>
See accompanying notes
F-3
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period from
December 15, 1998 Six Months
(date of inception) to Ended December 31,
June 30, 1999
1999 (unaudited)
---------------------- ------------------
(In thousands)
<S> <C> <C>
Revenues:
Subscriptions...................... $ 1,644 $ 2,106
Advertising and e-commerce......... -- 537
------- --------
Total revenues................... 1,644 2,643
Costs and expenses:
Cost of revenues, $1,052 and $1,516
from affiliates................... 1,091 4,828
Sales and marketing, $3,167 and $0
from affiliates................... 3,179 19,475
Product development, $312 and $927
from affiliates................... 312 927
General and administrative, $1,317
and $2,025 from affiliates........ 1,979 6,109
------- --------
Total costs and expenses......... 6,561 31,339
Loss from operations................. (4,917) (28,696)
Other income, net.................... 9 592
------- --------
Loss before (provision) benefit for
income taxes........................ (4,908) (28,104)
(Provision) benefit for income
taxes............................... (131) 170
------- --------
Net loss............................. $(5,039) $(27,934)
======= ========
</TABLE>
See accompanying notes
F-4
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Subscription Accumulated
Preferred Stock Common Stock Additional Receivable Other
------------------ ------------- Paid-in From Comprehensive Accumulated
Shares Amount Shares Amount Capital Affiliate (Loss) Income Deficit Total
------- -------- ------ ------ ---------- ------------ ------------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 15,
1998
(inception)..... -- $ -- -- $-- -- -- -- -- --
Stock issued:
Capital
contribution
upon
inception...... -- -- -- -- $100,099 $(100,099) -- -- --
Payment of
subscription
receivable from
affiliate...... -- -- -- -- -- 22,120 -- -- $22,120
Foreign currency
translation
adjustment...... -- -- -- -- -- -- $(82) -- (82)
Net loss......... -- -- -- -- -- -- -- $ (5,039) (5,039)
------- -------- --- ---- -------- --------- ---- -------- -------
Balances at June
30, 1999........ -- $ -- -- $-- $100,099 $ (77,979) $(82) $ (5,039) $16,999
Payment of
subscription
receivable from
affiliate...... -- -- -- -- -- 23,000 -- -- 23,000
Foreign currency
translation
adjustment...... -- -- -- -- -- -- 674 -- 674
Unrealized loss
on available-
for-sale
securities...... -- -- -- -- -- -- (250) -- (250)
Net loss......... -- -- -- -- -- -- -- (27,934) (27,934)
------- -------- --- ---- -------- --------- ---- -------- -------
Balances at
December 31,
1999
(unaudited)..... -- $ -- -- $-- $100,099 $ (54,979) $342 $(32,973) $12,489
======= ======== === ==== ======== ========= ==== ======== =======
<CAPTION>
Comprehensive
Loss
for the Period from
December 15, 1998
(date of inception)
to June 30, 1999
and the Six Months
Ended December 31, 1999
-----------------------
<S> <C>
Balances at
December 15,
1998
(inception).....
Stock issued:
Capital
contribution
upon
inception......
Payment of
subscription
receivable from
affiliate......
Foreign currency
translation
adjustment...... $ (82)
Net loss......... (5,039)
-----------------------
Balances at June
30, 1999........ $ (5,121)
=======================
Payment of
subscription
receivable from
affiliate......
Foreign currency
translation
adjustment...... $ 674
Unrealized loss
on available-
for-sale
securities...... (250)
Net loss......... (27,934)
-----------------------
Balances at
December 31,
1999
(unaudited)..... $(27,510)
=======================
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from Six Months
December 15, 1998 Ended
(date of inception) to December 31,
June 30, 1999
1999 (unaudited)
---------------------- ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(5,039) $(27,934)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. -- 91
Changes in assets and liabilities:
Trade accounts receivable............... (1,443) (1,396)
Receivable from affiliate............... (833) (46)
Other receivables....................... (53) (206)
Prepaid expenses and other current
assets................................. (240) (322)
Other assets............................ (1) (200)
Trade accounts payable.................. 40 6,270
Payable to affiliates................... 2,681 2,588
Accrued expenses and other current
liabilities............................ 183 1,138
Deferred revenue and other liabilities.. -- 1,003
Accrued personnel costs................. 262 732
Income taxes payable.................... 131 (78)
------- --------
Total adjustments..................... 727 9,574
------- --------
Net cash used in operating activities..... (4,312) (18,360)
Cash flows from investing activities:
Purchase of property and equipment........ (9) (2,690)
Product development costs................. -- (770)
------- --------
Net cash used in investing activities..... (9) (3,460)
Cash flows from financing activities:
Payments of subscription receivable from
affiliate................................ 22,120 23,000
Payments of offering costs................ -- (46)
------- --------
Net cash provided by financing
activities............................... 22,120 22,954
------- --------
Effect of exchange rate changes on cash
and cash equivalents..................... (83) 1,363
------- --------
Net increase in cash and cash
equivalents.............................. 17,716 2,497
Cash and cash equivalents at beginning of
period................................... -- 17,716
------- --------
Cash and cash equivalents at end of
period................................... $17,716 $ 20,213
======= ========
</TABLE>
See accompanying notes
F-6
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
On January 20, 2000, America Online Latin America, Inc. ("AOL-LA" or the
"Company") filed the registration statement that includes these financial
statements with the Securities and Exchange Commission for its offer and sale
of shares of its class A common stock and a concurrent distribution of shares
of class A common stock by the Cisneros Group of Companies (the "Cisneros
Group") to current and former employees of companies within the Cisneros Group.
Currently, the Company's business is conducted by affiliates of AOL Latin
America, S.L., a limited liability company organized in Spain in December 1998.
AOL Latin America, S.L. is a joint venture between America Online, Inc. ("AOL")
and the Cisneros Group. In December 1998, 50% interests in AOL Latin America,
S.L. were issued to AOL and the Cisneros Group. AOL contributed royalty free
license rights in exchange for its ownership interest. AOL's non-cash capital
contribution of the royalty free license rights was recorded at AOL's
historical cost basis, which was zero. The Cisneros Group agreed to contribute
an aggregate amount of approximately $100 million through July 2, 2001 in
exchange for its ownership interest. Subsequently, the Cisneros Group sold at
its cost 1.96% of the shares of the company holding its interest in AOL Latin
America S.L. to two executives of the Cisneros Group (Steven Bandel and
Cristina Pieretti, directors of the Company) and a former executive of the
Cisneros Group who is now an executive of the Company (Eduardo Hauser).
Upon the effectiveness of the offering, AOL-LA will indirectly own all of
AOL Latin America, S.L. and its affiliates, through a corporate reorganization
in which AOL, the Cisneros Group and the three individuals named above will
exchange their interests in AOL Latin America, S.L. and its affiliates for
shares of the Company's series B preferred and series C preferred stock. After
the reorganization AOL will hold shares of the Company's series B
preferred stock and the Cisneros Group will hold shares of the Company's
series C preferred stock. The three individuals will receive shares of
series C preferred stock, and these shares will be converted into shares of
class A common stock. In addition, AOL will receive a warrant to purchase
shares in any combination of the Company's series B preferred, class A common
or class B common stock at a per share exercise price equal to the initial
public offering price. The number of shares for which the warrant is
exercisable is 6% of the sum of the Company's outstanding shares of capital
stock on the closing of the offering, including shares issuable under the over-
allotment option, plus the shares of class A common stock issuable under the
Company's stock option plan. The warrant will be issued to AOL in exchange for
the exclusive right to offer in Latin America any AOL-branded wireless-based
online services. This non-cash capital contribution is valued at AOL's
historical cost basis which is zero. The accompanying financial statements
reflect the reorganization as of the earliest period presented.
The Company seeks to become the leading provider of interactive services in
Latin America. The Company intends to bring to the Latin American market
localized AOL-branded interactive services and the opportunity to join AOL's
global online community of more than 21 million users in 15 countries and seven
languages.
The Company's family of America Online-branded interactive services will
include the AOL-LA country services, its comprehensive online services which
will be available to subscribing members, and the AOL-LA country Internet
portals and the Latin American regional Internet portal. The Company's network
of country and regional Internet portals will offer content, community and e-
commerce opportunities to all Internet users. The Company's interactive
services will be developed on a country-by-country and regional basis and will
be tailored to local interests. The Company expects to derive its revenues
principally from member subscriptions to its AOL-LA country services and will
seek to build its online service member base and portal user base to generate
additional revenues from advertising and e-commerce.
F-7
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company currently has the exclusive right to offer AOL-branded PC-based
online services in Latin America. Under its license agreement with AOL, it also
has the exclusive right to offer AOL-branded TV-based online services in Latin
America if AOL develops these services. In addition, the Company has the
exclusive right to offer in Latin America any AOL-branded wireless-based online
services developed by AOL for commercial launch within four years of the
effective date of the registration statement for this offering. The Company
also has the right in Latin America to promote AOL's ICQ service, which
features leading, real-time communications software and an associated portal.
The ICQ service enables its worldwide community of approximately 50 million
users, including approximately 5 million users in Latin America, to find and
communicate with each other in real-time. As local versions of the ICQ service
are developed, the Company will engage in other marketing and cross-promotion
activities with AOL.
The Company commenced operations in December 1998. The Company acquired
AOL's Latin American CompuServe Classic subscribers in December 1998 and
launched the first AOL-LA online service and portal in Brazil in November 1999.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation. These financial statements include the accounts
of the Company, its subsidiaries and its predecessors on a consolidated basis
since the Company's inception on December 15, 1998. All significant
intercompany accounts and transactions have been eliminated. Except for the
$3.2 million in sales and marketing expense related to the acquisition from AOL
of its Latin America Compuserve Classic subscribers (see note 3), operating
activity for the two-week period ended December 31, 1998 was nominal.
Therefore, comparative financial information is not meaningful and has not been
included in the statement of operations.
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements as of and for the six months ended December 31, 1999,
which include the accounts of the Company and its wholly and majority owned
subsidiaries, have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals considered necessary for a fair presentation,
have been included in the accompanying unaudited interim financial statements.
Operating results for the six months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the full year
ending June 30, 2000.
Fiscal Year. The Company's fiscal year ends June 30. The information
included in the notes to the financial statements as of and for the six months
ended December 31, 1999 is unaudited.
Revenue Recognition. The Company recognizes subscription revenues over the
period that it provides the service following expiration of the member's trial
period. For advertising arrangements that require the Company to display a
specified number of advertisements, the Company recognizes advertising revenues
ratably in the period in which the advertisements are displayed, provided that
no significant obligations remain and collection of the resulting receivable is
probable. To the extent that the Company does not expect to meet any minimum
guaranteed advertisement display levels, the Company defers recognition of the
corresponding revenues until guaranteed levels are achieved. Payments received
from advertisers before the Company displays their advertisements on its
interactive services are also recorded as deferred revenues. The Company
recognizes revenues from sponsorship or co-sponsorship arrangements ratably
over the contract term, provided that it has no significant obligations
remaining.
F-8
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to advertising revenues, the Company expects to derive revenues
from e-commerce transactions conducted through its interactive services as
either a flat payment or a percentage of each e-commerce transaction that is
attributable to its interactive services, or both. The Company expects to
receive cash or, in some instances, equity. The Company will recognize revenues
derived from the Company's share of the proceeds from e-commerce transactions
when it is notified of sales that are attributable to its interactive services.
Revenue for which payment is made in the form of equity securities is
recognized at the fair value of the securities at the time the services
agreement is entered into. If the securities to be received are contingent upon
achieving variable performance criteria, the value of the securities is
determined for revenue recognition purposes when the performance criteria are
met. In the six months ended December 31, 1999, the Company received $4.6
million of equity securities for future services.
We have not recognized any barter revenue to date. We will recognize barter
revenue based on the fair value of the advertising that we agree to provide,
where fair value can be demonstrated by recent cash-based transactions that are
similar.
Property and Equipment. The Company depreciates or amortizes the following
property and equipment using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and internal software........................ 2 to 5 years
Leasehold and network improvements.............................. 4 years
Furniture and fixtures.......................................... 5 years
Equipment....................................................... 5 years
</TABLE>
In accordance with Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," the Company
is required to capitalize various costs for the development of internal use
software, including the costs of coding, software configuration, upgrades and
enhancements. To date, none of these costs has been incurred.
Product Development Costs. The Company capitalizes product development
costs, which mainly consist of charges from AOL for personnel and related costs
associated with the localization of the Company's interactive services and any
developments the Company requests AOL to provide, once the product or
enhancement reaches technological feasibility. The Company capitalizes costs
incurred after technological feasibility has been established up until
completion of beta testing. Once beta testing is complete and the product or
service is commercially available, costs are again expensed as incurred. To the
extent the Company retains the rights to software development funded by third
parties, the Company applies these accounting policies to the capitalization of
these costs. Amortization, a cost of revenue, is provided 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 three years, commencing the month after the
date of product release. Quarterly, the Company reviews and expenses the
unamortized cost of any feature identified as being impaired. The Company also
reviews the recoverability of the total unamortized cost of all features and
software products in relation to their estimated online service and other
relevant revenues and, when necessary, makes an appropriate adjustment to net
realizable value.
At December 31, 1999, capitalized product development costs totaled
$770,000. Amortization of these costs was $25,000 for the six months ended
December 31, 1999. Accumulated amortization was $25,000 at December 31, 1999.
There were no capitalized product development costs at June 30, 1999.
Product development costs expensed for research and development totaled
$927,000 for the six months ended December 31, 1999 and $312,000 for the period
from inception to June 30, 1999.
F-9
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Subscriber Acquisition and Advertising Costs. The Company accounts for
direct marketing costs incurred to acquire subscribers as well as other
advertising costs as required by AICPA Statement of Position 93-7, "Reporting
on Advertising Costs." To date the Company has expensed all advertising,
marketing and other subscriber acquisition costs as incurred and includes them
in sales and marketing expenses.
Foreign Currency Translation. Generally, the Company's functional currencies
are the local currencies of the countries in which it conducts its operations.
Assets and liabilities of the Company's wholly-owned foreign subsidiaries are
translated into U.S. dollars at the balance sheet date exchange rates, and
revenues and expenses are translated at average rates prevailing during the
period. Translation adjustments are included in accumulated other comprehensive
(loss) income. The Company includes its foreign currency transaction gains and
losses in its results of operations.
Other Income, Net. For the period ended December 31, 1999, other income, net
consisted of $564,000 of interest income and $28,000 of foreign currency gains.
For the period ended June 30, 1999, other income, net consisted of $62,000 of
interest income and $53,000 of foreign currency transaction losses.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Trade Accounts Receivables. The carrying amount of the Company's trade
accounts receivables approximates their fair market value. The Company recorded
provisions for uncollectible accounts of $318,000 for the six months ended
December 31, 1999 and $180,000 for the period from inception to June 30, 1999.
No amounts were written off during any period presented.
Investments Including Available-For-Sale Securities. The Company has
classified all debt and equity securities as available-for-sale. Available-for-
sale securities are carried at fair value, with unrealized gains and losses
reported in accumulated other comprehensive income (loss) net of applicable
income taxes. Realized gains and losses and declines in value judged to be
other than temporary on available-for-sale securities are included in other
income. The cost basis for realized gains and losses on available-for-sale
securities is determined on a specific identification basis.
As of December 31, 1999, the Company had an available-for-sale equity
investment in a public company with a fair market value of $4.4 million. The
net unrealized loss as of December 31, 1999 on available-for-sale securities
was $250,000 and is included in accumulated other comprehensive (loss) income.
In January 1997, the Securities and Exchange Commission issued new rules
requiring disclosure of the Company's accounting policies for derivatives and
market risk disclosure. The Company does not have any material derivative
financial instruments as of December 31, 1999, and believes that the interest
rate risk associated with its borrowings and market risk associated with its
available-for-sale securities are not material to the results of operations of
the Company. The available-for-sale securities subject the Company's financial
position to market rate risk. The Company sells products to a diverse range of
customers and subscribers in Latin America. The Company performs ongoing credit
evaluations of its customers' and subscribers' financial condition and
generally does not require collateral on product sales. The Company maintains
reserves to provide for estimated credit losses. Actual credit losses could
differ from such estimates.
Financial Instruments. The carrying amounts for the Company's cash and cash
equivalents, other receivables, other assets, trade accounts payable, accrued
expenses and liabilities and other liabilities approximate their fair market
value.
F-10
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Loss Per Common Share. Net loss per share is determined as required by
SFAS No. 128, "Earnings per Share." There were no outstanding shares of common
stock for either the basic or diluted loss per common share calculations for
all periods presented.
Stock-Based Compensation. The Company has adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." The provisions of SFAS No. 123 allow companies
to expense the estimated fair market value of stock options. Alternatively,
SFAS No. 123 permits companies to continue to follow the intrinsic value method
described in APB Opinion 25, "Accounting for Stock Issued to Employees," but
disclose the pro forma effects on net income (loss) had the fair market value
of the options been expensed. The Company has elected to apply APB Opinion 25
in accounting for its Stock Option Plan. See note 4.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. The Company's actual results could
differ from those estimates.
Recent Pronouncements. The Financial Accounting Standards Board, or FASB,
recently issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of Effective Date of FASB SFAS No. 133." This
Statement allows the Company to defer the effective date of FASB SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," for one year.
As a result, SFAS No. 133 will now apply to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133 will require the Company to
recognize all derivatives on its balance sheet at fair value. Derivatives that
are not hedges must be adjusted to their fair value through the Company's
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The Company
has not yet determined if it will adopt SFAS No. 133 sooner than required or
what the effect of SFAS No. 133 will be on its earnings and financial position.
Latin American Operations. The Company derives all of its revenues from
operations in Latin America. Social, political and economic conditions in Latin
America are volatile and may impair the Company's operations. This volatility
could make it difficult for the Company to develop its business, generate
revenues or achieve or sustain profitability. Historically, volatility has been
caused by: currency devaluations; significant governmental influence over many
aspects of local economies; political and economic instability; unexpected
changes in regulatory requirements; social unrest or violence; slow or negative
economic growth; imposition of trade barriers; and wage and price controls.
Most or all of these factors have occurred at various times in the last two
decades in the Company's core target Latin American markets, Brazil, Mexico and
Argentina. The Company has no control over these matters. Poor social,
political and economic conditions may inhibit online services and Internet use,
create uncertainty in the Company's operating climate and cause advertisers to
reduce their advertising spending, all of which may adversely impact the
Company's business.
Dependence on AOL. In exchange for its AOL-LA ownership interest, AOL
entered into a royalty-free license agreement. Also, AOL entered into a
services agreement whereby AOL provides services to AOL-LA for fees determined
on an AOL allocated cost plus basis. Under the license agreement, the Company
has the exclusive right to offer in Latin America AOL-branded PC-based online
services. The Company also has the exclusive right to offer AOL-branded TV-
based online services in Latin America if these services are developed by AOL.
In addition, the Company has the exclusive right to offer in Latin America any
AOL-
F-11
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
branded wireless-based online services developed by AOL for commercial launch
within four years of the effective date of the registration statement for this
offering. The Company also has a non-exclusive license to offer a localized
network of Spanish- and Portuguese-language AOL-branded portals in Latin
America. However, the Company has an option to license exclusively any Spanish-
or Portuguese-language AOL-branded portals that AOL may develop for the Latin
American market, subject to payment of a license fee. Under the services
agreement, AOL provides services including software localization, updates,
development, and installation services, server connection services, technical
support and training. In addition, AOL provides the Company with business
development, administrative, tax, financial and legal services. Each of these
agreements may be terminated if the Company materially breaches its terms. The
Company will lose exclusivity of its licensed rights to PC-based services, upon
the later of December 15, 2003 or the date on which AOL or the Cisneros Group
owns less than 20% of the outstanding capital stock of AOL-LA, and to TV- and
wireless-based services, on the later of , 2005 or the date on which either
AOL or the Cisneros Group owns less than 20% of the outstanding capital stock
of AOL-LA. The termination or loss of exclusivity of the Company's license or
services agreement with AOL would adversely impact its business.
Note 3. Related Party Transactions
The cost to the Company due to AOL for the support services under the
services agreement described in Note 2 was approximately $5.1 million for the
six months ended December 31, 1999 and approximately $2.4 million for the
period ended June 30, 1999. The cost to the Company for support services
provided by the Cisneros Group was $120,000 for the six months ended December
31, 1999 and $291,000 for the period ended June 30, 1999. The unpaid portion of
these costs is included in payable to affiliates at December 31, 1999 and June
30, 1999. AOL charges fees for providing these services on an AOL allocated
cost plus basis. The Cisneros Group charges fees for services on a cost basis.
Management believes that the expenses for these services are representative of
what would have been incurred by the Company on a stand-alone basis. Some of
AOL's employees who provide these services to the Company participate in AOL's
stock option plans. In addition, certain employees of the Company hired from
AOL have retained their previously granted AOL stock options.
In December 1998, the Company acquired AOL's Latin American CompuServe
Classic subscribers for approximately $3.2 million. The cost to acquire these
Latin American CompuServe Classic subscribers was determined pursuant to a
formula that was based on the number of Latin American CompuServe Classic
subscribers at December 15, 1999. This cost is included as a sales and
marketing expense for the period ended June 30, 1999. The Company initially
paid AOL approximately $4.0 million for these subscribers but is owed
approximately $800,000 by AOL as a result of the decline in the number of Latin
American CompuServe Classic subscribers between December 1998 and December
1999. The amount due from AOL is included in the Company's balance sheet in
receivable from affiliate at June 30, 1999 and December 31, 1999.
Note 4. Capital Stock and Stock Option Plan
Capital Stock
Preferred Stock
The Company is authorized to issue up to shares of preferred stock,
par value of $.01 per share, in one or more series with rights, preferences and
privileges that are determined by the Company's board of directors. Before
completion of this offering, the Company had issued shares of series B
preferred stock and shares of series C preferred stock. All of the
outstanding series B preferred stock is owned by AOL and all of the outstanding
series C preferred stock is owned by the Cisneros Group, except for
shares of series C preferred stock held by the three individuals named in note
1. The series B and series C preferred stock are convertible into shares of
class B and class C common stock, which are convertible on a
F-12
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
one-for-one basis into shares of class A common stock, in each case, at any
time on a one-for-one basis. Concurrently with the initial public offering, the
Cisneros Group intends to distribute up to shares of class A common stock to
some of its current and former employees for past services to the Cisneros
Group. These shares were issued by the Company to the Cisneros Group as series
C preferred stock and will convert into shares of class A common stock upon
their distribution. In addition, the shares of series C preferred stock
held by the three individuals in note 1 will be converted into shares of
class A common stock.
Series B and series C preferred stock must be redeemed by the Company on
December 15, 2003, in cash or, at the Company's option, by delivery of fully
paid and nonassessable shares of class B or C common stock or any combination
of shares of class B or C common stock or cash in an amount equal to the
liquidation preference or $ per share, plus in each case all accumulated
and unpaid dividends through the redemption date. However, AOL or the Cisneros
Group may elect to convert their shares of series B or series C preferred stock
into an equal number of shares of class B or class C common stock at any time
before the date on which the redemption is to occur.
Holders of series B and series C preferred stock are entitled to receive a
cumulative annual dividend, payable in series B and series C preferred stock,
equal to $ per share, as and when declared by the board of directors and
before the payment of any dividend to the holders of the class A, class B and
class C common stock. After that, the holders of class A, class B and class C
common stock, together with the holders of series B and series C preferred
stock, will share ratably, based on the number of shares of common stock and
preferred stock held, in any dividend declared by the board of directors.
The Company's series B and series C preferred stock each has a liquidation
preference equal to $ per share plus cumulative dividends. The issuance of
the series B and series C preferred stock described above is reflected in the
financial statements as though issued at inception.
Common Stock
The Company is authorized to issue shares of class A common stock, par
value $.01 per share, shares of class B common stock, par value $.01 per
share, and shares of class C common stock, par value $.01 per share. Upon
completion of this offering and the concurrent distribution by the Cisneros
Group, there will be shares of class A common stock issued and
outstanding, no shares of class B common stock issued or outstanding and no
shares of class C common stock issued or outstanding. The class B and class C
common stock will be convertible into shares of class A common stock at any
time on a one-for-one basis.
The holders of class A common stock are each entitled to one vote per share.
AOL and the Cisneros Group will be entitled to ten votes for each share of
series B and series C preferred stock and, if issued, class B and class C
common stock, that they hold. From inception through December 31, 1999, the
Cisneros Group contributed approximately $45.1 million to equity capital. In
addition, the Cisneros Group contributed $29.3 million through March 2000 and
is obligated to contribute an additional $25.7 million in quarterly
installments through July 2, 2001.
Under the Company's restated certificate of incorporation, each of AOL and
the Cisneros Group has the right to directly elect five members of the
Company's 13-member board of directors. The affirmative vote of the holders of
a majority of the outstanding series B preferred stock and class B common
stock, voting separately as a class, as well as the holders of a majority of
the outstanding series C preferred stock and class C common stock, voting
separately as a class, is required to approve a large number of corporate and
business matters, as well as to amend or repeal a number of the provisions of
the Company's restated certificate of
F-13
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
incorporation. Otherwise, holders of class A common stock, series B preferred
stock and series C preferred stock and any issued class B and class C common
stock generally will vote together as a single class, including the elections
of directors who are not elected directly by AOL or the Cisneros Group, on
matters presented to the stockholders for their vote or approval, except as
otherwise required by applicable Delaware law. However, because AOL and the
Cisneros Group will together control % of the voting power of the Company's
capital stock following this offering and the concurrent distribution by the
Cisneros Group, they will have the power to elect the remaining three
directors.
Under the stockholder's agreement between AOL-LA, AOL and the Cisneros
Group, AOL and the Cisneros Group have agreed to non-compete provisions. If
either AOL or the Cisneros Group breaches these provisions, AOL-LA and the non-
breaching party may be able to acquire the breaching party's capital stock.
The AOL Warrant
Upon the effectiveness of the offering, the Company will issue a warrant to
purchase shares in any combination of its series B preferred, class A
common or class B common stock at a per share exercise price equal to the
initial public offering price. The number of shares for which the warrant is
exercisable is 6% of the sum of the Company's outstanding shares of capital
stock at the closing of the offering, including shares issuable under the over-
allotment option, plus the shares of class A common stock issuable under the
Company's stock option plan. The warrant will be immediately exercisable and
will have a ten year term. The number of shares issuable under the warrant may
be increased if AOL or the Cisneros Group admit one or more strategic
stockholders. No other warrants are outstanding. The warrant has a net exercise
feature that allows AOL to pay the exercise price due under the warrant by
tendering to the Company a portion of the shares subject to the warrant instead
of paying the exercise price in cash.
Stock Option Plan
In January 2000, the Company's board of directors and stockholders adopted
the Company's 2000 Stock Option Plan. Under the stock option plan, the Company
may grant incentive stock options and nonqualified stock options to its
employees, consultants and directors. The maximum term of options granted under
the stock option plan is ten years. A total of shares of class A common
stock have been reserved for issuance under the stock option plan. As of the
effective date of the offering, the Company will grant stock options to
purchase a total of shares of class A common stock with an exercise price
equal to the initial public offering price. No other stock options have been
granted.
Note 5. Loss Per Share
Since the Company has losses from operations for both periods represented
and has no common stock outstanding, there are no earnings per share amounts as
described in SFAS No. 128, "Earnings per Share." As a result, any conversion of
preferred stock to common stock would be antidilutive.
Potentially dilutive shares include those relating to preferred stock, stock
options and the AOL Warrant. The aggregate potential dilution for the preferred
stock, stock options and the AOL warrant are , and respectively,
on a weighted average basis for the six months ended December 31, 1999.
Note 6. Segment Information
Effective June 30, 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Under SFAS No. 131,
the Company must disclose information based on the way it organizes financial
information for making operating decisions and assessing performance.
F-14
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Currently, the Company operates in a single segment, interactive services.
Interactive services consist of the delivery of the Company's interactive
products, including the AOL-LA country services and portals and CompuServe
services. Delivery of interactive services by AOL-LA is in a start-up phase
with the launch in Brazil just recently completed and anticipated launches in
Argentina and Mexico later in 2000.
The Company's revenues for the six months ended December 31, 1999 were
approximately $1.4 million in Mexico and approximately $489,000 in Brazil. The
Company's revenues for the period from inception to June 30, 1999 were $869,000
in Mexico and $188,000 in Brazil. No single customer of the Company accounted
for 10% or greater of the Company's total revenues in either period.
At December 31, 1999, the Company had long-lived assets of $2.6 million in
Brazil and an immaterial amount elsewhere. At June 30, 1999, the Company had an
immaterial amount of long-lived assets.
Note 7. Property and Equipment
The Company's property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
-------- ------------
(unaudited)
(In thousands)
<S> <C> <C>
Leasehold and network improvements..................... $-- $ 949
Furniture and fixtures................................. -- 430
Equipment.............................................. -- 655
Computer equipment and internal software............... 9 665
--- ------
9 2,699
Less accumulated depreciation and amortization......... -- (66)
--- ------
Net property and equipment............................. $ 9 $2,633
=== ======
</TABLE>
Depreciation expense was $66,000 for the six months ended December 31, 1999.
Note 8. Commitments and Contingency
Commitments
Leases
The Company will lease facilities and equipment primarily under long-term
operating leases, some of which may have renewal options. At December 31, 1999,
the Company had facility leases with the following future minimum payments:
<TABLE>
<CAPTION>
Period Ending June 30,
---------------------- (In thousands)
<S> <C>
2000..................................................... $ 586
2001..................................................... 1,579
2002..................................................... 1,538
2003..................................................... 620
2004..................................................... 420
After 2004............................................... 451
------
$5,194
======
</TABLE>
F-15
<PAGE>
AMERICA ONLINE LATIN AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Network Services
The Company has entered into third party telecommunications network capacity
contracts. These contracts commit the Company to purchase a minimum amount of
network capacity or to pay a fixed minimum cost for network capacity. The
Company's operating lease commitments under these contracts from January 2000
through August 2000 are $609,000 per month; from September 2000 through April
2001 are $667,000 per month; from May 2001 through August 2001 are $817,000 per
month; from September 2001 through August 2002 are $904,000 per month; from
September 2002 through October 2002 are $678,000 per month; and from November
2002 through December 2002 are $150,000 per month. The Company records expense
related to these contracts up to the minimum commitments and expenses any
additional costs in the period that it is incurred.
Contingency
Legal Proceedings
On December 28, 1999, ADEC, a non-governmental, private consumer protection
association, filed a complaint against the Company in the Brazilian State of
Rio de Janeiro seeking monetary damages and a preliminary restraining order.
ADEC is seeking R$10 million, or approximately $5.7 million, in damages on
behalf of consumers who have allegedly complained about the installation of the
Company's America Online Brazil software on their PCs. Among other things, the
preliminary restraining order would have required the Company to stop
distributing its CD software in Brazil. While ADEC obtained the order, the
Company was successful in having it revoked. Although the Company believes that
ADEC's claims are without merit and will continue to contest them vigorously,
it may not be successful in defeating their claims.
Note 9. Income Taxes
During the periods ended December 31, 1999 and June 30, 1999, income tax
(provision) benefit represented the Company's estimated income taxes in foreign
locations. As a start-up operation, the Company anticipates that it will have
net operating loss carryforwards for tax purposes, which will be available to
offset future U.S. taxable income. If the Company does not use these
carryforwards in a timely manner, they will expire. To the extent that the
Company realizes net operating loss carryforwards that relate to stock option
deductions, the resulting benefits will be credited to stockholders' equity. As
of December 31, 1999 and June 30, 1999, the Company had no net deferred tax
assets or liabilities.
In the future, when the Company records deferred income taxes, it will
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. If any deferred tax assets are recorded,
the Company will determine to what extent a valuation allowance is necessary.
When the Company is more likely than not to realize a deferred tax asset, the
benefit related to the deductible temporary differences attributable to the
operations will be recognized as a reduction of income tax expense. The Company
will credit to paid-in capital the realized benefits related to the deductible
temporary differences attributable to future stock option deductions, if any.
The Company's net tax operating loss carryforwards available at December 31,
1999 and June 30, 1999 approximate the cumulative losses at those dates and
were fully reserved in both periods.
F-16
<PAGE>
[INSIDE BACK COVER]
<PAGE>
Until , 2000, all dealers that buy, sell or trade America Online Latin
America's class A common stock, whether or not participating in this offering,
may be required to deliver a prospectus. This delivery requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and for their unsold allotments or subscriptions.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
America Online Latin America, Inc.
Class A Common Stock
[LOGO]
--------
PROSPECTUS
, 2000
--------
Salomon Smith Barney
Donaldson, Lufkin & Jenrette
Lehman Brothers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 182,160
Nasdaq National Market Listing Fee............................. 95,000
NASD Filing Fee................................................ 30,500
Printing and Engraving Fees.................................... 300,000
Legal Fees and Expenses........................................ 1,450,000
Accounting Fees and Expenses................................... 700,000
Blue Sky Fees and Expenses..................................... 5,000
Transfer Agent and Registrar Fees.............................. 2,000
Director and Officer Insurance................................. 200,000
Miscellaneous.................................................. 50,340
----------
Total........................................................ $3,015,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Our restated certificate of incorporation provides that we shall indemnify
to the fullest extent authorized by the Delaware General Corporation Law, each
person who is involved in any litigation or other proceeding because such
person is or was a director or officer of AOL-LA or is or was serving as an
officer or director of another entity at our request, against all expense, loss
or liability reasonably incurred or suffered in connection with such service.
Our restated certificate of incorporation provides that the right to
indemnification includes the right to be paid expenses incurred in defending
any proceeding in advance of its final disposition; provided, however, that
such advance payment will only be made upon delivery to us of an undertaking,
by or on behalf of the director or officer, to repay all amounts advanced if it
is ultimately determined that such director is not entitled to indemnification.
If we do not pay a proper claim for indemnification in full within 60 days
after we receive a written claim for such indemnification, our restated by-laws
authorize the claimant to bring an action against us and prescribe what
constitutes a defense to such action.
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify any director or officer of the corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought because such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reason to believe his or her conduct was unlawful. In a derivative
action, (i.e., one brought by or on behalf of the corporation), indemnification
may be provided only for expenses actually and reasonably incurred by any
director or officer in connection with the defense or settlement of such an
action or suit if such person acted in good faith and in a manner that he or
she reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be provided if such person
shall have been adjudged to be liable to the corporation, unless and only to
the extent that the court in which the action or suit was brought shall
determine that the defendant is fairly and reasonably entitled to indemnify for
such expenses despite such adjudication of liability.
Our restated certificate of incorporation contains a provision, permitted by
the Delaware General Corporation Law, that generally eliminates the liability
of a director to us or our stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liabilities arising:
. from any breach of the director's duty of loyalty to us or our
stockholders;
II-1
<PAGE>
. from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; and
. from any transaction from which the director derived an improper personal
benefit.
We intend to enter into insurance policies insuring our directors and
officers against certain liabilities that they may incur in their capacity as
directors and officers.
Additionally, reference is made to the Underwriting Agreement to be filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
AOL-LA, our directors and officers who sign the Registration Statement and
persons who control AOL-LA, under certain circumstances.
Indemnification of AOL and the Cisneros Group
Each of our restated certificate of incorporation and the stockholders'
agreement between AOL, the Cisneros Group and us provides that we will
indemnify AOL and the Cisneros Group to the fullest extent authorized by the
Delaware General Corporation Law if we or any of our stockholders or any other
person bring an action against AOL or the Cisneros Group seeking damages or
other relief based on a breach or alleged breach of a fiduciary or other duty
by AOL or the Cisneros Group based on AOL or the Cisneros Group engaging or
investing in any business activity, including those that might be similar to
and in competition with us, or based on the pursuit by AOL or the Cisneros
group of an investment or a business opportunity or prospective economic
advantage in which we could have an interest or expectancy. Each of our
restated certificate of incorporation and the stockholders' agreement further
provides that the right to indemnification includes the right to be paid
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that such advance payment will only be made
upon delivery to us of an undertaking, by or on behalf of AOL or the Cisneros
Group, to repay all amounts advanced if it is ultimately determined that AOL or
Cisneros Group is not entitled to indemnification. If we do not pay a proper
claim for indemnification in full within 60 days after we receive a written
claim for such indemnification, our restated certificate of incorporation and
the stockholders' agreement authorize AOL or the Cisneros Group to bring an
action against us and prescribe what constitutes a defense to such action.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the
Securities Act as summarized below.
(a) Issuances of Capital Stock
On , 2000, we entered into a contribution agreement with AOL, Riverview
Media Corp., a wholly owned subsidiary of the Cisneros Group, and AOL Latin
America, S.L. under which we will issue shares of our series B preferred
stock to AOL and shares of our series C preferred stock to Riverview Media
Corp. and two current executives and one former executive of the Cisneros Group
in exchange for their contribution to us of all their interests in AOL Latin
America S.L. AOL contributed a royalty free license in exchange for shares of
our series B preferred stock. We recorded the value of the license at AOL's
historical cost basis, which was zero. The Cisneros Group has agreed to
contribute an aggregate amount of $100 million for our series C preferred
stock. To date, the Company has received $74.4 million, which was recorded as
received.
(b) Issuance of Warrant
On , 2000, we will issue a warrant to AOL to purchase any combination
of shares of series B preferred stock or class A or class B common stock
at a per share exercise price equal to the initial public offering price.
II-2
<PAGE>
(c) Grant of Stock Options
Pursuant to our 2000 Stock Option Plan, immediately prior to the
effectiveness of our initial public offering, we will issue options to purchase
an aggregate of shares of Class A common stock at the initial public
offering price.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipient of securities in each such transaction represented their intention to
acquire the securities for investment only and not with the view to or for the
sale in connection with any distribution thereof and appropriate legends will
be affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with AOL-LA, to information about us.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of America Online Latin
America, Inc. to be effective upon completion of the initial
public offering.
3.2 Restated By-laws of America Online Latin America, Inc. to be
effective upon completion of the initial public offering.
*4.1 Form of class A Common Stock Certificate.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
on the legality of securities being registered.
10.1 Form of America Online Latin America, Inc. 2000 Stock Option
Plan.
@+10.2 Form of Stockholders' Agreement by and among America Online
Latin America, Inc., America Online, Inc. and Riverview Media
Corp., dated as of , 2000.
10.3 Contribution Agreement by and among America Online Latin
America, Inc., AOL Latin America, S.L., America Online, Inc. and
Riverview Media Corp., dated as of , 2000.
10.4 Registration Rights Agreement by and among America Online Latin
America, Inc.,
America Online, Inc. and Riverview Media Corp., dated as of ,
2000.
@+10.5 Form of AOL License Agreement by and between America Online,
Inc. and America Online Latin America, Inc., dated as of ,
2000.
@+10.6 Form of AOL Online Services Agreement by and between America
Online, Inc. and America Online Latin America, Inc., dated as of
, 2000.
10.7 Form of Warrant to be issued by America Online Latin America,
Inc. to America Online, Inc., dated as of , 2000.
*10.8 Letter of employment for Charles M. Herington, dated February
26, 1999.
*10.9 Amended and Restated ODC Guarantee Agreement, dated as of
December 15, 1998.
*10.10 Agreement by and between Embratel and AOL Brasil Ltda., dated as
of October 18, 1999.
*10.11 Agreement by and between Netstream Telecom Ltda. and AOL Brasil
Ltda., dated as of May 3, 1999.
@21.1 Subsidiaries of America Online Latin America, Inc.
23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1)
@24.1 Powers of Attorney.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit. These
portions have been omitted and filed separately with the Commission.
@ Previously filed.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Sao Paulo, Brazil, on March 14, 2000.
America Online Latin America, Inc.
/s/ Charles M. Herington
By: _________________________________
Charles M. Herington
Chief Executive Officer
As required by the Securities Act of 1933, this Amendment No. 2 to the
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<S> <C> <C>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles M. Herington Chief Executive Officer March 14, 2000
______________________________________ (principal executive
Charles M. Herington officer)
* Chief Financial Officer March 14, 2000
______________________________________ (principal financial and
Javier Aguirre accounting officer)
* Director March 14, 2000
______________________________________
Steven I. Bandel
* Director March 14, 2000
______________________________________
Gustavo A. Cisneros
* Director March 14, 2000
______________________________________
Ricardo J. Cisneros
* Director March 14, 2000
______________________________________
Miles R. Gilburne
* Director March 14, 2000
______________________________________
J. Michael Kelly
* Director March 14, 2000
______________________________________
Michael Lynton
* Director March 14, 2000
______________________________________
Robert S. O'Hara, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 14, 2000
______________________________________
Cristina Pieretti
* Director March 14, 2000
______________________________________
Robert W. Pittman
* Director March 14, 2000
______________________________________
Gerald Sokol, Jr.
</TABLE>
* By executing his name hereto, Charles M. Herington is signing this document
on behalf of the persons indicated above by the powers of attorney duly
executed by these persons and filed with the Securities and Exchange
Commission.
By: _________________________________
Charles M. Herington
(Attorney-in-fact)
II-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATIVE COVER PAGE FOR CONCURRENT OFFERING PROSPECTUS]
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
[COMPANY LOGO]
Shares
America Online Latin America, Inc.
Class A Common Stock
One of our principal stockholders, the Cisneros Group of Companies, intends
to distribute up to shares of our class A common stock to some current and
former employees of companies within the Cisneros Group of Companies in
recognition of past employment services. The distribution of these shares will
be made concurrently with our initial public offering made by a separate
prospectus in which we are offering to sell shares of our class A common
stock through the underwriters named in that prospectus. Neither we nor the
Cisneros Group will receive any proceeds from the distribution by the Cisneros
Group of Companies under this prospectus.
Before our initial public offering, there has been no public market for the
class A common stock. We have applied to have the class A common stock included
for quotation on the Nasdaq National Market under the symbol "AOLA."
Investing in our class A common stock involves risks. See "Risk Factors"
beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
, 2000
<PAGE>
[ALTERNATIVE PLAN OF DISTRIBUTION PAGE FOR CONCURRENT OFFERING]
PLAN OF DISTRIBUTION
One of our principal stockholders, the Cisneros Group of Companies, intends
to distribute up to shares of our class A common stock to some current and
former employees of companies within the Cisneros Group of Companies in
recognition of past employment services. Neither we nor the Cisneros Group of
Companies will receive any proceeds from the distribution by the Cisneros
Group.
The employees and former employees of the Cisneros Group of Companies
receiving shares in this distribution, have agreed not to dispose of or hedge
any of their class A common stock for a period of 180 days after the date of
this prospectus, without the prior written consent of Salomon Smith Barney Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of America Online Latin
America, Inc. to be effective upon completion of the initial
public offering.
3.2 Restated By-laws of America Online Latin America, Inc. to be
effective upon completion of the initial public offering.
*4.1 Form of class A Common Stock Certificate.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
on the legality of securities being registered.
10.1 Form of America Online Latin America, Inc. 2000 Stock Option
Plan.
@+10.2 Form of Stockholders' Agreement by and among America Online
Latin America, Inc., America Online, Inc. and Riverview Media
Corp., dated as of , 2000.
10.3 Contribution Agreement by and among America Online Latin
America, Inc., AOL Latin America, S.L., America Online, Inc. and
Riverview Media Corp., dated as of , 2000.
10.4 Registration Rights Agreement by and among America Online Latin
America, Inc.,
America Online, Inc. and Riverview Media Corp., dated as of ,
2000.
@+10.5 Form of AOL License Agreement by and between America Online,
Inc. and America Online Latin America, Inc., dated as of ,
2000.
@+10.6 Form of AOL Online Services Agreement by and between America
Online, Inc. and America Online Latin America, Inc., dated as of
, 2000.
10.7 Form of Warrant to be issued by America Online Latin America,
Inc. to America Online, Inc., dated as of , 2000.
*10.8 Letter of employment for Charles M. Herington, dated February
26, 1999.
*10.9 Amended and restated ODC Guarantee Agreement, dated as of
December 15, 1998.
*10.10 Agreement by and between Embratel and AOL Brasil Ltda., dated as
of October 18, 1999.
*10.11 Agreement by and between Netstream Telecom Ltda. and AOL Brasil
Ltda., dated as of May 3, 1999.
@21.1 Subsidiaries of America Online Latin America, Inc.
23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1)
@24.1 Powers of Attorney.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
These portions have been omitted and filed separately with the Commission.
@ Previously filed.
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICA ONLINE LATIN AMERICA, INC.
Pursuant to Sections 242 and 245
of the Corporation Law of the
State of Delaware
____________________
(Originally incorporated under the same name on November 22, 1999)
FIRST: The name of the corporation is America Online Latin America, Inc.
(the "Corporation").
SECOND: The initial registered office of the Corporation is to be located
at 1013 Centre Road, City of Wilmington, County of New Castle; and the name of
the initial registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: (a) Purpose. Subject to the provisions of Clause (d) of this
-------
Article THIRD and Clause (b)(i)(B) of Article FOURTH, the purpose of the
Corporation is to engage in any lawful act or activity for which a corporation
may be organized under the General Corporation Law of the State of Delaware (the
"GCL"); provided, however, that until all outstanding shares of High Vote Stock
(as defined below) of the Corporation have been converted into shares of Class A
Common Stock (as defined below) in accordance with Clause (b)(iii) of Article
FOURTH of this Certificate of Incorporation or are otherwise no longer issued
and outstanding, the Corporation shall not, and shall not have the power to,
engage directly or indirectly, including without limitation through any
Subsidiary (as defined below) or Affiliate (as defined below), in any business
other than providing Interactive Services (as defined below) in the Territory
(as defined below) and engaging in ancillary activities necessary or desirable
to conduct such business.
(b) Definitions. As used herein, the following terms shall have the
-----------
following meanings:
"Action" shall mean any claim, action, suit, arbitration, mediation,
inquiry, proceeding or investigation by or before any Governmental Authority (or
arbitrator or mediator, as the case may be), whether at law or in equity.
"Additional Shares of Common Stock" shall have the meaning given in Clause
(c) of Article FOURTH.
"Advancement of Expenses" shall have the meaning given in Clause (e) of
this Article THIRD.
"Affiliate" of any Person shall mean any other Person that, directly or
indirectly, controls, is under common control with or is controlled by that
Person. For purposes of this definition, "control" (including, with its
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"AOL" shall mean America Online, Inc., a Delaware corporation.
"AOL-branded" shall mean, with respect to any internet or online service
that such service includes the words "AOL" or "America Online" as an integral
part of the name of such internet or online service. For the avoidance of
doubt, a reference to an internet or online service being available on or
through "AOL" or "America Online" internet or online service shall not itself
make such service "AOL-
1
<PAGE>
branded", nor would the description of, for example, Netscape, an AOL company.
By way of illustration, the "AOL Latin America regional internet portal service"
and the "America Online Brasil online service" are "AOL-branded" services, while
"Netscape Online" is not an AOL-branded service.
"Board" shall mean the Corporation's Board of Directors.
"Business Plan" shall mean, with respect to each country within the
Territory, an annual capital, revenue and expense plan, including pro forma
statements of income/loss, financial condition and cash flows, the projected
cash funding requirements of the applicable Operating Entity on a quarterly
basis, and such other information as the Board shall require from time to time,
together with a quarterly cash funding plan with dates of funding, plus
marketing, operational and other business strategies, reflecting the financial
objectives and requirements of the applicable Operating Entity.
"By-laws" shall mean the By-laws of the Corporation, as the same may be
amended or restated from time to time.
"Cisneros Family" shall mean Ricardo Cisneros, Gustavo Cisneros and/or
their lineal descendants, individually or collectively and/or any trusts for the
exclusive benefit of any one or more of such persons.
"Class A Common Stock" shall have the meaning given in Clause (a) of
Article FOURTH.
"Class A Director" shall have the meaning given in Clause (b) of Article
FOURTH.
"Class B Common Stock" shall have the meaning given in Clause (a) of
Article FOURTH.
"Class B Director" shall have the meaning given in Clause (b) of Article
FOURTH.
"Class B Securities" shall mean collectively the Series B Preferred Stock
and/or the Class B Common Stock, as the same may be outstanding from time to
time.
"Class B Triggering Event" shall have the meaning given in Clause (b) of
Article FOURTH.
"Class C Common Stock" shall have the meaning given in Clause (a) of
Article FOURTH.
"Class C Director" shall have the meaning given in Clause (b) of Article
FOURTH.
"Class C Securities" shall mean collectively the Series C Preferred Stock
and/or the Class C Common Stock, as the same may be outstanding from time to
time.
"Class C Triggering Event" shall have the meaning given in Clause (b) of
Article FOURTH.
"Common Stock" shall have the meaning given in Clause (a) of Article
FOURTH.
"Communication Services" includes chat, e-mail, message boards, online
transactions and other forms of online interaction.
"Content" shall mean either (i) text or (ii) multimedia information which
contains any combination of any of the following in digital form or such other
forms as may become available in the future: text, graphics, video, sound,
still images, or the like.
"Conversion Date" shall have the meaning given in Clause (c) of Article
FOURTH.
2
<PAGE>
"Conversion Ratio" shall mean collectively, the Series B Conversion Ratio
and the Series C Conversion Ratio.
"Corporate Opportunity" shall mean an investment or business opportunity or
prospective economic or competitive advantage in which the Corporation could,
but for the provisions of this Article THIRD, have an interest or expectancy.
Notwithstanding the foregoing, "Corporate Opportunity" shall not include any
Special Power.
"Corporation" shall have the meaning given in Article FIRST.
"Damages" shall mean any and all costs, losses, claims, liabilities, fines,
penalties, damages and expenses (including interest which may be incurred in
connection therewith), court costs, and reasonable fees and expenses of counsel,
consultants and expert witnesses, incurred by a Person indemnified pursuant to
the provisions of paragraph (e) of this Article THIRD.
"Employee" shall mean, with respect to a Parent Entity as of any date, any
then current employee of such Parent Entity or of any Wholly-Owned Affiliate of
such Parent Entity.
"Encumbrance" shall mean any mortgage, pledge, security interest, lien or
restriction on use or transfer, voting agreement, adverse claim or encumbrance
or charge of any kind (including any agreement to give any of the foregoing),
any conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of, or any agreement to give, any financing statement
under the Uniform Commercial Code or similar law of any jurisdiction.
"Executive Committee" shall have the meaning given in Clause (e) of Article
FIFTH.
"Fair Market Value" shall mean, as of any date, the average closing price
for the Class A Common Stock as quoted on any national securities exchange or on
the NASDAQ National Market System for the fifteen trading days ending on the
second trading day prior to such date as reported in the Eastern Edition of The
---
Wall Street Journal. If the Class A Common Stock shall not be listed on any such
- -------------------
exchange or traded on any such automated quotation system on all such trading
days during such 15-trading day period, the closing or latest reported price for
Class A Common Stock in the over-the-counter market on each trading day on which
such shares are not so listed or traded as reported by NASDAQ or, if not so
reported, then the last sale price for each such day, as reported by the
National Quotation Bureau Incorporated, or if such organization is not in
existence, by an organization providing similar services (as determined by the
Board), shall be deemed to be the closing price on such trading day. If, at a
time when the Class A Common Stock is trading other than on such an exchange,
there shall not have been a sale on any such trading day, the mean of the last
reported bid and asked quotations as reported in the Eastern Edition of The Wall
--------
Street Journal for Class A Common Stock on such day shall be deemed to be the
- --------------
closing price. If the shares of Class A Common Stock shall not be so reported
on any of such trading days, then the Fair Market Value per share of such Class
A Common Stock shall be the fair market value thereof as determined in the
reasonable judgment of the Board of Directors. For the purpose hereof, "trading
day" shall mean a day on which the securities exchange or automated quotation
system specified herein shall be open for business or, if the shares of Class A
Common Stock shall not be listed on such exchange or automated quotation system
for such period, a day with respect to which quotations of the character
referred to in the next preceding sentence shall be reported.
"Final Adjudication" shall have the meaning given in Clause (e) of this
Article THIRD.
"GCL" shall have the meaning given in Clause (a) of this Article THIRD.
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"Governmental Authority" shall mean any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, or commission or any court, tribunal or agency.
"High Vote Common Stock" shall mean, collectively, the Class B Common Stock
and the Class C Common Stock.
"High Vote Preferred Stock" shall mean, collectively, the Series B
Preferred Stock and the Series C Preferred Stock.
"High Vote Stock" shall mean, collectively, the High Vote Common Stock and
the High Vote Preferred Stock.
"Interactive Services" shall mean the provision of Content or Communication
Services which may be provided through the use of any protocols, standards, or
platforms (including Internet or Internet derivative protocols, standards, and
platforms) for remote access by narrowband or broadband infrastructure,
including without limitation POTS, ISDN, ADSL, satellite, cable, fiber optics,
wireless and hybrid CD-ROM.
"Internet Portal Services" shall mean a comprehensive collection of AOL-
branded, Spanish and/or Portuguese language, internet or online services
intended to aggregate and market all material consumer relevant segments of web-
based Content targeted to consumers in one or more specific countries within the
Territory and accessible to all Persons, regardless of whether they are
Subscribers within such countries. By way of illustration, in Brazil, the
americaonline.com.br is an Internet Portal Service, while individual websites
devoted to e-commerce, vertical markets or specific subjects (e.g., personal
finance) would not be Internet Portal Services.
"Launch" shall mean the first commercial availability of an Interactive
Service to potential Subscribers in the Territory or a country in the Territory,
as applicable.
"Liquidation Preference" shall have the meaning given in Clause (c) of
Article FOURTH .
"Mandatory Redemption" shall have the meaning given in Clause (c) of
Article FOURTH.
"ODC" shall mean Riverview Media Corp., a British Virgins Islands
corporation.
"Operating Entity" shall mean an Affiliate of the Corporation formed for
the purpose of operating and/or marketing and supporting the business of the
Corporation in one or more jurisdictions in the Territory.
"Original Issue Date" shall have the meaning given in Clause (c) of Article
FOURTH.
"Parent Entity" shall mean each of AOL and ODC.
"PC Access Services" shall mean the provision by any Person of physical
network access (irrespective of bandwidth or type of physical infrastructure
such as cable, fiber optics, copper, fixed wireless or satellite) to online
and/or internet services to end users of personal computers.
"Permitted Encumbrances" shall mean (i) liens for taxes, assessments and
other governmental charges or levies not due and payable, or which currently are
being contested in good faith by appropriate proceedings, (ii) mechanics',
workmen's, repairmen's, materialmen's, warehousemen's, vendors' and carriers'
liens, and other similar liens arising in the ordinary course of business for
charges which are not
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delinquent, or which currently are being contested in good faith by appropriate
proceedings and have not proceeded to judgment, and (iii) liens in respect of
judgments or awards with respect to which there shall be a good faith current
prosecution of an appeal or proceedings for review which is secured by an
appropriate bond or a stay of execution pending such appeal or proceedings for
review.
"Permitted Transferee" shall mean AOL, ODC, each of their Wholly-Owned
Affiliates, Employees of AOL and ODC, and members of the Cisneros Family.
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust, unincorporated organization, or other legal entity, or
a Governmental Authority, or their equivalent under the applicable legal system.
"Preferred Stock" shall have the meaning given in Clause (a) of Article
FOURTH.
"Redemption Date" shall have the meaning given in Clause (c) of Article
FOURTH.
"Redemption Notice" shall have the meaning given in Clause (c) of Article
FOURTH.
"Redemption Price" shall have the meaning given in Clause (c) of Article
FOURTH.
"Registration Rights Agreement" means the Registration Rights Agreement by
and among the Company, AOL and ODC dated ____________, 2000.
"Section 141(a)" shall have the meaning given in Clause (c) of Article
FIFTH.
"Series B Conversion Ratio" shall have the meaning given in Clause (c) of
Article FOURTH.
"Series B Preferred Stock" shall have the meaning given in Clause (a) of
Article FOURTH.
"Series C Conversion Ratio" shall have the meaning given in Clause (c) of
Article FOURTH.
"Series C Preferred Stock" shall have the meaning given in Clause (a) of
Article FOURTH.
"Special Committee" shall have the meaning given in Clause (d) of Article
FIFTH.
"Special Power" shall mean any investment or business opportunity or
prospective economic or competitive advantage that (i) is presented to or
becomes known to an officer of the Corporation who is not also an officer or
director of AOL or ODC or any of their Subsidiaries or Affiliates (other than
the Corporation), (ii) occurs or arises solely in the Territory and (iii)
involves opportunities, activities or operations of a type or nature which the
Corporation is then pursuing or conducting (i.e., accepting advertising from a
local provider of products or services, or advertising directed solely in the
Territory from an international provider of products or services as opposed to
advertising by an international provider of products or services directed both
within and outside of the Territory) as opposed to opportunities, activities or
operations of a type which the Corporation is not then conducting (i.e.,
offering a new product, technology or service not then being offered by the
Corporation).
"Stockholders' Agreement" shall mean the Stockholders' Agreement by and
among the Corporation, AOL and ODC, dated as of ______________, 2000.
"Strategic Partner" shall mean any Person who acquires 25% or more of the
equity of the Company and who provides a strategic benefit to the Company in the
form of a contractual relationship or contribution of material, in-kind assets.
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<PAGE>
"Subscriber" shall mean, as of any date of determination and with respect
to any Interactive Service, any Person who has opened an account with or
otherwise registered as a user of such Interactive Service.
"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, association, joint venture or other
business entity of which (i) if a corporation, (x) ten percent (10%) or more of
the total voting power of shares of stock entitled to vote in the election of
directors thereof or (y) ten percent (10%) or more of the value of the equity
interests is at the time owned or controlled, directly or indirectly, by the
Person or one or more of its other Subsidiaries, or (ii) if a limited liability
company, partnership, association or other business entity, ten percent (10%) or
more of the partnership or other similar ownership interests thereof is at the
time owned or controlled, directly or indirectly, by the Person or one or more
of its subsidiaries. The Person shall be deemed to have ten percent (10%) or
greater ownership interest in a limited liability company, partnership,
association or other business entity if the Person is allocated ten percent
(10%) or more of the limited liability company, partnership, association or
other business entity gains or losses or shall be or control the Person managing
such limited liability company, partnership, association or other business
entity.
"Territory" shall mean the following countries:
Anguilla Haiti
Antigua Honduras
Argentina Jamaica
Aruba Martinique
Bahamas Mexico
Barbados Netherlands Antilles
Barbuda Nevis Montserrat
Belize Nicaragua
Bolivia Panama
Brazil Paraguay
Caicos Islands Peru
Cayman Islands Puerto Rico
Chile St. Kitts
Colombia St. Lucia
Costa Rica St. Maarten
Cuba St. Martin
Dominica St. Vincent
Dominican Republic Suriname
Ecuador The Grenadines
El Salvador Tobago
French Guiana Trinidad
Grenada Turks Islands
Guadeloupe Uruguay
Guatemala Venezuela
Guyana Virgin Islands
"Transfer Agent" shall have the meaning given in Clause (b) of Article
FOURTH.
"TV Access Services" shall mean the provision by any Person of network
access (irrespective of bandwidth or transmission media, including, without
limitation, cable, fiber optics and satellite) to online and/or internet
services to end users of the television platform by means of cable or satellite
transmission.
"Undertaking" shall have the meaning given in Clause (e) of Article THIRD.
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"Voting Stock" shall have the meaning given in Clause (a) of Article
FOURTH.
"Wholly Owned Affiliate" shall mean with respect to any Person any other
Person which is directly or indirectly wholly owned by such Person, directly or
indirectly wholly owns such Person or is directly or indirectly wholly owned by
the same Person as such Person, with such ownership to mean possession of both
100% of the equity interest and 100% of the voting interest, except for
directors' qualifying shares, if any. Any Person that is directly or indirectly
wholly owned by the Cisneros Family shall be deemed a Wholly Owned Affiliate of
ODC.
"Wireless Access Services" shall mean the provision by any Person of
network access by use of electromagnetic waves (irrespective of bandwidth or
transmission protocol) to online and/or internet services to end users of mobile
wireless access devices, which access services are acquired or developed by AOL
for Launch anywhere on or prior to _____, 2004. "Wireless Access Services"
shall not include any PC Access Services or TV Access Services, notwithstanding
their use of electromagnetic waves or otherwise. For the avoidance of doubt, the
fact that an end user of a PC Access Service or TV Access Service shall transmit
information to his or her personal computer or television by means of an
infrared or other wireless keyboard or similar input device shall not make such
PC Access Service or TV Access Service a Wireless Access Service.
(c) Competing Activities and Corporate Opportunities. The stockholders of
------------------------------------------------
the Corporation, including, without limitation, AOL, ODC, and their respective
officers, directors, agents, shareholders, members, partners, Affiliates and
Subsidiaries (other than the Corporation and its Subsidiaries), may engage or
invest in, independently or with others, any business activity of any type or
description, including without limitation those that might be the same as or
similar to the Corporation's business or the business of any Subsidiary or
Affiliate of the Corporation and that might be in direct or indirect competition
with the Corporation or any Subsidiary or Affiliate of the Corporation,
including, without limitation, any business of the Corporation conducted
pursuant to any Special Power, and neither the Corporation, any Subsidiary or
Affiliate of the Corporation (other than the Corporation and its Subsidiaries)
nor any other stockholder of the Corporation shall have any right in or to such
other ventures or activities or to receive or share in any income or proceeds
derived therefrom. If either AOL or ODC (or, except as to any matter the
Corporation has the corporate power to exploit pursuant to Clause (d) of Article
THIRD, any of their respective officers, directors, agents, shareholders,
members, partners, Affiliates or Subsidiaries) acquires knowledge of a potential
transaction or matter which may be a Corporate Opportunity or otherwise is then
exploiting any Corporate Opportunity, the Corporation shall have no interest in,
and no expectation that, such Corporate Opportunity be offered to it, any such
interest or expectation being hereby renounced, so that such Person (1) shall
have no duty to communicate or present such Corporate Opportunity to the
Corporation, shall have the right to hold any such Corporate Opportunity for its
(and its officers', directors', agents', shareholders', members', partners',
Affiliates' or Subsidiaries') own account or to recommend, sell, assign or
otherwise transfer such Corporate Opportunity to Persons other than the
Corporation or any Subsidiary of the Corporation, and (2) shall not be liable to
the Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation or otherwise by reason of the fact that such
Person pursues or acquires such Corporate Opportunity for itself, directs,
sells, assigns or otherwise transfers such Corporate Opportunity to another
Person, or does not communicate information regarding such Corporate Opportunity
to the Corporation.
(d) Limitation on Corporate Powers.
------------------------------
(1) The Corporation shall not have the corporate power to take any
action, or to cause or permit any Subsidiary or Affiliate to take any
action, to exploit in any manner any Corporate Opportunity (other than a
Special Power) unless and until exploitation of such Corporate Opportunity
is rejected by AOL and by ODC (in each case by each of AOL and ODC
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<PAGE>
on their own behalf and on behalf of their respective Subsidiaries and
Affiliates) as set forth herein. The Corporation shall not have the
corporate power to take any action, or to cause or permit any Subsidiary or
Affiliate to (or to own any Subsidiary or Affiliate that does) take any
action, to exploit in any manner any Corporate Opportunity, knowledge of
which is obtained by any person who is an officer, director, employee or
agent of the Corporation and who is neither (1) a Class B or Class C
Director nor (2) an officer or director of AOL or ODC or any of their
Subsidiaries or Affiliates (other than the Corporation) unless and until
(A) such Corporate Opportunity shall be presented to AOL and ODC (in each
case to AOL and ODC on their own behalf and on behalf of their respective
Subsidiaries and Affiliates) and (B) AOL determines that AOL shall not and
ODC determines that ODC shall not (in each case by each of AOL and ODC on
their own behalf and on behalf of their respective Subsidiaries and
Affiliates) pursue such Corporate Opportunity. The Corporation shall not
have the corporate power to take any action, or to cause or permit any
Subsidiary or Affiliate to take any action, to exploit in any manner any
Corporate Opportunity, knowledge of which is obtained by any person who is
a director or officer of the Corporation and who is either (1) a Class B
Director or (2) a director or officer of AOL or any of its Subsidiaries or
Affiliates (other than the Corporation) unless and until exploitation of
such Corporate Opportunity is rejected by AOL on its own behalf and on
behalf of its Subsidiaries and Affiliates. The Corporation shall not have
the corporate power to take any action, or to cause or permit any
Subsidiary or Affiliate to (or to own any Subsidiary or Affiliate that
does) take any action, to exploit in any manner any Corporate Opportunity,
knowledge of which is obtained by any person who is a director or officer
of the Corporation and who is either (1) a Class C Director or (2) a
director or officer of ODC or any of its Subsidiaries or Affiliates (other
than the Corporation) unless and until exploitation of such Corporate
Opportunity is rejected by ODC on its own behalf and on behalf of its
Subsidiaries and Affiliates. Notwithstanding the foregoing, each or both of
AOL and ODC, and each of their Subsidiaries and Affiliates, may exploit any
Corporate Opportunity that may become or is a Special Power of the
Corporation regardless of whether the Corporation is then exploiting or
attempting to exploit such Special Power.
(2) For purposes of Clause (d)(1) of this Article THIRD, if any Person
entitled to exploit a Corporate Opportunity does not, within 180 calendar
days after becoming aware of such Corporate Opportunity, begin to pursue,
or thereafter continue to pursue, such Corporate Opportunity, the
Corporation shall then have the corporate power to take any action or cause
or permit any Subsidiary to take any action to exploit in any manner any
such Corporate Opportunity; provided that the 180 calendar days within
which a Person must begin to or continue to pursue a Corporate Opportunity
shall not be deemed to have elapsed with respect to a Person until the day
after the date reasonably determined by the Board of Directors of the
Corporation to be the 180th calendar day after such Person became aware of
the Corporate Opportunity as set forth in a written notice from the
Corporation to the Person or Persons entitled to exploit the Corporate
Opportunity; and provided further that each recipient of such notice does
not object to such determination in writing to the Corporation within ten
(10) business days following the receipt of such written notice. In the
case of an objection by a recipient of the date set forth in the written
notice provided in the preceding sentence, the 180th calendar day shall be
the date mutually agreed upon by the Corporation and the Person or Persons
entitled to exploit the Corporate Opportunity.
(3) Except as specifically provided in Clause (d)(1) of this Article
THIRD, for purposes of Clause (d) of this Article THIRD only (A) the term
"Corporation" shall mean the Corporation and all Subsidiaries and
Affiliates of the Corporation and (B) the terms AOL and ODC shall mean, as
applicable, AOL, ODC, and each of their Subsidiaries and Affiliates other
than the Corporation.
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(e) Indemnification.
---------------
(i) If, and to the extent that, the Corporation, any stockholder of
the Corporation or any other Person brings any Action against AOL or ODC
(or any of their officers, directors, agents, shareholders, members,
partners, Affiliates or Subsidiaries) seeking any Damages or injunctive or
other equitable relief based on, arising out of or relating to any breach
or alleged breach of any fiduciary or other duty based on any action or
inaction which is permitted by the provisions of this Article THIRD or
which is otherwise taken in reliance upon the provisions of this Article
THIRD, the Corporation shall, to the fullest extent permitted by law,
indemnify and hold such Persons harmless from and against all Damages
arising out of or in connection with any such Action. The right to
indemnification conferred herein shall include the right to be paid by the
Corporation the expenses (including attorneys', accountants', experts' and
other professionals' fees, costs and expenses) incurred in defending any
such Action in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that if, but only if and then only to the
extent, the GCL requires, an Advancement of Expenses incurred by an
indemnitee hereunder shall be made only upon delivery to the Corporation of
an undertaking (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 (a "Final
Adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Article THIRD or otherwise. The rights to
indemnification and to the Advancement of Expenses conferred herein shall
be contract rights and, as such, shall inure to the benefit of the
indemnitee's successors, assigns, heirs, executors and administrators.
(ii) If a claim for indemnification under this Article THIRD hereof
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 be entitled to be paid also the
expense of prosecuting or defending such suit. In (A) any suit brought by
an indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by an indemnitee to enforce a right to an Advancement of
Expenses) it shall be a defense that, and (B) 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
only upon a Final Adjudication that, the indemnitee has not met the
applicable standard for indemnification, if any, set forth in the GCL.
Neither the failure of the Corporation (including its Board, 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 herein or in the GCL, nor an actual
determination by the Corporation (including its directors, or a committee
thereof, 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 THIRD or otherwise, shall be on the Corporation.
(iii) The rights to indemnification and to the Advancement of
Expenses conferred in this Article THIRD shall not be exclusive of any
other right which any person may have or hereafter
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acquire by any statute, this Certificate of Incorporation, the
Corporation's By-laws, or any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Notice to Holders. Any person purchasing or otherwise acquiring any
-----------------
interest in shares of the capital stock of the Corporation, or any other
securities, rights, warrants, options or debt instruments of the Corporation
convertible into or exchangeable for, capital stock of the Corporation shall be
deemed to have notice of and to have consented to the provisions of this Article
THIRD.
FOURTH: (a) Authorized Capital Stock.
------------------------
(i) Authorized Shares. The total number of shares of stock that the
-----------------
Corporation shall have the authority to issue is _________ shares,
comprised of ______ shares of Common Stock, par value $.01 per share,
issuable in three classes, as set forth below, and ________ shares of
Preferred Stock, par value $.01 per share, issuable in one or more series
as hereinafter provided.
(ii) Common Stock. The authorized shares of Common Stock shall be
------------
comprised of (1) __________ shares of Class A Common Stock (the "Class A
Common Stock"); (2) ________ shares of Class B Common Stock (the "Class B
Common Stock"); and (3) _______ shares of Class C Common Stock (the "Class
C Common Stock."). The Class A Common Stock, the Class B Common Stock and
the Class C Common Stock shall hereinafter collectively be called the
"Common Stock."
(iii) Preferred Stock. Of the ______ shares of Preferred Stock
---------------
authorized for issuance, (1) _________ shares shall be designated and known
as the "Series B Redeemable Convertible Preferred Stock" (hereinafter, the
"Series B Preferred Stock"), (2) _________ shares shall be designated and
known as the "Series C Redeemable Convertible Preferred Stock"
(hereinafter, the "Series C Preferred Stock") and (3) _______ shares shall
be reserved for issuance by the Board in accordance with the provisions of
Clause (c) of this Article FOURTH. The Series B Preferred Stock and Series
C Preferred Stock shall have the rights, privileges and obligations set
forth in Clause (c) of this Article FOURTH. The rights, privileges and
obligations of each other series of Preferred Stock shall be as set forth
in the resolution or resolutions adopted in the manner set forth in Clause
(c) of this Article FOURTH. The Series B Preferred Stock, the Series C
Preferred Stock and each other series of Preferred Stock created by the
Corporation in accordance with the provisions of this Certificate of
Incorporation shall hereinafter collectively be called the "Preferred
Stock."
(iv) Increases and Decreases in Size. The number of authorized
-------------------------------
shares of any class or classes or series of capital stock of the
Corporation may be increased or decreased (but not below the number of
shares thereof then outstanding) only after receiving each of the following
votes: (x) the affirmative vote of the holders of at least seventy five
percent (75%) of the voting power of the stock of the Corporation entitled
to vote generally in the election of directors ("Voting Stock")
irrespective of the provisions of Section 242(b)(2) of the GCL or any
corresponding provision hereinafter enacted and without a separate class
vote of the holders of such class or classes, except as provided in clauses
(y) and (z) hereof; (y) if there are one or more shares of Class B
Securities then outstanding, the affirmative vote of the holders of a
majority of the Class B Securities then outstanding voting together as a
single class; and (z) if there are one or more shares of Class C Securities
then outstanding, the affirmative vote of the holders of a majority of the
Class C Securities then outstanding voting together as a single class.
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(b) Terms of Common Stock; Voting; Directors.
----------------------------------------
(i) Rights and Privileges; Voting Rights.
------------------------------------
(A) The holders of shares of Common Stock shall have the
following voting rights:
(1) Each share of Class A Common Stock shall be entitled to
one (1) vote per share in person or by proxy on all matters
submitted to a vote of the stockholders of the Corporation on
which the holders of the Class A Common Stock are entitled to
vote.
(2) Each share of High Vote Common Stock shall be entitled
to ten (10) votes per share in person or by proxy on all matters
submitted to a vote of the stockholders of the Corporation on
which the holders of such High Vote Common Stock are entitled to
vote.
(3) Except as provided in Clause (c) of Article FOURTH and
as may be provided pursuant to resolutions of the Board adopted
pursuant to the provisions of this Certificate of Incorporation
and the By-laws, establishing any series of Preferred Stock and
granting to the holders of such shares of Preferred Stock rights
to elect additional directors under specified circumstances, and
subject to Article FOURTH, Clause (b)(iii)(C) and (D) and Article
FIFTH, Clause (a) below, the Board shall consist of thirteen (13)
directors. Subject to Article FOURTH, Clauses (b)(iii)(C) and (D)
and Article FIFTH, Clause (a) below: (x) the holders of the Class
B Securities, voting separately as a class, shall be entitled to
elect five (5) of the thirteen (13) directors of the Board (each
a "Class B Director"); (y) the holders of the Class C Securities,
voting separately as a class, shall be entitled to elect five (5)
of the thirteen (13) directors of the Board (each a "Class C
Director"); and (z) the remaining three (3) directors (each a
"Class A Director"), shall be elected by the vote of the holders
of the Common Stock, voting as one class (or if any holders of
shares of Preferred Stock are entitled to vote together with the
holders of Common Stock, as a single class with such holders of
shares of Preferred Stock).
(4) Except as provided in Clause (c) of Article FOURTH or as
otherwise required in this Certificate of Incorporation, the By-
laws or by applicable law, the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation generally (or if any
holders of shares of Preferred Stock are entitled to vote
together with the holders of Common Stock, as a single class with
such holders of shares of Preferred Stock).
(B)(1) Notwithstanding anything in this Certificate of
Incorporation to the contrary, so long as any shares of High Vote
Stock are outstanding, except as otherwise required by Section
242(b)(2) of the GCL, only the holder or holders, as the case may be,
of the High Vote Stock shall be entitled to vote generally on the
matters set forth in clauses (I) through (VII) of this Clause
(b)(i)(B)(1), and the vote of holders of a majority of the outstanding
Class B Securities and Class C Securities, each voting separately as a
class, or if only one of the Class B Securities or Class C Securities
is then outstanding, the vote of holders of a majority of such Class B
Securities or Class C Securities shall be required to:
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(I) Approve any amendment or repeal of Article THIRD of this
Certificate of Incorporation or adopt any provision inconsistent
therewith;
(II) Approve any amendment or repeal of Article FOURTH of
this Certificate of Incorporation or adopt any provision
inconsistent therewith;
(III) Approve any amendment or repeal of Article FIFTH of
this Certificate of Incorporation or adopt any provision
inconsistent therewith;
(IV) Approve any amendment or repeal of Articles III
(including Schedule 3.1(b) thereto), IV, X, or XI or Section 5.2
of the By- laws;
(V) Approve any expansion of the business of the Corporation
beyond the provision of PC Access Services, AOL-branded TV Access
Services, AOL-branded Wireless Access Services and AOL-branded
Internet Portal Services in the Territory;
(VI) Approve the creation of any Operating Entity in any
country within the Territory; and
(VII) Approve the commencement of any Action (without regard
to the amount in controversy) or settlement of any Action to
which the Corporation or any Subsidiary is a party or the subject
thereof, which Action could materially adversely affect the
rights of AOL or ODC or any of their Subsidiaries or Affiliates.
(2) Notwithstanding anything in this Certificate of Incorporation
to the contrary, so long as any shares of High Vote Stock are
outstanding, the vote of holders of a majority of the outstanding
Class B Securities and Class C Securities, each voting separately as a
class, or, if only one of the Class B Securities or Class C Securities
is then outstanding, the vote of the holders of a majority of such
Class B Securities or Class C Securities, shall be required to
approve:
(I) The merger, consolidation, dissolution or liquidation of
the Corporation or any Subsidiary, or any transaction having the
same effect;
(II) Except pursuant to (1) employee stock option and
similar incentive plans approved by the Board and the holders of
a majority of each class of High Vote Stock or (2) a conversion
or exchange right set forth in this Certificate of Incorporation
or similar constitutive documents of any Subsidiary, or in the
Stockholders' Agreement, the issuance, authorization,
cancellation, alteration, modification, redemption or any change
in, of, or to, any Common Stock, Preferred Stock or other equity
security of the Corporation or any Subsidiary, or any option,
put, call or warrant with respect to the foregoing;
(III) The transfer or other disposition of, or placing any
Encumbrance (other than Permitted Encumbrances) on, any material
asset of the Corporation or any Subsidiary (other than
disposition of inventory or obsolete assets of the Corporation or
any Subsidiary);
12
<PAGE>
(IV) Any transaction involving (i) the Corporation or any
Subsidiary as a result of which the Corporation or any
Subsidiary, alone or with its Affiliates, acquires control over
any other Person; or (ii) any related series or combination of
transactions having or which will have, directly or indirectly,
the same effect as any of the foregoing;
(V) The establishment of any entity (or the creation of any
entity owned jointly with any other party) by the Corporation or
any Subsidiary and the adoption of, and any material changes to,
any Subsidiary's method of doing business;
(VI) The adoption of any Business Plan for an Operating
Entity and the approval of any modification of any line item or
other provision in any Business Plan in respect of any Operating
Entity.
(VII) The adoption of any strategic plan and business
projections for the Corporation or any Subsidiary and approval,
rescission or amendment of any strategic decision material to the
conduct of the business of the Corporation or any Subsidiary;
(VIII) The establishment of, or making any significant
modification to, the investment and/or cash management policies
of the Corporation or any Subsidiary;
(IX) The approval of the discontinuation of any material
activity engaged in from time to time by the Corporation or any
Subsidiary;
(X) The approval of the entering into of any partnership,
joint venture or consortium with any other Person by the
Corporation or any Subsidiary;
(XI) The entry into agreements by the Corporation or any
Subsidiary outside of the ordinary course of business; and
(XII) The approval of the filing for bankruptcy of or any
decision not to take action to prevent a filing for bankruptcy or
not to oppose an involuntary filing for bankruptcy or other
winding up of the Corporation or any Subsidiary.
(ii) Dividends and Distributions.
---------------------------
(A) Subject to the preferences applicable to the Preferred Stock
outstanding at any time, if any, the holders of shares of Common Stock
shall be entitled to receive such dividends and other distributions in
cash, property or shares of stock of the Corporation as may be
declared thereon by the Board from time to time out of assets or funds
of the Corporation legally available therefor; provided, that, subject
to the provisions of this Section, the Corporation shall not pay
dividends or make distributions to any holders of any class of Common
Stock unless simultaneously with such dividend or distribution, as the
case may be, the Corporation makes the same dividend or distribution
with respect to each outstanding share of Common Stock regardless of
class.
(B) In the case of dividends or other distributions payable in
Class A Common Stock, Class B Common Stock or Class C Common Stock,
including
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<PAGE>
distributions pursuant to stock splits or divisions of Class
A Common Stock, Class B Common Stock or Class C Common Stock which
occur after the first date upon which the Corporation has issued
shares of any of Class A Common Stock, Class B Common Stock or Class C
Common Stock, only shares of Class A Common Stock shall be distributed
with respect to Class A Common Stock, only shares of Class B Common
Stock shall be distributed with respect to Class B Common Stock, and
only shares of Class C Common Stock shall be distributed with respect
to Class C Common Stock. In the case of any such dividend or
distribution payable in shares of Class A Common Stock, Class B Common
Stock or Class C Common Stock, the number of shares of each class of
Common Stock payable per share of each such class of Common Stock
shall be equal in number.
(C) In the case of dividends or other distributions consisting of
other voting securities of the Corporation or of voting securities of
any Person that is a Wholly Owned Affiliate of the Corporation, the
Corporation shall declare and pay such dividends in three separate
classes of such voting securities, identical in all respects, except
that: (1) the voting rights of each such security paid to the holders
of Class B Common Stock and Class C Common Stock, when compared to the
voting rights of each such security paid to the holders of Class A
Common Stock, shall have voting rights determined pursuant to the same
formula as provided in Clause (b)(i)(A) of Article FOURTH above; (2)
such security paid to the holders of Class B Common Stock shall
convert into the security paid to the holders of Class A Common Stock
upon the same terms and conditions then applicable to the conversion
of Class B Common Stock into Class A Common Stock and shall have the
same restrictions on transfer and ownership applicable to the transfer
and ownership of Class B Common Stock; and (3) such security paid to
the holders of Class C Common Stock shall convert into the security
paid to the holders of Class A Common Stock upon the same terms and
conditions then applicable to the conversion of Class C Common Stock
into Class A Common Stock and shall have the same restrictions on
transfer and ownership applicable to the transfer and ownership of
Class C Common Stock. In the case of any such dividend or
distribution payable in other voting securities of the Corporation or
any Wholly Owned Affiliate of the Corporation, the number of shares or
other interest of such voting securities payable per share of each
such class of Common Stock shall be equal in number.
(D) In the case of dividends or other distributions consisting of
securities convertible into, or exchangeable for, voting securities of
the Corporation or voting securities of any Person that is a Wholly
Owned Affiliate of the Corporation, the Corporation shall provide that
such convertible or exchangeable securities and the underlying
securities be identical in all respects (including, without
limitation, the conversion or exchange rate), except that: (1) the
voting rights of each security underlying the convertible or
exchangeable security paid to the holders of Class B Common Stock and
Class C Common Stock, when compared to the voting rights of each
security underlying the convertible or exchangeable security paid to
the holders of the Class A Common Stock, be determined pursuant to the
same formula as provided in Clause (b)(i)(A) of Article FOURTH above;
(2) such underlying securities paid to the holders of the Class B
Common Stock shall convert into the underlying securities paid to the
holders of Class A Common Stock upon the same terms and conditions
then applicable to the conversion of Class B Common Stock into Class A
Common Stock and shall have the same restrictions on transfer and
ownership applicable to the transfer and ownership of the Class B
Common Stock; and (3) such underlying securities paid to the holders
of the Class C Common Stock shall convert into the underlying
securities paid to the holders of Class A Common Stock upon the same
terms and conditions then
14
<PAGE>
applicable to the conversion of Class C Common Stock into Class A
Common Stock and shall have the same restrictions on transfer and
ownership applicable to the transfer and ownership of the Class C
Common Stock. In the case of any such dividend or distribution payable
in other voting securities of the Corporation or any Wholly Owned
Affiliate of the Corporation, the number of shares or other interest
of such voting securities payable per share of each such class of
Common Stock shall be equal in number.
(iii) Conversion of High Vote Common Stock.
------------------------------------
(A) Optional Conversion by the Holder. Each holder of High Vote
---------------------------------
Common Stock shall be entitled to convert, at any time and from time
to time, any or all of the shares of such holder's High Vote Common
Stock on a one-for-one basis, into the same number of fully paid and
non-assessable shares of Class A Common Stock. Such right shall be
exercised by the surrender to the Corporation of the certificate or
certificates representing the shares of High Vote Common Stock to be
converted at any time during normal business hours at the principal
executive offices of the Corporation or at the office of the
Corporation's transfer agent (the "Transfer Agent"), accompanied by a
written notice of the holder of such shares stating that such holder
desires to convert such shares, or a stated number of the shares
represented by such certificate or certificates, into an equal number
of shares of Class A Common Stock, and (if so required by the
Corporation or the Transfer Agent) by instruments of transfer, in form
satisfactory to the Corporation and to the Transfer Agent, duly
executed by such holder or such holder's duly authorized attorney, and
transfer tax stamps or funds therefor, if required pursuant to Article
FOURTH, Clause (b)(iii)(H) below.
(B) Automatic Conversion Upon Transfer.
----------------------------------
(1) Each share of High Vote Common Stock transferred,
directly or indirectly, by one or more Parent Entities (or any
Permitted Transferee) to one or more Persons other than a
Permitted Transferee shall automatically convert into one (1)
fully paid and non-assessable share of Class A Common Stock upon
such disposition, provided that no such conversion shall occur
solely as a result of the pledge, hypothecation or other similar
financing transaction of any High Vote Common Stock by a Parent
Entity so long as the transferring Parent Entity continues to
have the sole and exclusive authority and right to vote the
shares subject to such pledge, hypothecation or other financing
transaction. Notwithstanding the foregoing, any share of High
Vote Common Stock transferred by a Parent Entity (or any
Permitted Transferee) pursuant to the provisions of the preceding
sentence shall, if such transfer is to any Person other than a
Parent Entity or a Wholly Owned Affiliate of a Parent Entity,
automatically convert into one (1) fully paid and non-assessable
share of Class A Common Stock (A) upon such transfer, unless the
applicable Parent Entity obtains from such transferee a voting
agreement and voting proxy, each in form and substance
satisfactory to the Corporation and the other Parent Entity (if
such other Parent Entity then holds any High Vote Stock),
pursuant to which the transferee agrees to grant to the
appropriate Parent Entity the right to vote all shares of High
Vote Common Stock transferred to such Person, such vote to be at
the sole discretion of the appropriate Parent Entity, (B) upon
the termination of, or the occurrence of any event invalidating
or modifying in any material respect the voting provisions
contained in, any voting agreement or voting proxy entered into
pursuant to the provisions of the preceding Clause (A), and (C)
solely with respect to a transfer to an Employee of a Parent
Entity and/or one or more
15
<PAGE>
Cisneros Family members, if (i) such transfer, either
individually or when aggregated with all prior transfers of High
Vote Common Stock to Employees of such Parent Entity and/or
Cisneros Family members, exceeds 20% of the number of shares of
High Vote Common Stock issuable upon conversion of the shares of
High Vote Preferred Stock originally issued to such Parent Entity
or (ii) such person ceases to be an Employee of the transferring
Parent Entity. For purposes of the foregoing, AOL shall be the
appropriate Parent Entity with respect to any transfers of Class
B Common Stock and ODC shall be the appropriate Parent Entity
with respect to any transfers of Class C Common Stock. A copy of
every voting agreement and voting proxy entered into in
accordance with the provisions hereof, and all amendments thereto
or modifications thereof, must be filed with the Corporation
promptly after its execution. Notwithstanding the foregoing, (y)
if any Permitted Transferee ceases to qualify as a Permitted
Transferee at anytime following the transfer of the High Vote
Common Stock, then each share of the High Vote Common Stock
transferred to such Permitted Transferee shall automatically
convert, at the time that the transferee ceases to so qualify,
into one (1) fully paid and non-assessable share of Class A
Common Stock; and (z) no transfer of High Vote Common Stock may
be made, and any such transfer shall not be deemed to be valid by
the Corporation, if such transfer would, when combined with all
other transfers of such High Vote Common Stock previously
consummated, require the Corporation to register the Class B
Common Stock and/or Class C Common Stock under the Securities
Exchange Act of 1934, as amended. Determinations as to the
occurrence of events listed in this Clause (b)(iii)(B) of Article
FOURTH shall be made by a majority of the Board of Directors,
subject to the provisions of Clause (c) of Article FOURTH
regarding the approval of actions with stockholders.
(2) In addition, if any Person other than a Permitted
Transferee otherwise acquires any direct or indirect ownership
interest in a share of High Vote Common Stock, such share of High
Vote Common Stock automatically shall convert into one (1) fully
paid and non-assessable share of Class A Common Stock upon such
Person acquiring such ownership interest, provided that no such
conversion shall occur solely as a result of the pledge,
hypothecation or other similar financing transaction of any Class
B Common Stock or Class C Common Stock by a Parent Entity or any
Permitted Transferee so long as the appropriate Parent Entity
continues to have the sole and exclusive authority and right to
vote the shares subject to such pledge, hypothecation or other
financing transaction. For purposes of the foregoing, AOL shall
be the appropriate Parent Entity with respect to any pledges,
hypothecations or other similar financing transactions with
respect to any Class B Common Stock and ODC shall be the
appropriate Parent Entity with respect to any pledges,
hypothecations or other similar financing transactions with
respect to any Class C Common Stock.
(C) If at any time the number of shares of Class B Common Stock
owned by AOL, its Wholly Owned Affiliates and its Employees in the
aggregate (including shares of Class B Common Stock issuable upon
conversion of then outstanding shares of Series B Preferred Stock)
constitutes less than fifty percent (50%) of the number of shares of
Class B Common Stock issuable to AOL upon the conversion of the Series
B Preferred Stock originally issued to AOL (in each case as adjusted
to negate any reduction in the number of shares of Class B Common
Stock and/or Series B Preferred Stock owned by AOL resulting from the
admission of a Strategic Partner approved by the Special Committee
pursuant to Article FIFTH, Clause (d) and equitably adjusted for any
stock
16
<PAGE>
split, stock dividend, reverse stock split, reclassification or
similar transaction) (a "Class B Triggering Event"), then each share
of Class B Common Stock then issued and outstanding, including shares
issuable upon the conversion of Series B Preferred Stock in connection
with the occurrence of the Class B Triggering Event, shall thereupon
be converted automatically as of such date into one (1) fully paid and
non-assessable share of Class A Common Stock. Upon the determination
by the Corporation that such automatic conversion has occurred, notice
of such automatic conversion shall be given by the Corporation as soon
as practicable thereafter by means of a press release and written
notice to all holders of Class B Common Stock, and the Secretary of
the Corporation shall be instructed to, and shall promptly, request
from each holder of Class B Common Stock that each such holder
promptly deliver, and each such holder shall promptly deliver, the
certificate representing each such share of Class B Common Stock to
the Corporation for exchange hereunder, together with instruments of
transfer, in form satisfactory to the Corporation and the Transfer
Agent, duly executed by such holder or such holder's duly authorized
attorney, and together with transfer tax stamps or funds therefor, if
required pursuant to Article FOURTH, Clause (b)(iii)(H) below.
Effective upon a Class B Triggering Event, the term of any then
serving Class B Directors shall terminate, and the size of the Board
and any committee of the Board on which any such director serves shall
be decreased by the number of Class B Directors then serving thereon.
(D) If at any time the number of shares of Class C Common Stock
owned by ODC, its Wholly Owned Affiliates, members of the Cisneros
Family and ODC Employees in the aggregate (including shares of Class C
Common Stock issuable upon conversion of then outstanding shares of
Series C Preferred Stock) constitutes less than fifty percent (50%) of
the number of shares of Class C Common Stock issuable to ODC upon the
conversion of the Series C Preferred Stock originally issued to ODC
(in each case as adjusted to negate any reduction in the number of
shares of Class C Common Stock and/or Series C Preferred Stock owned
by ODC resulting from the admission of a Strategic Partner approved by
the Special Committee pursuant to Article FIFTH, Clause (d) and
equitably adjusted for any stock split, stock dividend, reverse stock
split, reclassification or similar transaction) (a "Class C Triggering
Event"), then each share of Class C Common Stock then issued and
outstanding, including shares issuable upon the conversion of Series C
Preferred Stock in connection with the occurrence of the Class C
Triggering Event, shall thereupon be converted automatically as of
such date into one (1) fully paid and non-assessable share of Class A
Common Stock. Upon the determination by the Corporation that such
automatic conversion has occurred, notice of such automatic conversion
shall be given by the Corporation as soon as practicable thereafter by
means of a press release and written notice to all holders of Class C
Common Stock, and the Secretary of the Corporation shall be instructed
to, and shall promptly, request from each holder of Class C Common
Stock that each such holder promptly deliver, and each such holder
shall promptly deliver, the certificate representing each such share
of Class C Common Stock to the Corporation for exchange hereunder,
together with instruments of transfer, in form satisfactory to the
Corporation and the Transfer Agent, duly executed by such holder or
such holder's duly authorized attorney, and together with transfer tax
stamps or funds therefor, if required pursuant to Article FOURTH,
Clause (b)(iii)(H) below. Effective upon a Class C Triggering Event,
the term of any then serving Class C Directors shall terminate, and
the size of the Board and any committee of the Board on which any such
director serves shall be decreased by the number of Class C Directors
then serving thereon.
17
<PAGE>
(E) As promptly as practicable following the surrender for
conversion of a certificate representing shares of High Vote Common
Stock in the manner provided in Article FOURTH, Clauses (b)(iii)(A),
(B), (C) or (D) above, and the payment in cash of any amount required
by the provisions of Article FOURTH, Clause (b)(iii)(H) below, the
Corporation will deliver or cause to be delivered at the office of the
Transfer Agent, a certificate or certificates representing the number
of full shares of Class A Common Stock issuable upon such conversion,
issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the event causing the
conversion occurs. Upon the date any such conversion is deemed made or
effected, all rights of the holder of such shares of High Vote Common
Stock as such holder shall cease, and the person or persons in whose
name or names the certificate or certificates representing the shares
of Class A Common Stock are to be issued shall be treated for all
purposes as having become the record holder or holders of such shares
of Class A Common Stock; provided, however, that if any such surrender
and payment occurs on any date when the stock transfer books of the
Corporation shall be closed, the person or persons in whose name or
names the certificate or certificates representing shares of Class A
Common Stock are to be issued shall be deemed the record holder or
holders thereof for all purposes immediately prior to the close of
business on the next succeeding day on which the stock transfer books
are open.
(F) Upon any reclassification or other similar transaction that
results in the shares of Class A Common Stock being converted into or
exchanged for another security, holders of High Vote Common Stock
shall be entitled to receive upon conversion or exchange of such High
Vote Common Stock the amount of such security that such holder would
have received if such conversion or exchange had occurred immediately
prior to the record date of such reclassification or other similar
transaction. No adjustments in respect of dividends shall be made upon
the conversion or exchange of any share of High Vote Common Stock;
provided, however, that if a share of High Vote Common Stock shall be
converted or exchanged subsequent to the record date for the payment
of a dividend or other distribution on shares of High Vote Common
Stock but prior to such payment, then the registered holder of such
share at the close of business on such record date shall be entitled
to receive the dividend or other distribution payable on such share on
such date notwithstanding the conversion or exchange thereof or the
default in payment of the dividend or distribution due on such date.
(G) The Corporation covenants that it shall at all times reserve
and keep available out of its authorized but unissued shares of Class
A Common Stock solely for the purpose of issuance upon conversion of
the outstanding shares of High Vote Stock, such number of shares of
Class A Common Stock that shall be issuable upon the conversion of all
such outstanding shares of High Vote Stock; provided that nothing
contained herein shall be construed to preclude the Corporation from
satisfying its obligations in respect of the conversion of the
outstanding shares of High Vote Stock by delivery of purchased shares
of Class A Common Stock which are held in the treasury of the
Corporation. The Corporation covenants that if any shares of Class A
Common Stock require registration with or approval of any Governmental
Authority under any federal or state law before such shares of Class A
Common Stock may be issued upon conversion of any High Vote Stock, the
Corporation shall cause such shares to be duly registered or approved,
as the case may be. The Corporation shall use its best efforts to list
or otherwise qualify for trading the shares of Class A Common Stock
required to be delivered upon conversion or exchange prior to such
delivery upon each national securities exchange, automated quotation
system or other market upon which the
18
<PAGE>
outstanding Class A Common Stock is listed or qualified for trading at
the time of such delivery. The Corporation covenants that all shares
of Class A Common Stock that shall be issued upon conversion of the
shares of High Vote Stock will, upon issue, be validly issued, fully
paid and non-assessable.
(H) The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of High Vote Common Stock shall be
made without charge to the holders of such shares for any stamp or
other similar tax in respect of such issuance; provided, however, that
if any such certificate is to be issued in a name other than that of
the holder of the share or shares of High Vote Common Stock being
converted, then the Person or Persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax that may be payable
in respect of any transfer involved in such issuance or shall
establish to the satisfaction of the Corporation that such tax has
been paid or is not payable.
(I) Shares of High Vote Common Stock that are converted into
shares of Class A Common Stock as provided herein shall continue to be
authorized shares of Class B Common Stock or Class C Common Stock, as
the case may be, and available for reissue by the Corporation;
provided, however, that no shares of High Vote Common Stock shall be
reissued except as expressly permitted by Article FOURTH, Clause
(b)(ii) above or Article FOURTH, Clause (b)(iv) below.
(iv) Stock Splits. The Corporation shall not in any manner subdivide
------------
(by any stock split, stock dividend, reclassification, recapitalization or
otherwise) or combine (by reverse stock split, reclassification,
recapitalization or otherwise) the outstanding shares of one class of
Common Stock unless the outstanding shares of all classes of Common Stock
shall be proportionately subdivided or combined.
(v) Liquidation Rights. Upon any dissolution, liquidation or winding-
------------------
up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities
of the Corporation and after making provision for the holders of the High
Vote Preferred Stock and each additional series of Preferred Stock, if any
then outstanding, the remaining assets and funds of the Corporation, if
any, shall be divided among and paid to the respective holders of the
Common Stock and High Vote Preferred Stock ratably in proportion to the
number of shares of Common Stock they then hold assuming, for purposes of
such calculation, that all outstanding shares of High Vote Preferred Stock
are converted into shares of High Vote Common Stock at the then applicable
Conversion Ratio as of the date immediately preceding such distribution.
(vi) No Preemptive Rights. The holders of shares of Common Stock are
--------------------
not entitled to any preemptive right to subscribe for, purchase or receive
any part of any new or additional issue of stock of any class, whether now
or hereafter authorized, or of bonds, debentures or other securities
convertible into or exchangeable for stock.
c) Preferred Stock. Subject to the voting and approval procedures set forth
---------------
in Article FOURTH, clause (b) and Article FIFTH, Clause (d) of this Certificate
of Incorporation and in Article III of the By-laws, the Board is hereby
expressly granted authority to authorize in accordance with law from time to
time the issue of one or more series of Preferred Stock in addition to the
Series B Preferred Stock and Series C Preferred Stock, and with respect to any
such series to fix by resolution or resolutions the numbers of shares, powers,
designations, preferences and relative, participating, optional or other special
rights of such series and the qualifications, limitations or restrictions
thereof and to establish the price and consideration to be received therefor, as
well as all other matters applicable thereto as may be fixed or
19
<PAGE>
established pursuant to any such resolution in accordance with the provisions of
the GCL.
The preferences, privileges and restrictions granted to or imposed upon the
Series B Preferred Stock and Series C Preferred Stock, or the holders thereof,
are as follows:
(i) Designation and Amount.
----------------------
(A) Series B Preferred Stock. The number of shares constituting
------------------------
the Series B Preferred Stock shall be
_________________________________________________
(_________________). Such number of shares may be increased or
decreased in accordance with the other provisions of this Article
FOURTH, provided, however, that no decrease shall reduce the number of
shares of Series B Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants
or upon the conversion of any outstanding securities issued by the
Corporation and convertible into or exchangeable for Series B
Preferred Stock.
(B) Series C Preferred Stock. The number of shares constituting
------------------------
the Series C Preferred Stock shall be
_____________________________________ (_________________). Such
number of shares may be increased or decreased in accordance with the
other provisions of this Article FOURTH, provided, however, that no
decrease shall reduce the number of shares of Series C Preferred Stock
to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation and convertible into
or exchangeable for Series C Preferred Stock.
(ii) Dividends and Distributions.
---------------------------
(A) Preferred Stock Dividends. Subject to the GCL and the
-------------------------
provisions of this Certificate of Incorporation, the holders of shares
of High Vote Preferred Stock, in preference to the holders of shares
of Common Stock and of any other capital stock of the Corporation
ranking junior to the High Vote Preferred Stock as to payment of
dividends, shall be entitled to receive, when and as declared by the
Board, out of funds legally available therefor, cumulative dividends
at the annual per share rate of three percent (3%) of the per share
Liquidation Preference. Dividends on the High Vote Preferred Stock
shall accrue daily from the date of issuance of the High Vote
Preferred Stock, and shall be payable annually in arrears; provided,
that such dividend shall not be payable in cash, and instead shall be
payable solely in additional shares of the Corporation's Series B
Preferred Stock and Series C Preferred Stock, as applicable, with the
value of such additional shares equal, for such purposes, to the Fair
Market Value, on the date of such dividends, of a share of Class A
Common Stock which is ultimately issuable upon conversion of the High
Vote Common Stock issuable upon conversion of the High Vote Preferred
Stock. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly period during which
shares are outstanding shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in
the period in which payable. No fractional shares of High Vote
Preferred Stock shall be issued in respect of any such dividend, and
the number of shares issuable to any holder who otherwise would be
issued a fractional share shall be rounded down to the nearest whole
number of shares and the Corporation shall make a cash payment to such
Holder in an amount equal to such fraction multiplied by the Fair
Market Value of one share.
(B) Dividend Restrictions. Unless all accrued dividends on the
---------------------
High Vote Preferred Stock pursuant to this Clause (c)(ii) of Article
FOURTH shall have been paid or
20
<PAGE>
declared, no dividend shall be paid or declared, and no distribution
shall be made on any Common Stock or any class or series of capital
stock ranking junior to the High Vote Preferred Stock. If dividends
are declared with respect to the Common Stock or any class or series
of capital stock ranking junior to the High Vote Preferred Stock and
the foregoing condition is satisfied, then holders of High Vote
Preferred Stock shall be entitled to receive a dividend equivalent to
that which would have been payable had the High Vote Preferred Stock
been converted into shares of Common Stock immediately prior to the
record date for payment of the dividends on the Common Stock and no
such dividend on Common Stock shall be paid unless and until such
dividend also shall have been paid on the High Vote Preferred Stock.
No dividends or other distributions shall be authorized, declared,
paid or set apart for payment on any class or series of the
Corporation's stock heretofore or hereafter issued ranking, as to
dividends, on a parity with or junior to the High Vote Preferred Stock
for any period unless full cumulative dividends have been, or
contemporaneously are, authorized, declared or paid on the High Vote
Preferred Stock.
(iii) Liquidation, Dissolution or Winding-Up.
--------------------------------------
(A) Preferred Preference. In the event of any voluntary or
--------------------
involuntary liquidation, dissolution or winding-up of the Corporation,
after payment of all amounts owing to holders of capital stock ranking
senior to the High Vote Preferred Stock, the holders of shares of High
Vote Preferred Stock then outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of the
Common Stock or any class or series of capital stock ranking junior to
the High Vote Preferred Stock by reason of their ownership thereof, an
amount of $_____ per share [equal to the quotient derived by dividing
$250,000,000 by the number of shares of Series B Preferred Stock
outstanding on the Original Issue Date] (collectively, the
"Liquidation Preference"), in each case plus an amount equal to all
accrued but unpaid dividends, if any, to the date of winding up,
whether or not declared, on the High Vote Preferred Stock. If upon
such liquidation, distribution or winding-up of the Corporation,
whether voluntary or involuntary, the assets available to be
distributed to the holders of High Vote Preferred Stock are
insufficient to permit payment in full to such holders, then such
assets shall be distributed ratably among the holders of High Vote
Preferred Stock.
(B) Remaining Liquidating Distribution. After payment has been
----------------------------------
made in full pursuant to Clause (c)(iii)(A) of Article FOURTH above,
and to holders of capital stock of the Corporation ranking senior to
the High Vote Preferred Stock, if any, or the Corporation shall have
set aside funds sufficient for such payments in trust for the account
of such holders so as to be available for such payment, all remaining
assets available for distribution (after payment or provision for
payment of all debts and liabilities of the Corporation) shall be
distributed to the respective holders of any capital stock ranking
junior to the High Vote Preferred Stock but senior to the Common Stock
ratably in proportion to the number of shares of such stock they then
hold, if any such stock is then outstanding, and thereafter to the
respective holders of the Common Stock and High Vote Preferred Stock
ratably in proportion to the number of shares of Common Stock they
then hold and to any other stock ranking on a parity with the Common
Stock, assuming, for purposes of such calculation, that all
outstanding shares of High Vote Preferred Stock are converted into
shares of High Vote Common Stock at the then applicable Conversion
Ratio as of the date immediately preceding such distribution.
(iv) Voting Rights. Each holder of shares of High Vote Preferred Stock
-------------
shall be entitled to notice of every stockholders' meeting and to vote
on any and all matters on which
21
<PAGE>
the Common Stock and/or High Vote Common Stock may be voted. Each
share of High Vote Preferred Stock shall be entitled at any such
meeting (or in connection with any consent to be executed in lieu of
any such meeting) to the number of votes per share determined as if
such share of High Vote Preferred Stock had been converted into shares
of the class of High Vote Common Stock into which such High Vote
Preferred Stock is then convertible at the then applicable Conversion
Ratio. Unless otherwise provided in this Certificate of Incorporation
or required by law, each holder of each series of High Vote Preferred
Stock shall:
(A) vote together with the holders of the class of High Vote
Common Stock into which such High Vote Preferred Stock is then
convertible, if any shares of such class of High Vote Common Stock are
then outstanding, as a single class on all matters submitted to a vote
of the holders of such class of High Vote Common Stock, including,
without limitation the election of directors and with respect to the
matters set forth in Clause (b)(i)(B) of this Article FOURTH,
(B) vote as a separate class on all matters that would be
submitted to a vote of the holders of the class of High Vote Common
Stock into which such High Vote Preferred Stock is then convertible,
if no shares of such class of High Vote Common Stock are then
outstanding, and
(C) vote together with the holders of Common Stock as a single
class on all matters submitted to a vote of the holders of Common
Stock generally.
(v) Conversion. The holders of High Vote Preferred Stock shall have
----------
conversion rights as follows:
(A) Right of Holder to Convert; Automatic Conversion.
------------------------------------------------
(1) Series B Preferred Stock. Each issued and outstanding
------------------------
share of Series B Preferred Stock shall initially be convertible,
at the option of the holder thereof, at any time and without the
payment of any additional consideration therefor, into one (1)
fully paid and nonassessable share of Class B Common Stock (the
"Series B Conversion Ratio"). The initial Series B Conversion
Ratio shall be subject to adjustment (in order to adjust the
number of shares of Class B Common Stock into which the Series B
Preferred Stock is convertible) as herein provided. In addition,
each issued and outstanding share of Series B Preferred Stock
automatically shall be converted into shares of Class B Common
Stock at the then applicable Series B Conversion Ratio upon the
occurrence of a Class B Triggering Event.
(2) Series C Preferred Stock. Each issued and outstanding
------------------------
share of Series C Preferred Stock shall initially be convertible,
at the option of the holder thereof, at any time and without the
payment of any additional consideration therefor, into one (1)
fully paid and nonassessable share of Class C Common Stock (the
"Series C Conversion Ratio"). The initial Series C Conversion
Ratio shall be subject to adjustment (in order to adjust the
number of shares of Class C Common Stock into which the Series C
Preferred Stock is convertible) as herein provided. In addition,
each issued and outstanding share of Series C Preferred Stock
automatically shall be converted into shares of Class C Common
Stock at the then applicable Series C Conversion Ratio upon the
occurrence of a Class C Triggering Event.
22
<PAGE>
(3) Automatic Conversion Upon Transfer. Each share of High
----------------------------------
Vote Preferred Stock transferred, directly or indirectly, by one
or more Parent Entities (or any Permitted Transferee) to one or
more Persons other than a Permitted Transferee shall
automatically upon such transfer convert into that number of
fully paid and non-assessable shares of the High Vote Common
Stock into which it is then convertible, at the then applicable
Conversion Ratio, and each such share of High Vote Common Stock
immediately and automatically thereafter shall convert into one
(1) fully paid and non-assessable share of Class A Common Stock,
provided that no such conversion shall occur solely as a result
of the pledge, hypothecation or other similar financing
transaction of any High Vote Preferred Stock by a Parent Entity
or any Permitted Transferee so long as the transferring Parent
Entity continues to have the sole and exclusive authority and
right to vote the shares subject to such pledge, hypothecation or
other financing transaction. Notwithstanding the foregoing, any
share of High Vote Preferred Stock transferred by a Parent Entity
(or any Permitted Transferee) pursuant to the provisions of the
preceding sentence shall, if such transfer is to any Person other
than a Parent Entity or a Wholly Owned Affiliate of a Parent
Entity, automatically convert into that number of fully paid and
non-assessable shares of the High Vote Common Stock into which it
is then convertible at the then applicable Conversion Ratio, and
each such share of High Vote Common Stock immediately and
automatically thereafter shall convert into one (1) fully paid
and non-assessable share of Class A Common Stock (A) upon such
transfer, unless the applicable Parent Entity obtains from such
transferee a voting agreement and voting proxy, each in form and
substance satisfactory to the Corporation and the other Parent
Entity (if such other Parent Entity then holds any High Vote
Stock), pursuant to which the transferee agrees to grant to the
appropriate Parent Entity the right to vote all shares of High
Vote Preferred Stock transferred to such Person at the sole
discretion of the appropriate Parent Entity, (B) upon the
termination of, or the occurrence of any event invalidating or
modifying in any material respect the voting provisions contained
in, any voting agreement or voting proxy entered into pursuant to
the provisions of the preceding Clause (A), and (C) solely with
respect to a transfer to an Employee of a Parent Entity and/or
Cisneros Family members, if (i) such transfer, either
individually or when aggregated with all prior transfers of High
Vote Preferred Stock to Employees of such Parent Entity and/or
Cisneros Family members, exceeds 20% of the number of shares of
High Vote Common Stock issuable upon conversion of the shares of
High Vote Preferred Stock originally issued to such Parent Entity
or (ii) such person ceases to be an Employee of the transferring
Parent Entity. For purposes of the foregoing, AOL shall be the
appropriate Parent Entity with respect to any transfers of Series
B Preferred Stock and ODC shall be the appropriate Parent Entity
with respect to any transfers of Series C Preferred Stock. A copy
of every voting agreement and voting proxy entered into in
accordance with the provisions hereof, and all amendments thereto
or modifications thereof, must be filed with the Corporation
promptly after the execution thereof. Notwithstanding the
foregoing, (y) if any Permitted Transferee ceases to qualify as a
Permitted Transferee at anytime following the transfer of the
High Vote Preferred Stock, then each share of the High Vote
Preferred Stock transferred to such Permitted Transferee shall
automatically convert, at the time that the transferee ceases to
so qualify, into that number of fully paid and non-assessable
shares of the High Vote Common Stock into which it is then
convertible at the then applicable Conversion Ratio, and each
such share of High Vote Common Stock
23
<PAGE>
immediately and automatically thereafter shall convert into one
(1) fully paid and non-assessable share of Class A Common Stock;
and (z) no transfer of High Vote Preferred Stock may be made, and
any such transfer shall not be deemed to be valid by the
Corporation, if such transfer would, when combined with all other
transfers of such High Vote Preferred Stock previously
consummated, require the Corporation to register any of the Class
B Securities and/or Class C Securities under the Securities
Exchange Act of 1934, as amended. Determinations as to the
occurrence of events listed in this Clause (c)(v)(A)(3) of
Article FOURTH shall be made by a majority of the Board of
Directors, subject to the provisions of Clause (c) of Article
FOURTH regarding the approval of actions with stockholders. In
addition, if any Person other than a Parent Entity, its Wholly
Owned Affiliate, a Cisneros Family member or an Employee of ODC
or AOL otherwise acquires any direct or indirect ownership
interest in a share of High Vote Preferred Stock, such share of
High Vote Preferred Stock automatically shall convert into that
number of fully paid and non-assessable shares of the High Vote
Common Stock into which it is then convertible at the then
applicable Conversion Ratio, and each such share of High Vote
Common Stock immediately and automatically thereafter shall
convert into one (1) fully paid and non-assessable share of Class
A Common Stock, in any event, upon such Person acquiring such
ownership interest; provided that no such conversion shall occur
solely as a result of the pledge, hypothecation or other similar
financing transaction of any High Vote Preferred Stock by a
Parent Entity or any Permitted Transferee so long as the
appropriate Parent Entity continues to have the sole and
exclusive authority and right to vote the shares subject to such
pledge, hypothecation or other financing transaction. For
purposes of the foregoing, AOL shall be the appropriate Parent
Entity with respect to any pledges, hypothecations or other
similar financing transactions with respect to any Series B
Preferred Stock and ODC shall be the appropriate Parent Entity
with respect to any pledges, hypothecations or other similar
financing transactions with respect to any Series C Preferred
Stock.
(B) Fractional Shares. No fractional shares of Class B
-----------------
Common Stock or Class C Common Stock shall be issued upon conversion
of the Series B Preferred Stock or Series C Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to the product of such
fraction multiplied by the then applicable Series B Conversion Ratio
or Series C Conversion Ratio (rounded to the nearest whole cent), as
the case may be, multiplied by the Fair Market Value.
(C) Mechanics of Conversion.
-----------------------
(1) In order for a holder of High Vote Preferred Stock
to voluntarily convert shares of High Vote Preferred Stock into
shares of High Vote Common Stock, such holder shall surrender the
certificate or certificates for such shares of High Vote
Preferred Stock, at the office of the transfer agent for the High
Vote Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert
all or any number of the shares of the High Vote Preferred Stock
represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for
shares of High Vote Common Stock to be issued and the number of
shares of High Vote Preferred Stock to be converted. If required
by the
24
<PAGE>
Corporation, certificates surrendered for conversion shall
be endorsed or accompanied by a written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his, her or its attorney
duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent)
shall be the conversion date for a voluntary conversion, and the
date of the Class B or Class C Triggering Event or other
automatic conversion, as applicable, shall be the conversion date
for an automatic conversion (each, a "Conversion Date") and each
conversion shall be deemed effective as of the close of business
on the applicable Conversion Date. The Corporation shall, as soon
as practicable after a Conversion Date, issue and deliver at such
office to such holder of converted High Vote Preferred Stock, or
to his, her or its nominees, a certificate or certificates for
the number of shares of High Vote Common Stock to which such
holder shall be entitled, together with cash in lieu of any
fraction of a share or, if a Class B or Class C Triggering Event
or other automatic conversion has occurred, a certificate or
certificates for the number of shares of Class A Common Stock to
which such holder shall be entitled, together with cash in lieu
of any fraction of a share. In case the number of shares of High
Vote Preferred Stock represented by the certificate or
certificates surrendered pursuant to Clause (c)(v)(A) of Article
FOURTH exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series B Preferred Stock
or Series C Preferred Stock represented by such certificate or
certificates surrendered but not converted. Notwithstanding
anything to the contrary contained herein, at any time that
shares of Class A Common Stock are to be issued as a result of an
event causing the conversion of High Vote Preferred Stock, the
affected shares of High Vote Preferred Stock shall automatically
convert into the applicable class of High Vote Common Stock and
immediately thereafter convert into Class A Common Stock without
the necessity of the Corporation delivering to the holder a
certificate to evidence the issuance of the High Vote Common
Stock being automatically converted into Class A Common Stock and
the Corporation shall only be required to deliver the certificate
evidencing such shares of Class A Common Stock.
(2) The Corporation shall at all times when the High Vote
Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of
effecting the conversion of the High Vote Preferred Stock, such
number of its duly authorized shares of High Vote Common Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding High Vote Preferred Stock; provided that nothing
contained herein shall be construed to preclude the Corporation
from satisfying its obligations in respect of the conversion or
exchange of the outstanding shares of High Vote Preferred Stock
by delivery of purchased shares of High Vote Common Stock which
are held in the treasury of the Corporation.
(3) All shares of High Vote Preferred Stock surrendered for
conversion or deemed automatically converted, as applicable, as
herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if
any, to receive notices, to vote and to accrual of dividends
shall immediately cease and terminate at the close of business on
the Conversion Date (except only the right of the holders thereof
to receive shares of the applicable class of Common Stock in
exchange therefor) and any shares of High Vote Preferred
25
<PAGE>
Stock so converted shall be retired and canceled and shall not be
reissued, and the Corporation from time to time shall take
appropriate action to reduce the authorized shares of High Vote
Preferred Stock accordingly.
(D) Adjustments to Conversion Ratio.
-------------------------------
(1) Special Definitions:
-------------------
(aa) "Original Issue Date" shall mean the date
-------------------
on which shares of High Vote Preferred Stock were first
issued.
(bb) "Additional Shares of Common Stock" shall
---------------------------------
mean all shares of Common Stock issued (or, pursuant to
Clause (c)(v)(D)(2) of Article FOURTH, deemed to be issued)
by the Corporation after the Original Issue Date.
(2) Issue of Securities Deemed Issue of Additional Shares
-----------------------------------------------------
of Common Stock. If the Corporation at any time or from time to
---------------
time after the Original Issue Date shall declare or pay any
dividend or make any other distribution on the Common Stock
payable in Common Stock or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then
and in any such event, Additional Shares of Common Stock shall be
deemed to have been issued:
(y) in the case of any such dividend or
distribution, immediately after the close of business
on the record date for the determination of holders of
any class of securities entitled to receive such
dividend or distribution, or
(z) in the case of any such subdivision, at the
close of business on the date immediately prior to the
date upon which such corporate action becomes
effective.
If such record date shall have been fixed and such dividend shall
not have been fully paid on the date fixed therefor, the
adjustment previously made in the Conversion Ratio which became
effective on such record date shall be cancelled as of the close
of business on such record date, and thereafter the Conversion
Ratio shall be adjusted pursuant to this Clause (c)(v)(D) of
Article FOURTH as of the time of actual payment of such dividend.
(3) Adjustment for Dividends, Distributions, Subdivisions,
------------------------------------------------------
Combinations or Consolidations of Common Stock.
----------------------------------------------
(aa) Stock Dividends, Distributions or Subdivisions. If
----------------------------------------------
the Corporation shall issue Additional Shares of Common
Stock in the manner described in Clause (c)(v)(D)(2) of
Article FOURTH in a stock dividend, stock distribution or
subdivision, the Conversion Ratio in effect immediately
prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of
such stock dividend, stock distribution or subdivision, be
proportionately increased.
(bb) Combinations or Consolidations. If the outstanding
------------------------------
shares
26
<PAGE>
of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Ratio in effect
immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately decreased.
(E) Certificate as to Adjustments. Upon the occurrence of
-----------------------------
each adjustment or readjustment of the Conversion Ratio pursuant to
Clause (c)(v)(D) of Article FOURTH, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of High Vote
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of High Vote Preferred
Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (1) such adjustments and readjustments, (2)
the Conversion Price then in effect, and (3) the number of shares of
Class B Common Stock and/or Class C Common Stock and the amount, if
any, of other property, that then would be received upon the
conversion of a share of High Vote Preferred Stock .
(F) Notice of Record Date. If any of the following events
---------------------
occur:
(1) the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(2) the Corporation subdivides or combines its
outstanding shares of Common Stock;
(3) there occurs or is proposed to occur any
reorganization, recapitalization or reclassification of the
Common Stock of the Corporation (other than a subdivision or
combination of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any consolidation
or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the
Corporation; or
(4) the involuntary or voluntary liquidation,
dissolution, or winding-up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Preferred
Stock, and shall cause to be mailed to the holders of the High
Vote Preferred Stock at their addresses as shown on the records
of the Corporation or such transfer agent, at least fifteen (15)
days prior to the record date specified in (aa) below or thirty
days before the date specified in (bb) below, a notice stating
the following information:
(aa) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision, or combination are to be
determined, or
(bb) the date on which such reclassification,
consolidation, merger, sale, liquidation, dissolution or
winding-up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common
Stock
27
<PAGE>
for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, liquidation,
dissolution or winding-up.
(vi) Redemption.
----------
(A) Mandatory Redemption by the Corporation. On the fifth anniversary
---------------------------------------
of the Original Issue Date the Corporation shall redeem all of the then
outstanding shares of High Vote Preferred Stock pursuant to this Clause
(c)(vi)(A) of Article FOURTH at the Redemption Price (the "Mandatory
Redemption"). The "Redemption Price" per share of High Vote Preferred Stock to
be redeemed shall mean an amount in cash or shares of Class A Common Stock
(valued at its then Fair Market Value), at the Company's option, equal to the
sum of the Liquidation Value attributable to such share plus an amount equal to
all accrued but unpaid dividends attributable to such share.
(B) Mechanics of Redemption.
-----------------------
(1) Mandatory Redemption. In order to exercise its right to effect
--------------------
the Mandatory Redemption, the Corporation shall send a notice (a
"Redemption Notice") to the address of record for all holders of shares
of High Vote Preferred Stock, which Redemption Notice shall:
(aa) state that the Corporation is commencing the Mandatory
Redemption,
(bb) state that all of the outstanding shares of High Vote
Preferred Stock will be redeemed,
(cc) state the Redemption Price, including the amount of
accrued but unpaid dividends included in the Redemption Price and
whether the Redemption Price will be paid in cash or shares of
Class A Common Stock, and
(dd) set forth the date upon which the Mandatory Redemption
shall occur, which date shall not be less than thirty (30) days nor
more than sixty (60) days after the date of the Redemption Notice
(the "Redemption Date").
Once the Redemption Notice is mailed to the holders at their addresses
of record, all of the shares of High Vote Preferred Stock not converted
on or prior to the Redemption Date shall be subject to redemption on the
Redemption Date. On the Redemption Date the holders of shares of High
Vote Preferred Stock then outstanding shall surrender the certificate or
certificates evidencing such shares of High Vote Preferred Stock, duly
endorsed, at the office of the Corporation or of any transfer agent for
the High Vote Preferred Stock, and the Corporation shall pay such
holders the applicable Redemption Price. All shares of High Vote
Preferred Stock shall no longer be deemed to be outstanding and all
rights with respect to such shares, including without limitation the
right to accrual of dividends, shall immediately cease and terminate at
the close of business of the Corporation on the Redemption Date (except
only the right of the holders thereof to receive the Redemption Price in
exchange therefor), notwithstanding that the certificates representing
such shares of High Vote Preferred Stock shall not have been surrendered
at the office of the Corporation or, if the Redemption Price is to be
paid in shares of Class A Common Stock, that the certificates evidencing
such
28
<PAGE>
shares of Class A Common Stock shall not then be actually delivered to
such holder. If the Redemption Price is to be paid in shares of Class A
Common Stock, each holder of shares of High Vote Preferred Stock shall
give written notice to the Corporation that shall state therein the name
of such holder or the name or names of the nominees of such holder in
which such holder wishes the certificate or certificates for shares of
Class A Common Stock to be issued, and the person or persons entitled to
receive the shares of Class A Common Stock issuable upon redemption
shall be treated for all purposes as the record holder or holders of
such shares of Class A Common Stock on the Redemption Date. No
fractional shares of Class A Common Stock shall be issued upon
redemption of any shares of High Vote Preferred Stock and cash in lieu
of any fraction of a share will be paid to the holder thereof. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of High Vote Preferred Stock, or to such
holder's nominee or nominees, a certificate or certificates for the
number of shares of Class A Common Stock to which such holder shall be
entitled as aforesaid.
(2) Election to Convert. Notwithstanding the issuance of any
-------------------
Redemption Notice by the Corporation or the receipt of any Redemption
Notice by any holder of High Vote Preferred Stock, such holder may elect
to convert such High Vote Preferred Stock into the applicable class of
High Vote Common Stock at any time prior to close of business of the
Corporation on the Redemption Date. Any such conversion shall be at the
then applicable Conversion Ratio and on the other terms and conditions
set forth in Article FOURTH, Clause (c)(v).
(vii) Reacquired Shares. Any shares of High Vote Preferred Stock
-----------------
converted, redeemed, purchased, or otherwise acquired by the Corporation in
any manner whatsoever shall be retired promptly after the acquisition
thereof, and shall not be reissued and shall, upon the filing of a
certificate of retirement, return to the status of authorized but
undesignated shares of Preferred Stock.
FIFTH: Directors.
---------
(a) Vacancies in the Board; Transaction of Business. Except as provided in
-----------------------------------------------
Article FOURTH, Clause (b)(iii)(C) and (D), any vacancies resulting from death,
resignation, disqualification, removal or other cause with respect to a Class A
Director shall be filled by the affirmative vote of the remaining Class A
Directors then in office, even if less than a quorum of the Board, subject to
the approval of the Special Committee of the person or persons selected to fill
the vacancy or vacancies. Any vacancies resulting from death, resignation,
disqualification, removal or other cause with respect to a Class B Director
shall be filled only by the affirmative vote of the remaining Class B Directors
then in office, even if less than a quorum of the Board, or by the sole
remaining Class B Director, if there is only one then in office. In the absence
of a sole remaining Class B Director, such vacancies shall be filled by a
majority vote of the holders of the Class B Securities, voting together as a
single class. Any vacancies resulting from death, resignation, disqualification,
removal or other cause with respect to a Class C Director shall be filled only
by the affirmative vote of a majority of the remaining Class C Directors then in
office, even if less than a quorum of the Board, or by the sole remaining Class
C Director, if there is only one then in office. In the absence of a sole
remaining Class C Director, such vacancies shall be filled by a majority vote of
the holders of the Class C Securities, voting together as a single class. Any
director elected in accordance with this Clause (a) shall hold office until the
next annual meeting of stockholders. Notwithstanding any provision in the By-
laws to the contrary, the Board may not transact business at any meeting of the
Board unless a majority of the Class B Directors and a majority of the Class C
Directors are present or otherwise participate at such meeting. Notwithstanding
the foregoing, the preceding
29
<PAGE>
sentence shall be of no further force and effect upon the first to occur of (i)
a Class B Triggering Event and (ii) a Class C Triggering Event.
(b) Removal of Directors.
--------------------
(i) Any Class B Director and any Class C Director may be removed from
office for cause only by the affirmative vote of the holders of at least
seventy five percent (75%) of the voting power of the Voting Stock, voting
together as a single class.
(ii) Any Class A Director may be removed at any time, without cause,
by the affirmative vote of the holders of at least a majority of the voting
power of the Voting Stock, voting together as one class. Any Class B
Director may be removed at any time, without cause, by majority vote of the
holders of the Class B Securities, voting together as a single class. Any
Class C Director may be removed at any time, without cause, by majority
vote of the holders of the Class C Securities, voting together as a single
class.
(c) Approval of Actions with Stockholders. Notwithstanding anything to the
-------------------------------------
contrary contained herein or in the By-laws, the power to take the following
actions, as permitted by Section 141(a) of the GCL ("Section 141(a)"), is hereby
conferred upon certain members of the Board, as indicated below:
(i) The power to authorize any action by or on behalf of the
Corporation with respect to the execution, delivery, or termination in
accordance with the terms of any agreement between AOL (or any of its
Affiliates) and the Corporation is hereby conferred upon the members
of the Board other than the Class B Directors. All actions requiring
Board approval with respect to matters relating to the enforcement or
waiver of any rights granted the Corporation (or any of its
Affiliates) under any such agreement shall be taken solely pursuant to
the direction of such members of the Board without the approval,
consent or authorization of the Class B Directors. Notwithstanding
the foregoing, however, the Class B Directors shall be entitled to
vote on any matter specified in Clauses (d)(i)(K) or (d)(i)(L) of this
Article FIFTH regardless of the interest of AOL or any of its
Affiliates in such matter.
(ii) The power to authorize any action by or on behalf of the
Corporation with respect to the execution, delivery, or termination in
accordance with the terms of any agreement between ODC (or any of its
Affiliates) and the Corporation is hereby conferred upon the members
of the Board other than the Class C Directors. All actions requiring
Board approval with respect to matters relating to the enforcement or
waiver of any rights granted the Corporation (or any of its
Affiliates) under any such agreement shall be taken solely pursuant to
the direction of such members of the Board without the approval,
consent or authorization of the Class C Directors.
(d) Appointment and Powers of Special Committee.
-------------------------------------------
(i) In accordance with Section 141(a), there is hereby established a
two (2) member Special Committee (the "Special Committee") consisting of
one (1) Class B Director to be selected by majority vote of the Class B
Directors (or the sole remaining Class B Director) and one (1) Class C
Director to be selected by majority vote of the Class C Directors (or the
sole remaining Class C Director). The Special Committee shall have the
power to select the two Co-Chairmen of the Board, provided that the Class B
Director on the Special Committee and the Class C Director on the Special
Committee shall each be entitled to select and appoint one person as a Co-
Chairman of the Board. The Special Committee shall also have the power to
evaluate the
30
<PAGE>
matters set forth below in clauses (A) through (Z) of this Clause (d)(i) of
Article FIFTH and to report to the Board for approval only those matters
specified herein which have been approved by the two members of the Special
Committee. The Board shall not have the power to consider any action set
forth below in clauses (A) through (Z) of this Article FIFTH, Clause
(d)(i), as the same may be amended from time to time, unless and until such
action has been approved by the two members of the Special Committee acting
in good faith in the best interest of the Corporation in accordance with
Delaware law. Notwithstanding any provision in the By-laws to the contrary,
the Special Committee may not transact business at any meeting of the
Special Committee unless both members of the Special Committee are present
or otherwise participate at such meeting. Notwithstanding the foregoing,
the preceding sentence shall be of no further force and effect upon the
first to occur of (i) a Class B Triggering Event and (ii) a Class C
Triggering Event.
(A) Any amendment, change or other modification or restatement of
this Certificate of Incorporation or By-laws of the Corporation or
similar constitutive documents of any Subsidiary, or the Stockholders'
Agreement or the Registration Rights Agreement.
(B) The merger, consolidation, dissolution or liquidation of the
Corporation or any Subsidiary, or any transaction having the same
effect.
(C) Except pursuant to (1) employee stock option and similar
incentive plans approved by the Board and the holders of a majority of
each class of High Vote Stock then outstanding, (2) a conversion or
exchange right set forth in this Certificate of Incorporation or
similar constitutive documents of any Subsidiary, or (3) the
Stockholders' Agreement, the issuance, authorization, cancellation,
alteration, modification, redemption or any change in, of, or to, any
equity security of the Corporation or any Subsidiary, or any option,
put, call or warrant with respect to the foregoing.
(D) The transfer or other disposition of, or placing any
Encumbrance (other than Permitted Encumbrances) on, any material asset
of the Corporation or any Subsidiary (other than disposition of
inventory or obsolete assets of the Corporation or any Subsidiary).
(E) Any transaction involving (1) the acquisition of any interest
in, or the making of any loan or extension of credit to, another
person or entity by the Corporation or any Subsidiary for or in an
amount in excess of $50,000 except for short-term cash management with
recognized money market institutions; (2) any contracts having a term
in excess of one year (including network, customer, marketing or
advertising services) and involving payments by the Corporation or any
Subsidiary, or rendering of services by the Corporation or any
Subsidiary with a value, in excess of $50,000; (3) any debt, loan or
borrowing of the Corporation or any Subsidiary (other than borrowings
under revolving credit facilities approved by the Board) $50,000
outstanding in the aggregate at any time, or any revolving credit
facility of the Corporation or any Subsidiary permitting aggregate
borrowings at any one time outstanding to exceed $50,000; (4) the
Corporation or any Subsidiary as a result of which the Corporation or
any Subsidiary, alone or with its Affiliates, acquires control over
any other person or entity; (5) any capital or other expenditures of
the Corporation or any Subsidiary (or series of related capital
expenditures) in excess of $50,000; or (6) any related series or
combination of transactions having or which will have, directly or
indirectly, the same effect as any of the foregoing.
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(F) Any action by, in respect of or otherwise involving any
entity in which the Corporation or any Subsidiary has or acquires a
controlling equity interest which would require Special Committee
approval under this Clause (d)(i) of Article FIFTH if such action was
by, in respect of, or otherwise involving the Corporation or any
Subsidiary.
(G) The declaration of any dividend or distribution on any class
or classes of equity securities of the Corporation.
(H) The selection of nominees to be recommended by the Board for
election as Class A Directors.
(I) The admission of any Strategic Partner as an equity holder in
the Corporation or any Operating Entity.
(J) The establishment and maintenance of an Executive Committee
and the establishment and maintenance of, or appointment or removal of
any member of, any other committee of the Board of Directors.
(K) The Launch of any AOL-branded TV Access Service or Wireless
Access Service in any country within the Territory.
(L) The terms and conditions of any agreements with, or any other
transactions with, and the conduct and settlement of any Action
involving, any third parties relating to TV Access Services or
Wireless Access Services in the Territory.
(M) The appointment or dismissal of auditors for the Corporation
or any Subsidiary or change or adoption of any material accounting
principle or practice to be applied by the Corporation or any
Subsidiary.
(N) The establishment of any entity (or the creation of any
entity owned jointly with any other party) by the Corporation or any
Subsidiary and the adoption of, and any material changes to, any
Subsidiary's method of doing business.
(O) The commencement of any Action (without regard to the amount
in controversy) or settlement of any Action to which the Corporation
or any Subsidiary is a party or the subject thereof (i) involving
amounts in excess of $100,000 (or its equivalent in any other
currency) or (ii) which could materially adversely affect the rights
of AOL or ODC or any of their Subsidiaries of Affiliates; provided,
however, that Actions relating to the collections of amounts due to
the Corporation or any Subsidiary by third parties may be commenced or
settled in the discretion of management.
(P) The adoption of any strategic plan and business projections
for the Corporation or any Subsidiary and approval, rescission or
amendment of any strategic decision material to the conduct of the
business of the Corporation or any Subsidiary.
(Q) The adoption of any Business Plan for an Operating Entity and
the approval of any modification of any line item or other provision
in any Business Plan in respect of any Operating Entity.
(R) The establishment of, or making any significant modification
to, the investment and/or cash management policies of the Corporation
or any Subsidiary.
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(S) The approval of the discontinuation of any material activity
engaged in from time to time by the Corporation or any Subsidiary.
(T) The approval of the entering into of any partnership, joint
venture or consortium with any other Person by the Corporation or any
Subsidiary.
(U) The approval of any press releases or other public statements
by the Corporation or any Subsidiary containing material non-public
information.
(V) The entry into agreements by the Corporation or any
Subsidiary outside of the ordinary course of business.
(W) The approval of the final annual audited consolidated
financial statements of any Subsidiary.
(X) The approval of the filing for bankruptcy of or any decision
not to take action to prevent a filing for bankruptcy or not to oppose
an involuntary filing for bankruptcy or other winding up of the
Corporation or any Subsidiary.
(Y) Adoption of any incentive or other employee benefit plan, or
any executive compensation plan or severance payment, by the
Corporation or any Subsidiary or any material amendment to any such
existing plan.
(Z) Hiring or firing any personnel of the Corporation or any
Subsidiary with an annual salary in excess of $100,000 or increasing
the compensation of any such personnel above $100,000.
(ii) Upon the occurrence of a Class B Triggering Event or a Class C
Triggering Event, the Special Committee shall be deemed to be dissolved as
of such time, and the provisions of this Clause (d), other than those
contained in this Clause (d)(ii), shall cease to have any effect, and any
other provisions of this Certificate of Incorporation requiring the
approval of the Special Committee shall be deemed to require the approval
of the Board as a whole.
(e) Appointment of Executive Committee. Subject to Clause (d) of this
----------------------------------
Article FIFTH, so long as there are at least one share of Class A Common Stock,
one share of either of the Class B Securities and one share of either of the
Class C Securities outstanding, the Board of Directors may, in accordance with
Section 141(a), by the affirmative vote of a majority of the Directors designate
an Executive Committee of the Board (the "Executive Committee"), which shall
consist of one (1) Class A Director, one (1) Class B Director and one (1) Class
C Director. If the minimum shares required for each of the Class A Common Stock,
Class B Securities and Class C Securities are not outstanding, the Board may
establish an Executive Committee with such members as it chooses.
(f) Removal of Committee Members. In accordance with Section 141(a),
----------------------------
notwithstanding anything to the contrary contained herein or in the By-laws, (i)
any member of the Special Committee appointed or elected by the Class B
Directors or the member of the Executive Committee who is a Class B Director may
be removed at any time, either with or without cause, by the affirmative vote of
(A) a majority of the Class B Directors then in office or (B) the holders of a
majority of the Class B Securities, voting together as a single class, and (ii)
any member of the Special Committee elected or appointed by the Class C
Directors or the member of the Executive Committee who is a Class C Director may
be removed at any time, either with or without cause, by the affirmative vote of
(A) a majority of the Class
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C Directors then in office or (B) the holders of a majority of the Class C
Securities, voting together as a single class. In addition, any member of the
Executive Committee appointed pursuant to the first sentence of Article FIFTH,
Clause (e) may be removed with or without cause after obtaining each of the
following votes: (x) the affirmative vote of a majority of the Class A Directors
(or the sole Class A Director), (y) the affirmative vote of a majority of the
Class B Directors (or the sole Class B Director) and (z) the affirmative vote of
a majority of the Class C Directors (or the sole Class C Director), even if less
than a quorum of the Board. Any member of the Executive Committee appointed
otherwise than pursuant to Article FIFTH, Clause (e) may be removed with or
without cause by the affirmative vote of all of the directors then in office,
even if less than a quorum of the Board. Any vacancies on any committee of the
Board shall be filled in the manner set forth above in respect of the
appointment of such committee or member.
SIXTH: Subject to Clause (b)(i)(B) of Article FOURTH and Clause (d) of
Article FIFTH, the Board may from time to time make, amend, supplement or repeal
the By-laws by vote of a majority of the Board. Subject to Clause (b)(i)(B) of
Article FOURTH, the stockholders may change or amend or repeal a provision of
the By-laws only after obtaining each of the following votes: (i) the
affirmative vote of the holders of a majority of the voting power of the issued
and outstanding Voting Stock, voting as one class; (ii) if a Class B Director is
then entitled to be a member of the Special Committee, the affirmative vote of
the holders of a majority of the Class B Securities, voting together as a single
class; and (iii) if a Class C Director is then entitled to be a member of the
Special Committee, the affirmative vote of the holders of a majority of the
Class C Securities, voting together as a single class.
SEVENTH: Unless and except to the extent that the By-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
EIGHTH: 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, provided that such action is
approved in the manner, and otherwise complies with the requirements, set forth
in this Certificate of Incorporation, and all rights conferred upon stockholders
herein are granted subject to this reservation. Notwithstanding the foregoing,
but subject to Clause (b)(i)(B) of Article FOURTH, the affirmative vote of the
holders of at least seventy five percent (75%) of the voting power of the issued
and outstanding Voting Stock, voting as one class, shall be required to amend or
repeal this Certificate of Incorporation.
NINTH: A director of the Corporation, including a director acting pursuant
to Clauses (c) through (f) of Article FIFTH, shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the GCL; or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this provision shall be
prospective only and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
TENTH: The Corporation, to the fullest extent permitted by Section 145 of
the GCL, as the same may be amended and supplemented, shall indemnify all
directors and officers of the Corporation, and may indemnify any and all other
persons whom it shall have power to indemnify under said section, in any such
event from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of
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stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: The provisions of Section 203 of the GCL shall not be
applicable to the Corporation.
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IN WITNESS WHEREOF, America Online Latin America, Inc. has caused its
corporate seal to be affixed hereto and this Restated Certificate of
Incorporation, which restates, integrates and further amends the Certificate of
Incorporation of the Corporation, and which has been duly adopted in accordance
with Sections 242 and 245 of the GCL, to be signed by its Chief Executive
Officer as of the ____ day of _________, 2000.
AMERICA ONLINE LATIN AMERICA, INC.
By: /s/ Charles M. Herington
-----------------------------------
Name: Charles M. Herington
Title: Chief Executive Officer
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Adopted as of ______________, 2000
BY-LAWS
OF
AMERICA ONLINE LATIN AMERICA, INC.
ARTICLE I
OFFICES
SECTION 1.1 Delaware Office. The office of America Online Latin America,
---------------
Inc. (the "Corporation") within the State of Delaware shall be in the City of
Dover, County of Kent.
SECTION 1.2 Other Offices. The Corporation may also have an office or
-------------
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Delaware, as the Board of Directors of the Corporation (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All meetings of holders of shares of
-----------------
capital stock of the Corporation shall be held at the office of the Corporation
in the State of Delaware or at such other place, within or without the State of
Delaware, as may from time to time be fixed by the Board or specified or fixed
in the respective notices or waivers of notice thereof.
SECTION 2.2 Annual Meetings. An annual meeting of stockholders of the
---------------
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (an "Annual Meeting") shall be
held at such place, on such date, and at such time as the Board shall each year
fix, which date shall be within thirteen (13) months of the last annual meeting
of stockholders or, if no such meeting has been held, the date of incorporation.
SECTION 2.3 Special Meetings. Except as required by law and subject to
----------------
the rights of holders of any series of Preferred Stock (as defined below),
special meetings of stockholders may be called at any time only by either Co-
Chairman of the Board, a member of the Special Committee (as defined below) or
by the Board pursuant to a resolution approved by a majority of the directors
then in office. Any such call must specify the matter or matters to be acted
upon at such meeting and only such matter or matters shall be acted upon
thereat.
SECTION 2.4 Notice of Meetings. Except as otherwise may be required by
------------------
law, notice of each meeting of stockholders, whether an Annual Meeting or a
special meeting, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the meeting and, unless it is an Annual
Meeting, shall indicate that the notice is being issued by or at the direction
of the person or persons calling the meeting, and a copy thereof shall be
delivered or sent by mail, not less than ten (10) or more than sixty (60) days
before the date of said meeting, to each stockholder entitled to vote at such
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meeting. If mailed, such notice shall be directed to such stockholder at such
stockholder's address as it appears on the stock records of the Corporation,
unless the stockholder shall have filed with the Secretary of the Corporation a
written request that notices to such stockholder be mailed to some other
address, in which case it shall be directed to such stockholder at such other
address. Notice of an adjourned meeting need not be given if the time and place
to which the meeting is to be adjourned was announced at the meeting at which
the adjournment was taken, unless (i) the adjournment is for more than thirty
(30) days, or (ii) the Board shall fix a new record date for such adjourned
meeting after the adjournment.
SECTION 2.5 Quorum. At each meeting of stockholders of the Corporation,
------
the holders of shares having a majority of the voting power of the capital stock
of the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law. Where a separate vote by a class
or classes or series is required, a majority of the shares of such class or
classes or series in person or represented by proxy shall constitute a quorum
entitled to take action with respect to that vote on that matter.
SECTION 2.6 Adjournments. In the absence of a quorum at any meeting of
------------
stockholders or any adjournment or adjournments thereof, either Co-Chairman of
the Board or holders of shares having a majority of the voting power of the
capital stock present or represented by proxy at the meeting may adjourn the
meeting from time to time until a quorum shall be present or represented by
proxy. At any such adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called if a quorum had been present or
represented by proxy thereat.
SECTION 2.7 Order of Business.
-----------------
(a)(i) Nominations of persons for election to the Board as Class A
Directors and the proposal of other business to be transacted by the
stockholders may be made at an annual meeting of stockholders (A) pursuant
to the Corporation's notice with respect to such meeting, (B) by or at the
direction of the Board or (C) by any stockholder of record of the
Corporation who was a stockholder of record at the time of the giving of
the notice provided for in the following paragraph, who is entitled to vote
at the meeting and who has complied with the notice procedures set forth in
this section.
(ii) For nominations of Class A Directors or other business to be
properly brought before an annual meeting by a stockholder pursuant to
clause (C) of the foregoing paragraph (b)(i), (1) the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation,
(2) such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware (the "GCL"), (3) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation
Notice, as that term is defined in subclause (c)(iii) of this paragraph,
such stockholder or beneficial owner must, in the case of a proposal, have
delivered a proxy statement and form of proxy to holders of at least the
percentage of the Corporation's voting shares required under applicable law
to carry any such proposal, or, in the case of a nomination or nominations,
have delivered a proxy statement and form of proxy to holders of a
percentage of the Corporation's voting shares reasonably believed by such
stockholder or
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beneficial holder to be sufficient to elect the nominee or nominees
proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice and (4) if no
Solicitation Notice relating thereto has been timely provided pursuant to
this section, the stockholder or beneficial owner proposing such business
or nomination must not have solicited a number of proxies sufficient to
have required the delivery of such a Solicitation Notice under this
section. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not less
than 45 or more than 75 days prior to the first anniversary (the
"Anniversary") of the date on which the Corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders;
provided, however, that if no such materials were mailed, or if the date of
the annual meeting is advanced more than 30 days prior to or delayed by
more than 30 days after the anniversary of the preceding year's annual
meeting, notice by the stockholder to be timely must be so delivered not
later than the close of business on the later of (i) the 90th day prior to
such annual meeting or (ii) the 10th day following the day on which Public
Announcement (as defined below) of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director
all information relating to such person as would be required to be
disclosed in solicitations of proxies for the election of such nominees as
directors pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and such person's written consent to
serve as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of
such business, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; (c) as to
the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the class and number of shares of the Corporation
that are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial
owner intends to deliver a proxy statement and form of proxy to holders of,
in the case of a proposal, at least the percentage of the Corporation's
voting shares required under applicable law to carry the proposal or, in
the case of a nomination or nominations, a sufficient number of holders of
the Corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
(iii) Notwithstanding anything in the second sentence of paragraph
(b)(ii) of this Section 2.7 to the contrary, if the number of Class A
Directors to be elected to the Board is increased and there is no Public
Announcement naming all of the nominees for director or specifying the size
of the increased Board made by the Corporation at least 55 days prior to
the Anniversary, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
Public Announcement is first made by the Corporation.
(iv) Only persons nominated in accordance with the procedures set forth
in this Section 2.7 and in Article FIFTH, Clause (d) of the Certificate of
Incorporation (as defined below) shall be eligible to serve as Class A
Directors and only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in
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accordance with the procedures set forth in this section. The co-chairs of
the meeting shall have the power and the duty to determine whether a
nomination or any business proposed to be brought before the meeting has
been made in accordance with the procedures set forth in these By-laws and,
if any proposed nomination or business is not in compliance with these By-
laws, to declare that such defective proposed business or nomination shall
not be presented for stockholder action at the meeting and shall be
disregarded.
(v) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to
the Board as Class A Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board or
(b) by any stockholder of record of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this paragraph, who
shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.7. Nominations by stockholders of
persons for election to the Board as Class A Directors may be made at such
a special meeting of stockholders if the stockholder's notice required by
the paragraph (b)(ii) of this Section 2.7 shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which Public
Announcement is first made of the date of the special meeting and of the
nominees proposed by the Board to be elected at such meeting.
(vi) For purposes of this section, "Public Announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 2.7, a stockholder
shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to matters set forth in
this Section 2.7. Nothing in this Section 2.7 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
SECTION 2.8 Proxies and Voting. At each meeting of stockholders, all
------------------
matters (except as otherwise provided in Section 3.3 of these By-laws and except
in cases where a larger vote is required by law or by the Certificate of
Incorporation or these By-laws) shall be decided by a majority of the votes cast
affirmatively or negatively at such meeting by the holders of shares of capital
stock present or represented by proxy and entitled to vote thereon, a quorum
being present. At any meeting of the stockholders, every stockholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or by
a transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
Section 2.8 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.9 Inspectors. For each election of directors by the
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stockholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be
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conducted by inspectors of election, the Board shall appoint an inspector or
inspectors of election. If, for any such election of directors or the voting
upon any such other matter, any inspector appointed by the Board shall be
unwilling or unable to serve, or if the Board shall fail to appoint inspectors,
the chairman of the meeting shall appoint the necessary inspector or inspectors.
The inspector(s) so appointed, before entering upon the discharge of their
duties, shall be sworn faithfully to execute the duties of inspectors with
strict impartiality, and according to the best of their ability, and the oath so
taken shall be subscribed by them. Such inspectors shall determine the number of
shares of capital stock of the Corporation outstanding and the voting power of
each of the shares represented at the meeting, the existence of a quorum, and
the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote.
SECTION 2.10 Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required to be taken at any Annual Meeting or special meeting of stockholders of
the Corporation, or any class thereof, or any action which may be taken at any
Annual Meeting or special meeting of the stockholders, or any class thereof, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock, or class thereof, 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 and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be made by hand or by certified or registered mail,
return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty (60) days of the date the earliest dated consent is delivered to the
Corporation, a written consent or consents signed by a sufficient number of
holders to take action are delivered to the Corporation in the manner prescribed
in this Section 2.10.
ARTICLE III
DIRECTORS
SECTION 3.1 Powers.
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(a) Subject to the provisions of Clause (d) of Article FIFTH of the
Certificate of Incorporation and Section 4.1 hereof, the business of the
Corporation shall be managed under the direction of the Board. The Board
may, subject to the approval procedures of Articles FOURTH and FIFTH of the
Certificate of Incorporation and Sections 3.1(b) and 4.1 hereof, except as
otherwise required by law, exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.
(b) Subject to the provisions of Clause (d) of Article FIFTH of the
Certificate of Incorporation and Section 4.1 hereof, the Corporation shall
not, and shall not permit any Subsidiary or Affiliate (each as defined
below in Section 9.6) to, and no officer, employee or agent of the
Corporation or any Subsidiary shall, take any of the actions specified in
Schedule
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3.1(b), without the prior approval of the Board and/or stockholders of the
Corporation, as applicable.
SECTION 3.2 Number; Terms and Vacancies. The Corporation shall have the
---------------------------
number of directors as is set forth in the Certificate of Incorporation. Each
director shall hold office for the term set forth in the Certificate of
Incorporation. Any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled in the manner provided
in the Certificate of Incorporation.
SECTION 3.3 Nominations; Election.
---------------------
(a) Nominations for the election of Class A Directors may be made by
the Special Committee of the Board established pursuant to Clause (d) of
Article Fifth of the Certificate of Incorporation, or by any stockholder
entitled to vote generally in the election of directors who complies with
the procedures set forth in Section 2.7. Nominations for the election of
Class B Directors shall be made only by holders of a majority of the Class
B Common Stock and/or the Series B Preferred Stock (as the case may be)
then outstanding. Nominations for the election of Class C Directors shall
be made only by holders of a majority of the Class C Common Stock and/or
the Series C Preferred Stock (as the case may be) then outstanding.
Directors shall be at least 21 years of age. Directors need not be
stockholders. At each meeting of stockholders for the election of directors
at which a quorum is present, the persons receiving a plurality of the
votes cast by the stockholders entitled to vote for such directors shall be
elected directors.
(b) All nominations for Class B Directors or Class C Directors
shall be made pursuant to written notice submitted to the Corporation on or
prior to the date on which any vote for the election thereof is to be taken
and signed by the holders of a majority of the Class B Common Stock and/or
Series B Preferred Stock then outstanding or the Class C Common Stock
and/or Series C Preferred Stock then outstanding, as applicable.
(c) At the request of the Board, any person nominated by the Board
for election as a director shall furnish to the Secretary of the
Corporation the information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
SECTION 3.4 Place of Meetings. Meetings of the Board shall be held at the
-----------------
Corporation's office in the State of Delaware or at such other places, within or
without such State, as the Board may from time to time determine or as shall be
specified or fixed in the notice or waiver of notice of any such meeting.
SECTION 3.5 Regular Meetings. Regular meetings of the Board shall be held
----------------
in accordance with a yearly meeting schedule as determined by the Board; or such
meetings may be held on such other days and at such other times as the Board may
from time to time determine. Regular meetings of the Board shall be held not
less frequently than quarterly.
SECTION 3.6 Special Meetings. Special meetings of the Board may be called
----------------
by a majority of the directors then in office or by either Co-Chairman of Board
or any member of the Special Committee and shall be held at such place, on such
date, and at such time as they, he or she shall fix.
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SECTION 3.7 Notice of Meetings. Notice of each special meeting of the
------------------
Board stating the time, place and purposes thereof, shall be (i) sent by
overnight delivery through an internationally recognized courier service to each
director not less than five (5) days prior to the meeting, addressed to such
director at his or her residence or usual place of business, or (ii) shall be
sent to him or her by facsimile, telex, cable or telegram so addressed, or shall
be given personally or by telephone, on twenty four (24) hours' notice.
SECTION 3.8 Quorum and Manner of Acting. Subject to Clause (a) of Article
---------------------------
FIFTH of the Certificate of Incorporation, the presence of at least a majority
of the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business at any meeting of the Board.
If a quorum shall not be present at any meeting of the Board, a majority of 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.
Except where a different vote is required or permitted by law, the Certificate
of Incorporation or these By-laws or otherwise, the act of a majority of the
directors present at any meeting at which a quorum shall be present shall be the
act of the Board. Any action required or permitted to be taken by the Board may
be taken without a meeting if all the directors consent in writing to the
adoption of a resolution authorizing the action. The resolution and the written
consents thereto by the directors shall be filed with the minutes of the
proceedings of the Board. Any one or more directors may participate in any
meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall be deemed to
constitute presence in person at a meeting of the Board.
SECTION 3.9 Resignation. Any director may resign at any time by giving
-----------
written notice to the Corporation; provided, however, that written notice to the
Board, either Co-Chairman of the Board, the Chief Executive Officer of the
Corporation or the Secretary of the Corporation shall be deemed to constitute
notice to the Corporation. Such resignation shall take effect upon receipt of
such notice or at any later time specified therein and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
SECTION 3.10 Removal of Directors. Subject to the rights of holders of
--------------------
Preferred Stock to elect directors under circumstances specified in a resolution
of the Board, adopted pursuant to the provisions of the Certificate of
Incorporation or these By-laws establishing such series, any Director may be
removed from office in the manner set forth in the Certificate of Incorporation.
SECTION 3.11 Compensation of Directors. The Board may provide for the
-------------------------
payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
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ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 Appointment and Powers of Special Committee. In accordance
-------------------------------------------
with Section 141(a) of the GCL, there is established a Special Committee (the
"Special Committee") in the manner and with the powers set forth in Clause (d)
of Article FIFTH of the Certificate of Incorporation. The Special Committee
shall have the power to evaluate the matters set forth in Clause (d) of Article
FIFTH of the Certificate of Incorporation and to recommend to the Board for
approval only those matters specified therein which have been unanimously
approved by the Special Committee. The Board shall not have the power to
consider any action set forth in Clause (d) of Article FIFTH of the Certificate
of Incorporation unless and until such action has been unanimously approved by
the Special Committee.
SECTION 4.2 Appointment and Powers of Executive Committee. The Executive
---------------------------------------------
Committee of the Board (the "Executive Committee") may be appointed in
accordance with, and, except as provided by resolution of the Board creating the
Executive Committee, shall have the powers set forth in, this Section 4.2,
subject to Clauses (d) and (e) of Article FIFTH of the Certificate of
Incorporation. Except as provided by Delaware law or in the Certificate of
Incorporation, during the interval between the meetings of the Board, the
Executive Committee shall possess and may exercise all the powers of the Board
in the management and direction of all the business and affairs of the
Corporation (except the matters hereinafter assigned to any other Committee of
the Board), in such manner as the Executive Committee shall deem in the best
interests of the Corporation in all cases in which specific directions shall not
have been given by the Board. The Executive Committee may determine its manner
of acting and fix the time and place of its meetings, unless the Board shall
otherwise provide. Either Co-Chairman of the Board or any member of the
Executive Committee may call the meetings of the Executive Committee.
SECTION 4.3 Appointment and Powers of Audit Committee. The Board may, by
-----------------------------------------
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board (the "Audit
Committee"), which shall consist of such number of members as the Board shall
determine. The Audit Committee shall: (i) make recommendations to the Board as
to the independent accountants to be appointed by the Board; (ii) review with
the independent accountants the scope of their examinations; (iii) receive the
reports of the independent accountants and meet with representatives of such
accountants for the purpose of reviewing and considering questions relating to
their examination and such reports; (iv) review, either directly or through the
independent accountants, the internal accounting and auditing procedures of the
Corporation; (v) review related party transactions; and (vi) perform such other
functions as may be assigned to it from time to time by the Board. The Audit
Committee may determine its manner of acting and fix the time and place of its
meetings, unless the Board shall otherwise provide. A majority of the members of
the Audit Committee shall constitute a quorum for the transaction of business by
the committee and the act of a majority of the members of the committee present
at a meeting at which a quorum shall be present shall be the act of the
committee.
SECTION 4.4 Compensation Committee; Other Committees. The Board may, by
----------------------------------------
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them in the respective resolutions
appointing them. Each such committee may determine its manner of acting and fix
the time and place of its meetings, unless the Board shall
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otherwise provide. A majority of the members of any such committee shall
constitute a quorum for the transaction of business by the committee and the act
of a majority of the members of such committee present at a meeting at which a
quorum shall be present shall be the act of the committee.
SECTION 4.5 Action by Consent; Participation by Telephone or Similar
--------------------------------------------------------
Equipment. Unless the Board shall otherwise provide, any action required or
- ---------
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
SECTION 4.6 Quorum and Manner of Acting. Subject to Clause (d) of Article
----------------------------
FIFTH of the Certificate of Incorporation, the presence of at least a majority
of the members of any committee of the Board shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of such
committee. If a quorum shall not be present at any meeting of a committee, a
majority of the members of such committee present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Except where a different vote is
required or permitted by law, the Certificate of Incorporation or these By-laws
or otherwise, the act of a majority of the members of a committee present at any
meeting at which a quorum shall be present shall be the act of such committee.
Any action required or permitted to be taken by a committee may be taken without
a meeting if all the members of such committee consent in writing to the
adoption of a resolution authorizing the action. The resolution and the written
consents thereto by the committee members shall be filed with the minutes of the
proceedings of the committee. Any one or more members of a committee may
participate in any meeting of such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
be deemed to constitute presence in person at a meeting of a committee.
SECTION 4.7 Resignations; Removals. Any member of any committee may
----------------------
resign at any time by giving notice to the Corporation; provided, however, that
notice to the Board, either Co-Chairman of the Board, the Chief Executive
Officer of the Corporation, the chairman of such committee or the Secretary of
the Corporation shall be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective. Any member of any such
committee may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the authorized number of directors at any
meeting of the Board called for that purpose. Members of the Special Committee
and Executive Committee may be removed in the manner set forth in the
Certificate of Incorporation.
ARTICLE V
OFFICERS
SECTION 5.1 Number and Qualification. The Corporation shall have such
------------------------
officers as may be necessary or desirable for the business of the Corporation.
The officers of the Corporation shall consist
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of two Co-Chairmen of the Board, a Chief Executive Officer, one or more Vice
Presidents, a Secretary, a Treasurer and such other officers as may from time to
time be appointed by the Board. Officers shall be elected by the Board, which
shall consider that subject at its first meeting after every Annual Meeting of
stockholders. Each officer shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
number of offices may be held by the same person. The failure to elect the Co-
Chairmen of the Board, Chief Executive Officer, Vice President, Secretary or
Treasurer shall not affect the existence of the Corporation.
SECTION 5.2 Co-Chairman of the Board. Each Co-Chairman of the Board shall
------------------------
also be a director and shall preside jointly or singly, as they may agree from
time to time, at all meetings of the stockholders and directors. The Chief
Executive Officer shall report to the Co-Chairmen of the Board.
SECTION 5.3 Chief Executive Officer. The Chief Executive Officer shall
-----------------------
supervise the daily operations of the business of the Corporation, shall have
general and active responsibility for the management of the business of the
Corporation, shall be responsible for implementing all orders and resolutions of
the Board, and shall report to the Co-Chairmen of the Board. Subject to the
provisions of these By-laws and to the direction of the Board, he or she shall
perform all duties and have all powers which are commonly incident to the office
of Chief Executive Officer or which are delegated to him or her by the Board. He
or she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
SECTION 5.4 Vice President. Each Vice President shall have such powers
--------------
and duties as may be delegated to him or her jointly by the Chief Executive
Officer or the Board.
SECTION 5.5 Treasurer. The Treasurer shall have the responsibility for
---------
maintaining the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Treasurer shall also perform such other duties
as the Chief Executive Officer or the Board may from time to time prescribe.
SECTION 5.6 Secretary. The Secretary shall issue all authorized notices
---------
for, and shall keep minutes of, all meetings of the stockholders and the Board.
He or she shall have charge of the corporate books and shall perform such other
duties as the Chief Executive Officer or the Board may from time to time
prescribe.
SECTION 5.7 Delegation of Authority. The Chief Executive Officer or the
-----------------------
Board may from time to time delegate the powers or duties of any officer to any
other officers or agents, notwithstanding any provision hereof.
SECTION 5.8 Removal. Any officer of the Corporation other than the Chief
-------
Executive Officer may be removed at any time, with or without cause, by the
Chief Executive Officer or the Board. The Chief Executive Officer of the
Corporation other may be removed at any time, with or without cause, by the
Board.
SECTION 5.9 Resignations. Any officer may resign at any time by giving
------------
written notice to the Corporation; provided, however, that notice to the Board,
either Co-Chairman of the Board, the Chief
10
<PAGE>
Executive Officer or the Secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5.10 Vacancies. Any vacancy among the officers, whether caused by
---------
death, resignation, removal or any other cause, shall be filled in the manner
prescribed for election or appointment to such office.
SECTION 5.11 Action with Respect to Securities of Other Corporations.
-------------------------------------------------------
Unless otherwise directed by the Board, and subject to the provisions of the
Certificate of Incorporation, the then Chief Executive Officer or any officer of
the Corporation authorized by the then Chief Executive Officer or the Board
shall have the power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which this Corporation may
hold securities and otherwise to exercise any and all rights and powers which
this Corporation may possess by reason of its ownership of securities in such
other corporation.
SECTION 5.12 Bonds of Officers. If required by the then Chief Executive
-----------------
Officer or the Board, any officer of the Corporation shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board may require.
SECTION 5.13 Compensation. The salaries of the officers shall be fixed
------------
from time to time by the Board, unless and until the Board appoints a
Compensation Committee.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 6.1 Contracts. Subject to the approval procedures of Sections
---------
3.1(b) and 4.1 hereof, the Board may authorize any officer or officers, agent or
agents, in the name and on behalf of the Corporation, to enter into any contract
or to execute and deliver any instrument, which authorization may be general or
confined to specific instances; and, unless so authorized by the Board, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or for any amount.
SECTION 6.2 Checks, etc. Subject to the approval procedures of Sections
-----------
3.1(b) and 4.1 hereof, all checks, drafts, bills of exchange or other orders for
the payment of money out of the funds of the Corporation, and all notes or other
evidences of indebtedness of the Corporation, shall be signed in the name and on
behalf of the Corporation in such manner as shall from time to time be
authorized by the Board, which authorization may be general or confined to
specific instances.
SECTION 6.3 Loans. Subject to the approval procedures of Sections 3.1(b)
-----
and 4.1 hereof, no loan shall be contracted on behalf of the Corporation, and no
negotiable paper shall be issued in its name, unless authorized by the Board,
which authorization may be general or confined to specific instances, and bonds,
debentures, notes and other obligations or evidences of indebtedness of the
Corporation issued for such loans shall be made, executed and delivered as the
Board shall authorize.
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SECTION 6.4 Deposits. Subject to the approval procedures of Sections
--------
3.1(b) and 4.1 hereof, all funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as may be selected by or in the manner
designated by the Board. The Board or its designees may make such special rules
and regulations with respect to such bank accounts, not inconsistent with the
provisions of the Certificate of Incorporation or these By-laws, as they may
deem advisable.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 Certificates of Stock. Each stockholder shall be entitled to
---------------------
a certificate signed by, or in the name of the Corporation by, either Co-
Chairman of the Board, the Chief Executive Officer or a Vice President, and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
SECTION 7.2 Stock List. A complete list of stockholders entitled to vote
----------
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
of the Corporation which are registered in such stockholder's name, shall be
maintained by the Corporation and open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, in the manner
required by law. The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 7.3 Transfers of Stock. Transfers of stock shall be made only
------------------
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 7.5
of these By-laws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
SECTION 7.4 Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board may
fix a record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not be
more than sixty (60) nor less than ten (10) days before the date of any meeting
of stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and, for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose, the record date shall be at the close of business on the day on which
the Board adopts a resolution relating thereto.
12
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A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which record date shall be not more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted. If no record date has been fixed by the Board and no prior
action by the Board is required by the GCL, the record date shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed by
Section 2.10 hereof. If no record date has been fixed by the Board and prior
action by the Board is required by the GCL with respect to the proposed action
by written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board adopts the resolution taking
such prior action.
SECTION 7.5 Lost, Stolen or Destroyed Certificates. In the event of the
--------------------------------------
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board may establish concerning
proof of such loss, theft or destruction and concerning the giving of
satisfactory bond or bonds of indemnity.
SECTION 7.6 Regulations. The issue, transfer, conversion and registration
-----------
of certificates of stock shall be governed by such other regulations as the
Board may establish.
ARTICLE VIII
NOTICES
SECTION 8.1 Notices. Except as otherwise specifically provided herein or
-------
required by law, all notices required to be given to the Corporation or any
stockholder, director, officer, employee or agent shall be in writing and may in
every instance be effectively given by hand delivery to the recipient thereof,
by depositing such notice in the mails, postage paid, or with a recognized
overnight delivery service or by sending such notice by prepaid telegram,
mailgram or by facsimile transmission. Any such notice shall be addressed to the
Corporation or such stockholder, director, officer, employee or agent at such
person's last known address as the same appears on the books of the Corporation.
The time when such notice is received, if hand delivered, or dispatched, if
delivered through the mails or by overnight delivery service, or by telegram,
mailgram or facsimile, shall be the time of the giving of the notice.
SECTION 8.2 Waivers. A written waiver of any notice, signed by a
-------
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE IX
MISCELLANEOUS
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SECTION 9.1 Facsimile Signatures. In addition to the provisions for use
--------------------
of facsimile signatures elsewhere specifically authorized in these By-laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board or a committee thereof.
SECTION 9.2 Corporate Seal. The Board may provide a suitable seal,
--------------
containing the name of the Corporation, which seal shall be in the charge of the
Secretary of the Corporation. If and when so directed by the Board or a
committee thereof, duplicates of the seal may be kept and used by the
Corporation's Treasurer or by an Assistant Secretary or Assistant Treasurer.
SECTION 9.3 Reliance Upon Books, Reports and Records. Each director, each
----------------------------------------
member of any committee designated by the Board, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board so designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
SECTION 9.4 Fiscal Year. The fiscal year of the Corporation shall be as
-----------
fixed by the Board.
SECTION 9.5 Time Periods. In applying any provision of these By-laws
------------
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
SECTION 9.6 Definitions. Terms with initial capital letters used herein
-----------
without definition shall have the respective meanings given to them in the
Certificate of Incorporation of the Corporation, as the same may be amended or
restated from time-to-time (the "Certificate of Incorporation").
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 10.1 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 (hereinafter, a "proceeding"), by reason of the fact that he or
she 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 GCL, 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 10.3 hereof with respect to proceedings to enforce
rights to
14
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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.
SECTION 10.2 Right to Advancement of Expenses. The right to
--------------------------------
indemnification conferred in Section 10.1 hereof shall include the right to be
paid by the Corporation the expenses (including attorneys', accountants',
experts', and other professionals' fees, costs and expenses) incurred in
defending any such proceeding in advance of its final disposition (hereinafter,
an "advancement of expenses"); provided, however, that, if the GCL requires, an
advancement of expenses incurred by an indemnitee in his or her 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 (hereinafter, 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 (hereinafter, a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 10.2 or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections 10.1
and 10.2 hereof 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.
SECTION 10.3 Right of Indemnitee to Bring Suit. If a claim under Section
---------------------------------
10.1 or 10.2 hereof 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 be entitled to be paid also the expense 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) 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 GCL. Neither the failure of the Corporation (including its Board,
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 GCL, nor an actual determination by the
Corporation (including its Board, 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 X or otherwise shall be on the Corporation.
SECTION 10.4 Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
to the advancement of expenses conferred in this Article X shall not be
exclusive of any other right which any
15
<PAGE>
person may have or hereafter acquire by any statute, the Certificate of
Incorporation or By-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 10.5 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 GCL.
SECTION 10.6 Indemnification of Employees and Agents of the Corporation.
----------------------------------------------------------
The Corporation may, to the extent authorized from time to time by the Board,
grant rights to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of the provisions of
this Article X with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
ARTICLE XI
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, including
without limitation Clause (b)(i)(B)(1)(IV) of Article FOURTH thereof, and the
approval procedures in Sections 3.1(b) and 4.1 hereof, the Board may from time
to time make, amend, supplement or repeal these By-laws by vote of a majority of
the Board; provided, however, that the stockholders may change or amend or
repeal any provision of these By-laws upon receipt of each of: (a) the
affirmative vote of the holders of a majority of the Voting Stock, voting as one
class; (b) if a Class B Director is then entitled to be a member of the Special
Committee, the affirmative vote of the holders of a majority of the Class B
Securities, voting separately as a class; and (c) if a Class C Director is then
entitled to be a member of the Special Committee, the affirmative vote of the
holders of a majority of the Class C Securities, voting separately as a class.
For purposes hereof, "Voting Stock" shall mean the Common Stock, Class B
Securities and Class C Securities, and any Preferred Stock entitled to vote
generally in the election of directors of the Corporation.
16
<PAGE>
SCHEDULE 3.1(b)
ACTIONS REQUIRING BOARD APPROVAL
1. Subject to the provisions of the Certificate of Incorporation, any
amendment, change or other modification or restatement of the Certificate of
Incorporation or By-laws of the Corporation or similar constitutive documents of
any Subsidiary, or the Stockholders' Agreement or the Registration Rights
Agreement.
2. The merger, consolidation, dissolution or liquidation of the
Corporation or any Subsidiary, or any transaction having the same effect.
3. Except pursuant to (a) employee stock option and similar incentive
plans approved by the Board and the holders of a majority of each class of High
Vote Stock then outstanding, (b) a conversion or exchange right set forth in
this Certificate of Incorporation or similar constitutive documents of any
Subsidiary, or (c) the Stockholders' Agreement, the issuance, authorization,
cancellation, alteration, modification, redemption or any change in, of, or to,
any equity security of the Corporation or any Subsidiary, or any option, put,
call or warrant with respect to the foregoing.
4. The transfer or other disposition of, or placing any Encumbrance (other
than Permitted Encumbrances) on, any material asset of the Corporation or any
Subsidiary (other than disposition of inventory or obsolete assets of the
Corporation or any Subsidiary).
5. Any transaction involving (a) the acquisition of any interest in, or
the making of any loan or extension of credit to, another person or entity by
the Corporation or any Subsidiary for or in an amount in excess of $50,000
except for short-term cash management with recognized money market institutions;
(b) any contract having a term in excess of one year (including network,
customer, marketing or advertising services) and involving payments by the
Corporation or any Subsidiary, or rendering of services by the Corporation or
any Subsidiary with a value, in excess of $50,000; (c) any debt, loan or
borrowing of the Corporation or any Subsidiary (other than borrowings under
revolving credit facilities approved by the Board) $50,000 outstanding in the
aggregate at any time, or any revolving credit facility of the Corporation or
any Subsidiary permitting aggregate borrowings at any one time outstanding to
exceed $50,000; (d) the Corporation or any Subsidiary as a result of which the
Corporation or any Subsidiary, alone or with its Affiliates, acquires control
over any other person or entity; (e) any capital or other expenditures of the
Corporation or any Subsidiary (or series of related capital expenditures) in
excess of $50,000; or (f) any related series or combination of transactions
having or which will have, directly or indirectly, the same effect as any of the
foregoing.
6. Other than involving an amount below $50,000, any transaction or
agreement between the Corporation or any Subsidiary on the one hand and either
AOL, ODC or their respective Affiliates on the other hand, or any amendment or
modification of, or waiver with respect to, any such agreement or transaction.
7. Adoption and approval of any periodic Business Plan for the Corporation
or any Subsidiary and approval of any modification of any line item or other
provision in any such Business Plan.
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8. Adoption of any strategic plan and business projections for the
Corporation or any Subsidiary and approval, rescission or amendment of any
strategic decision material to the conduct of the business of the Corporation or
any Subsidiary.
9. Adoption of any incentive or other employee benefit plan, or any
executive compensation plan or severance payment, by the Corporation or any
Subsidiary or any material amendment to any such existing plan.
10. Hiring or firing any personnel of the Corporation or any Subsidiary
with an annual salary in excess of $100,000 or increasing the compensation of
any such personnel above $100,000.
11. Appointment or dismissal of auditors for the Corporation or any
Subsidiary or change or adoption of any material accounting principle or
practice to be applied by the Corporation or any Subsidiary.
12. The establishment of any entity (or the creation of any entity owned
jointly with any other party) by the Corporation or any Subsidiary and the
adoption of, and any material changes to, any Subsidiary's method of doing
business.
13. Commencement of any litigation (without regard to the amount in
controversy) or settlement of any litigation or claim to which the Corporation
or any Subsidiary is a party or the subject thereof (i) involving amounts in
excess of $100,000 (or its equivalent in any other currency) or (ii) which could
materially adversely affect the rights of AOL or ODC or any of their
Subsidiaries or Affiliates; provided, however, that litigation relating to the
collections of amounts due to the Corporation or any Subsidiary by third parties
may be commenced or settled in the discretion of management.
14. Establishment of, or making any significant modification to, the
investment and/or cash management policies of the Corporation or any Subsidiary.
15. Approval of the discontinuation of any material activity engaged in
from time to time by the Corporation or any Subsidiary.
16. Approval of the entering into of any partnership, joint venture or
consortium with any other Person by the Corporation or any Subsidiary.
17. Any press releases or other public statements by the Corporation or
any Subsidiary containing material non-public information.
18. Entry into agreements by the Corporation or any Subsidiary outside of
the ordinary course of business.
19. Approval of the final annual audited consolidated financial statements
of any Subsidiary.
20. Approval of the filing for bankruptcy of or any decision not to take
action to prevent a filing for bankruptcy or not to oppose an involuntary filing
for bankruptcy or other winding up of the Corporation or any Subsidiary
2
<PAGE>
21. The transfer or other disposition of, or placing any Encumbrance
(other than Permitted Encumbrances) on, any material asset of the Corporation or
any Subsidiary (other than disposition of inventory or obsolete assets of the
Corporation or any Subsidiary).
22. The declaration of any dividend or distribution on any class or
classes of equity securities of the Corporation.
23. The selection of nominees to be recommended by the Board for election
as Class A Directors.
24. The admission of any Strategic Partner as an equity holder in the
Corporation or any Operating Entity.
25. The establishment and maintenance of an Executive Committee and the
establishment and maintenance of, or appointment or removal of any member of,
any other committee of the Board of Directors.
26. The Launch of any AOL-branded TV Access Services or Wireless Access
Services in any country within the Territory.
27. The terms and conditions of any agreements with, or any other
transactions with, and the conduct and settlement of any Action involving, any
third parties relating to TV Access Services or Wireless Access Services in the
Territory.
28. Any action by, in respect of or otherwise involving any entity in
which the Corporation or any Subsidiary has or acquires a controlling equity
interest which would require Board approval under Section 3.1(b) if such action
was by, in respect of or otherwise involving the Corporation or any Subsidiary,
as described above.
3
<PAGE>
Exhibit 10.1
FORM OF AMERICA ONLINE LATIN AMERICA, INC.
2000 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company and its Affiliates in order
to attract such people, to induce them to work for the benefit of the Company or
of an Affiliate, and to provide additional incentive for them to promote the
success of the Company or of an Affiliate. The Plan provides for the granting
of ISOs and Non-Qualified Options.
2. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this America OnLine Latin America, Inc. 2000 Stock
Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee; provided, however, that the
ultimate authority to make determinations and to take actions in
connection with the Plan shall be with the Board of Directors.
Affiliate, with respect to ISOs means a corporation which, for
---------
purposes of Section 424 of the Code, is a parent or subsidiary of the
Company, direct or indirect, and with respect to Non-Qualified
Options, means any corporation, company or other entity such that the
Company directly or indirectly, through one or more intermediaries,
owns or controls the greater of (i) 25% of the voting power or
outstanding securities of such corporation, company or other entity,
or (ii) such amount of voting or outstanding securities or has other
controlling interest such that the Shares and the Options would
qualify for registration on Form S-8, all as determined by the
Administrator.
Board of Directors or Board means the Board of Directors of the
------------------ -----
Company.
Cause shall have the meaning set forth in the Option Agreement with
-----
respect to the Option.
Change in Control means any of the following transactions to which the
-----------------
Company is a party:
<PAGE>
(1) a Corporate Transaction, unless securities representing 30% or
more of either the outstanding shares of common stock or 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 such outstanding
company common stock and outstanding company voting securities
immediately prior to such Corporate Transaction, in substantially the
same proportions as their ownership immediately prior to such
Corporate Transaction; or
(2) the sale, transfer or other disposition of all or substantially
all of the assets of the Company. For the purposes of this definition,
all or substantially all of the assets of the Company means at least
80% of the assets of the Company determined with reference to the
value thereof on the most recent balance sheet.
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's Class A common stock,
------------
US$.01 par value per share.
Company means America Online Latin America, Inc., a Delaware
-------
Corporation.
Corporate Transaction means a reorganization, recapitalization, merger
---------------------
or consolidation involving the Company.
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a securities exchange or traded
in the over-the-counter market and sales prices are regularly reported
for the Common Stock, the reported closing or last price of the Common
Stock on the Composite Tape or other comparable reporting system for
the applicable date, or if the applicable date is not a trading day,
the trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a securities exchange but is
traded on the over-the-counter market, if sales prices are not
regularly reported for the Common Stock for the trading day referred
to in clause (1), and if bid and asked prices for the Common Stock are
regularly reported, the mean between the bid
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<PAGE>
and the asked price for the Common Stock at the close of trading in
the over-the-counter market on the applicable date, or if the
applicable date is not a trading day, on the trading day immediately
preceding the applicable date; and
(3) If the Common Stock is neither listed on a securities exchange
nor traded in the over-the-counter market, an amount determined in
good faith by the Board of Directors (or the Administrator pursuant to
authority delegated by the Board) taking into consideration (a) the
Total Common Equity Value as of the most recent Valuation Date divided
by the number of Shares outstanding as of the most recent Valuation
Date on a fully diluted basis (including, without limitation and in
accordance with U.S. generally accepted accounting principles,
exercise of the Options), and (b) business developments subsequent to
such Valuation Date.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Options
under the Plan.
Non-Qualified Option means an option which is not intended to
--------------------
qualify as an ISO.
Option means an ISO or Non-Qualified option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
-----------
or more Options are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this America Online Latin America, Inc. 2000 Stock Option
----
Plan, as it may be amended from time to time.
Registration means the registration of shares of Common Stock for
------------
trading, listing or quotation on a securities exchange or other
market.
Shares means shares of Common Stock as to which Options have been or
------
may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Section 3 of the Plan. The Shares issued upon
exercise of Options granted under the Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or
both.
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<PAGE>
Survivors means a deceased Participant's legal representatives and/or
---------
any person or persons who acquired the Participant's rights to an
Option by will or by the laws of descent and distribution or such
similar laws applicable to the deceased Participant.
Total Common Equity Value means the aggregate fair value of all of
-------------------------
the Common Stock as determined pursuant to Section 19 of the Plan.
Valuation Date means the date of the most recent valuation determined
--------------
pursuant to Section 20 of the Plan.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be ____ or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Section 17 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares which
were subject to such Option shall be available for the granting of other Options
under the Plan. Any Option shall be treated as "outstanding" until such Option
is exercised in full, or terminates or expires under the provisions of the Plan,
or by agreement of the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board delegates its authority to the Committee, in which case the
Committee shall be the Administrator. Subject to the provisions of the Plan,
the Administrator is authorized, under the control and responsibility of the
Board of Directors, to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants of the Company or of an Affiliate shall be granted
Options;
c. Determine the number of Shares for which an Option or Options shall be
granted, provided, however, that in no event shall Options to purchase
more than [_____] Shares be granted to any Participant in any fiscal
year;
-4-
<PAGE>
d. Determine the Fair Market Value of a Share of Common Stock if the
Common Stock is neither listed on a securities exchange nor traded in
the over-the-counter market; and
e. Specify the terms and conditions upon which an Option or Options may
be granted, including imposing conditions on the exercise or vesting
of Options, on a jurisdiction by jurisdiction basis, as may in the
judgment of the Administrator, be necessary or desirable in order to
recognize differences in local law, tax policy or customs;
provided that the issuance of authorized but unissued shares of Common Stock of
the Company and the formalities relating thereto shall at all times be
effectuated by the Board of Directors, and provided further that all
interpretations, rules, determinations, terms and conditions shall be made and
prescribed in the context of preserving the tax status under Section 422 of the
Code of those Options which are designated as ISOs.
Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Option granted under it
and the determination by the Administrator of Fair Market Value shall be final
and binding on all persons, unless otherwise determined by the Board of
Directors, if the Administrator is the Committee. The Administrator's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Options under
the Plan (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Administrator shall be entitled, among
other things, to make non-uniform and selective determinations, and to enter
into non-uniform and selective Option Agreements, as to (a) the persons to
receive Options under the Plan, (b) the terms and provisions of Options under
the Plan, and (c) whether a termination of service with the Company and any
Affiliate has occurred.
No member of the Board of Directors or the Administrator shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee, director
or consultant of the Company or of an Affiliate at the time an Option is
granted. Members of the Company's Board (who are not employees of the Company
or of an Affiliate may receive options pursuant to the Plan, pursuant to Section
6.A.g, but only pursuant thereto. Notwithstanding any of the foregoing
provisions, the Administrator may authorize the grant of an Option to a person
not then an employee, director or consultant of the Company or of an Affiliate;
provided, however, that the actual grant of such Option shall be conditioned
upon such person becoming eligible to become a Participant at or prior to the
time of the execution of the Option Agreement evidencing such Option. ISOs may
be granted only to Key Employees. Non-Qualified Options may be granted to any
Key Employee, director or consultant of the Company or an Affiliate. The
granting of
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<PAGE>
any Option to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. Each Option shall be subject such terms and
conditions, consistent with the terms and conditions specifically required under
this Plan, as the Administrator may deem appropriate (including, without
limitation, subsequent approval by the stockholders of the Company of this Plan
or any amendments thereto).
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company,
subject to the following minimum standards for any such Non-Qualified
Options:
a. Option Price: The option price (per share) of the Shares covered
by each Option shall be determined by the Administrator but shall not
be less than one hundred percent (100%) of the Fair Market Value (per
share) of the Shares on the date of grant of the Option, and provided
that the Fair Market Value (per share) shall at all times at least be
equal to the nominal or par value per share.
b. Each Option Agreement shall state the number of Shares to which it
pertains.
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or become
exercisable in installments over a period of months or years, or upon
the occurrence of certain conditions or the attainment of stated goals
or events; and
d. Options may be exercised in accordance with Section 7 of the Plan
and the applicable Option Agreement and subject to the restrictions on
exercise set forth in Sections 10 through 14 of the Plan.
e. Exercise of any Option may be conditioned upon the Participant's
execution of a Share Purchase Agreement in a form satisfactory to the
Administrator providing for certain protections for the Company and
its other stockholders, including requirements that:
i. Prior to the Registration of shares of the Common Stock and the
termination of any applicable lock-up period agreed to by the Company
and in effect following the Registration (the "Lock-up Period"), the
Participant and the Participant's Survivors shall not sell or transfer
the
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<PAGE>
Shares issued upon exercise of the Option, other than to the
Company or an Affiliate;
ii. The Participant and the Participant's Survivors grant to the
Company or any third party designated by the Company, a right of
first refusal to purchase all Shares that Participant may acquire
pursuant to the Option Agreement, which right shall be
exercisable for a period of ninety (90) days following written
notice to the Company and which right of first refusal shall
expire upon the date of Registration of Shares of Common Stock;
iii. Prior to the Registration of shares of the Common Stock and the
termination of the Lock-up Period, any financial or other
information that the Participant or the Participant's Survivors
receives from the Company in their capacity as shareholders will
be deemed confidential and subject to nondisclosure obligations;
and
iv. The Participant or the Participant's Survivors may be required to
execute letters of investment intent and must also acknowledge
that the Shares will bear legends noting any applicable
restrictions.
f. Limitation on Grant of Options: No Option shall be granted after
the date provided in Section 25 of the Plan.
g. Directors' Options: Each director of the Company who is not an
employee of the Company or any Affiliate, upon first being elected or
appointed to the Board of Directors, shall be granted a Non-Qualified
Option to purchase [ ] Shares; provided, however, that the
Board of Directors shall be entitled to grant an Option for such
higher number of shares as may be appropriate (as determined by the
Board of Directors) for recruitment purposes. Additional options may
be granted to directors, annually or otherwise in the discretion of
the Board of Directors.
<PAGE>
Each Option granted pursuant to this Section 6.A.g shall (i) have an
exercise price equal to the Fair Market Value (per share) of the
Shares on the date of grant of the Option, (ii) have a term of eight
(8) years, and (iii) to the extent a Registration shall have been
effected, be immediately exercisable (subject to the securities and
other laws of any jurisdiction which apply to such Option). The Board
of Directors may amend this Section 6.A.g to increase, reduce,
eliminate, or institute Option grants for Board, Committee, or other
individual or collective service under this Plan.
B. ISOs: Each Option intended to be an ISO shall so state and shall be
----
issued only to a Key Employee and be subject to at least the following
terms and conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with Section
422 of the Code and relevant regulations and rulings of the Internal
Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Section 6.A above,
except clauses (a) and (g) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable attribution
rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, the
Option price per share of the Shares covered by each Option
shall not be less than one hundred percent (100%) of the
Fair Market Value per share of the Shares on the date of the
grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, each
Option shall terminate not more than ten (10) years from the
date of the grant or at such earlier time as the Option
Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
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<PAGE>
d. Limitation on Yearly Exercise: The Option Agreements shall restrict
the amount of Options which may be exercisable in any calendar year
(under this or any other ISO plan of the Company or an Affiliate) so
that the aggregate Fair Market Value (determined at the time each ISO
is granted) of the stock with respect to which ISOs are exercisable
for the first time by the Participant in any calendar year does not
exceed one hundred thousand dollars ($100,000), provided that this
subsection (d) shall have no force or effect if its inclusion in the
Plan is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
e. Limitation on Grant of ISOs: No ISOs shall be granted after [
], the date which is the earlier of ten (10) years from the date of
-------
the adoption of the Plan by the Company and the date of the approval
of the Plan by the stockholders of the Company.
f. To the extent that an Option which is intended to be an ISO fails
to so qualify, it shall be treated as a Non-Qualified Option.
7. EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
------------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice, in the form prescribed by the Administrator, to the Company at
its registered office address, together with provision for payment of the full
purchase price in accordance with this Section for the Shares as to which the
Option is being exercised, and upon compliance with any other condition(s) set
forth in the Option Agreement. Such written notice shall be signed by the person
exercising the Option, shall state the number of Shares with respect to which
the Option is being exercised and shall contain any representation required by
the Plan or the Option Agreement. Payment of the purchase price for the Shares
as to which such Option is being exercised shall be made (a) in United States
dollars (or such other currency as may be designated by the Administrator) in
cash or by check (fees prepaid), or (b) at the discretion of the Administrator,
through delivery of shares of Common Stock having a Fair Market Value equal as
of the date of the exercise to the cash exercise price of the Option, or (c) at
the discretion of the Administrator, in accordance with a cashless exercise
program established with a securities brokerage firm, and approved by the
Administrator, or (d) at the discretion of the Administrator, through such other
method of payment approved by the Administrator, or (e) at the discretion of the
Administrator, by any combination of (a), (b), (c) and (d) above.
The Company shall then reasonably promptly issue the Shares or, in the event
that the Shares are in bearer form, deliver the Shares, as to which such Option
was exercised to the Participant (or to the Participant's Survivors, as the case
may be). In determining what constitutes "reasonably promptly," it is expressly
understood that the issuance of the Shares may be delayed by the Company as the
Company deems necessary or appropriate in order to comply with any law or
regulation (including, without limitation, applicable securities laws) which
requires the Company to take any action with respect to the Shares prior to
their issuance. The
-9-
<PAGE>
Shares shall, upon issuance, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Section 21) if such accelleration would violate the annual vesting
limitation contained in Section 422(d) of the Code as described in Section
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, and (ii) if any amendment is materially adverse to the Participant,
any such amendment shall be made only with the consent of the Participant to
whom the Option was granted, or in the event of the death of the Participant,
the Participant's Survivors, and (iii) any such amendment of any ISO shall be
made only after the Administrator, after consulting with counsel for the
Company, determines whether such amendment would constitute a "modification" of
any Option which is an ISO (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holder of such ISO.
8. RIGHTS AS A STOCKHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
stockholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise (and satisfaction of such other
conditions for the transfer of Shares as may be required pursuant to the Option)
and registration of the Shares in the Company's share register in the name of
the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable by
the Participant other than (i) by will or by the laws of descent and
distribution or such similar laws applicable to the deceased Participant, or
(ii) as otherwise determined by the Administrator and set forth in the
applicable Option Agreement. The designation of a beneficiary of an Option by a
Participant in such form as the Administrator shall prescribe shall not be
deemed a transfer prohibited by this Section. Except as provided above, an
Option shall be exercisable, during the Participant's lifetime, only by such
Participant (or, in the event of legal incapacity or incompetency, by his or her
guardian or legal representative) and shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of any Option or of any
rights granted thereunder contrary to the provisions of this Plan, or the levy
of any attachment or similar process upon an Option, shall be null and void and
not enforceable against the Company.
-10-
<PAGE>
10. RESTRICTIONS ON EXERCISE.
------------------------
A Participant, or the Participant's Survivors, shall not be entitled to
exercise an Option until the earlier of (i) the date that the Company completes
a Registration or (ii) five years following the date of grant of the Option.
Without limiting the generality of the foregoing, the Company may delay
issuance of the Shares until completion of any action or obtaining of any
consent, which the Company deems necessary or appropriate under any applicable
law, including but not limited to an effective registration under applicable
securities laws.
11. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH OR
-------------------------------------------------------------------
DISABILITY.
----------
Except as otherwise provided in the pertinent Option Agreement, in the event
of a termination of service (whether as an employee, director or consultant)
with the Company or an Affiliate before the Participant has exercised all
Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
for Cause, Disability, or death for which events there are special
rules in Sections 12, 13, and 14, respectively), may exercise any
Option granted to him or her to the extent that the Option is,
pursuant to Section 10, exercisable on the date of such termination of
service, but only within such term as the Administrator has designated
in the pertinent Option Agreement. An Option that is not exercisable
on the date of termination of service is cancelled on such date and
may not be exercised. An Option that is exercisable on the date of
termination of service, but not exercised within the term as the
Administrator has designated in the pertinent Option Agreement (or
Notice of Grant) is cancelled and may not be exercised thereafter.
b. Except as provided in Subsection (c) below, or Section 13 or 14, in no
event may an Option Agreement provide that the time for exercise be
later than (i) sixty (60) calendar days after the Participant's
termination of service or (ii) the date of expiration of the term of
the Option; provided in any case that the Participant may not exercise
an Option after the date of termination of service prior to the
earlier of (iii) the date that the Company completes a Registration or
(iv) five years following the date of grant of the Option.
c. The provisions of this Section 11, and not the provisions of Section
13 or 14, shall apply to a Participant who subsequently becomes
Disabled or dies within sixty (60) calendar days after the termination
of service. Such a Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's termination of service, but in no event after the date
of expiration of the term of the Option; provided further that the
Participant may not
-11-
<PAGE>
exercise an Option after the date of termination of service prior to
the earlier of (i) the date that the Company completes a Registration
or (ii) five years following the date of grant of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of service, but prior to the exercise of an
Option, the Board of Directors determines in good faith that, prior to
the Participant's termination, the Participant engaged in conduct
which would constitute Cause, then such Participant shall immediately
cease to have any right to exercise any Option and all outstanding and
unexercised Options will immediately be forfeited.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Section 2 of the Plan), or who is on leave of
absence which has been approved by the Company or an Affiliate for any
purpose, shall not, during the period of any such approved absence, be
deemed, by virtue of such absence alone, to have terminated such
Participant's employment, director status or consultancy with the
Company or with an Affiliate, except as the Administrator acting in
good faith or the Option Agreement may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
12. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the following
rules apply if the Participant's service (whether as an employee, director or
consultant) with the Company or an Affiliate is terminated for Cause prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated for Cause will
immediately be forfeited.
b. The determination of the Administrator made in good faith as to the
existence of Cause will be conclusive on the Participant, the Company
and the applicable Affiliate for the purposes of the Plan.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that
-12-
<PAGE>
either prior or subsequent to the Participant's termination the
Participant engaged in conduct which would constitute "cause," then
the right to exercise any Option is forfeited.
13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a Participant
who ceases to be an employee, director or consultant of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability,
subject to the restrictions set forth in Section 10 hereof; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise as
would have accrued had the Participant not become Disabled prior to
the end of the accrual period which next ends following the date of
Disability. The proration shall be based upon the number of days of
such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period ending
one (1) year after the date of the Participant's termination of employment,
directorship or consultancy, as the case may be, notwithstanding that the
Participant might have been able to exercise the Option as to some or all of the
Shares on a later date if the Participant had not become Disabled and had
continued to be an employee, director or consultant or, if earlier, within the
originally prescribed term of the Option.
The Administrator, acting in good faith, shall make the determination both of
whether Disability has occurred and the date of its occurrence (unless a
procedure for such determination is set forth in another agreement between the
Company or Affiliate and such Participant, in which case such procedure shall be
used for such determination). If requested by the Company, the Participant
shall be examined by a physician selected or approved by the Administrator, the
cost of which examination shall be paid for by the Company.
14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the event
of the death of a Participant while the Participant is an employee, director or
consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death,
subject to the restrictions set forth in Section 10 hereof; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date
-13-
<PAGE>
of death. The proration shall be based upon the number of days of such
accrual period prior to the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take all
necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the Participant might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
15. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise(s) such Option shall warrant to the
Company, prior to the receipt of such Shares, that such person(s) are
acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection with,
the distribution of any such Shares, in which event the person(s)
acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise of such
grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise in compliance with the 1933 Act without
registration thereunder.
The Company may delay issuance of the Shares until completion of any action or
obtaining of any consent which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws.)
16. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted under
this Plan which as of such date shall not have been exercised will terminate and
become null and void; provided, however, that if the rights of a Participant or
a Participant's Survivors have not
-14-
<PAGE>
otherwise terminated and expired, (i) the Participant or the Participant's
Survivors will have the right immediately prior to such dissolution or
liquidation to exercise any Option to the extent that the Option is exercisable
as of the date immediately prior to such dissolution or liquidation; and (ii) if
a Change in Control shall have occurred within the twelve months immediately
prior to the date of such dissolution or liquidation, such Participant or such
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise any Option then outstanding whether or
not such Option is exercisable as of such date.
17. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which has not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise of such Option may be appropriately increased or
decreased proportionately, and appropriate adjustments may be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend as determined in the discretion of the Administrator. The maximum
number of Shares subject to options which may be granted pursuant to Section
4(c) and Section 6.A.g of the Plan shall also be proportionately adjusted upon
the occurrence of such events.
B. Changes in Control. In the event of a Change in Control, each Option
------------------
outstanding as of the date such Change in Control is determined to have occurred
shall be either: (a) assumed by the successor corporation (or its parent) or
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation (or its parent) on an equitable basis, (b) terminated upon
written notice to the Participants stating that all Options (for purposes of
this Subsection, all Options vested on such date shall be deemed to be
exercisable or, at the discretion of the Board of Directors, all Options then
outstanding shall be deemed to be exercisable) must be exercised within a
specified number of days (which shall not be less than 15 calendar days) from
the date such notice is given, at the end of which period the Options shall
terminate, or (c) terminated in exchange for a cash payment equal to the excess
of the Fair Market Value of the shares subject to such Options (for purposes of
this Subsection, all Options vested on such date shall be deemed to be
exercisable or, at the discretion of the Board of Directors, all Options then
outstanding shall be deemed to be exercisable) over the exercise price thereof;
provided, however, that if any of the treatments of Options pursuant to this
Plan set forth in clauses (a), (b) or (c) above would make a Change in Control
transaction ineligible for pooling-of-interest accounting under APB No. 16 such
that but for the nature of such treatment such transaction would otherwise be
eligible for such accounting treatment, the Administrator (or the Board if no
Committee has been appointed) shall have the ability to substitute for any cash
or other consideration payable under such treatment shares of Common Stock with
a Fair Market Value or other consideration with value equal to the cash or
-15-
<PAGE>
other consideration that would otherwise be payable pursuant to such treatment.
The determination of which of the treatments set forth in clauses (a), (b) and
(c) above to provide and of comparability under clause (a) above shall be made
by the Administrator and its determinations shall be final, binding and
conclusive.
C. Corporate Transaction. In the event of a Corporate Transaction that does
---------------------
not constitute a Change in Control or in the event of a similar event, pursuant
to which securities of the Company or of another corporation or entity are
issued with respect to the outstanding shares of Common Stock, a Participant
upon exercising an Option prior thereto shall be entitled to receive for the
purchase price paid upon such exercise the securities which would have been
received if such Option had been exercised prior to such Corporate Transaction.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made
--------------------
pursuant to Subparagraph A, B or C with respect to ISOs shall be made only after
the Administrator, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Administrator determines that
such adjustments made with respect to ISOs would constitute a "modification" of
such ISOs, it may refrain from making such adjustments, unless the holder of an
ISO specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the ISO.
18. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares subject to Options. Except as expressly provided
herein, no adjustments shall be made for dividends paid in cash or in property
(including without limitation, securities) of the Company.
19. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person exercising
such right shall receive from the Company cash in lieu of such fractional shares
equal to the Fair Market Value thereof.
20. ANNUAL VALUATION.
----------------
For purposes of Subsection (3) of the definition of Fair Market Value, on an
-----------------
annual basis prior to the ____ day of _____________ of each year (the "Valuation
Deadline"), the Administrator will cause a valuation firm to determine the Total
Common Equity Value of the
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<PAGE>
Company as of a date which shall be no greater than 45 calendar days prior to
the Valuation Deadline. The Total Common Equity Value will not include the value
of any preferred equity securities or any debt securities of the Company. The
valuation firm shall be an accounting firm or investment bank selected by the
Administrator, subject to any approval rights specifically granted to the
Company's stockholders.
21. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
22. REGISTRATION.
------------
Within 180 calendar days following a Registration, the Company will use its
best efforts to register for sale the Shares of Common Stock issuable pursuant
to Options and arrange for the listing or inclusion of such Shares for trading
on the exchange or electronic market system through which shares of the Common
Stock are registered for trading.
23. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
24. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment taxes,
insurance contribution withholdings or other amounts are required by applicable
law or governmental
-17-
<PAGE>
regulation to be withheld from the Participant's salary, wages or other
remuneration in connection with the grant or the exercise of an Option, the
Company may withhold from the Participant's compensation, if any, or may require
that the Participant advance in cash to the Company, or to any Affiliate of the
Company which employs or employed the Participant, the amount of such
withholdings unless a different withholding arrangement, including the use of
shares of the Company's Common Stock or a promissory note, is authorized by the
Administrator (and permitted by law). For purposes hereof, the fair market value
of the shares withheld for purposes of payroll withholding shall be determined
in the manner provided in Section 2 of the Plan, as of the most recent
practicable date prior to the date of exercise. If the fair market value of the
shares withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
25. TERMINATION OF THE PLAN.
-----------------------
Unless sooner terminated by the Board of Directors, the Plan will terminate
on ______________, 2010, and no Options shall thereafter be granted under the
Plan. All Options granted under the Plan prior to that date shall remain in
effect until such Options shall have been exercised or terminated in accordance
with the terms and provisions of the Plan and the applicable Option Agreements.
The Board of Directors may terminate the Plan at any time; provided, however,
that any such termination will not materially impair any rights under any Option
theretofore made under the Plan without the consent of the Participant.
26. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the stockholders of the Company. The Plan may also
be amended by the Board of Directors or the Administrator, including, without
limitation, (i) to the extent necessary to qualify any or all outstanding
Options granted under the Plan or Options to be granted under the Plan for
favorable tax treatment (including deferral of taxation upon exercise) as may be
afforded stock options under applicable tax laws, (ii) for as long as the
Company has a class of stock registered for trading, to the extent necessary to
qualify the shares issuable upon exercise of any outstanding Options granted, or
Options to be granted, under the Plan for listing on any securities exchange or
quotation on any automated quotation system of securities dealers, and (iii) to
the extent necessary to comply with the laws of foreign countries in which the
Company and its Affiliates have Participants. Any amendment approved by the
Administrator which the Administrator determines is of a scope that requires
stockholder approval shall be subject to obtaining such stockholder approval.
Any modification or amendment of the Plan shall not, without the consent of a
Participant, materially adversely affect his or her rights under an Option
previously granted to him or her except as required by applicable law. With the
consent of the Participant affected, the Administrator may amend outstanding
Option Agreements in a manner which may be materially adverse to the Participant
but which is consistent with the Plan. In the discretion of the Administrator,
outstanding Option Agreements may be amended by the Administrator in a manner
which the Administrator determines is not materially adverse to the Participant
but which is consistent with the Plan.
-18-
<PAGE>
27. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or the corresponding Affiliate from terminating the employment or
director status of a Participant, nor to prevent a Participant from terminating
his or her own employment, consultancy or director status or to give any
Participant a right to be retained in employment or other service by the Company
or any Affiliate for any period of time.
28. GOVERNING LAW.
-------------
This Plan, the Option Agreements and the Options, is governed by, and shall be
construed and enforced in accordance with, the law of the State of Delaware.
TRADOCS:1286874.1(RKY$01!.DOC)
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<PAGE>
Exhibit 10.3
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement") dated as of ___________,
2000, is by and between AMERICA ONLINE, INC., a Delaware corporation ("AOL"),
RIVERVIEW MEDIA CORP., a British Virgin Islands corporation ("ODC"), and AMERICA
ONLINE LATIN AMERICA, INC., a Delaware corporation (the "Company").
R E C I T A L S
---------------
A. AOL is the owner of (i) all of the outstanding capital stock of AOL
Latin America Holdings, Inc., a Delaware corporation ("Holdings"), which in turn
owns 50% of the limited liability company interests in AOL Latin America, S.L.
(f/k/a Tesjuates, S.L.), a limited liability company organized under the laws of
the Kingdom of Spain ("AOL Latin America") and (ii) 50% of the limited liability
company interests in AOL Latin America Management LLC, a Delaware limited
liability company ("Management") (collectively, the "AOL Contributed
Interests").
B. ODC (i) is the owner of all of the outstanding capital stock of
Federal Communications Corp., a corporation organized under the laws of the
Oriental Republic of Uruguay ("FedComm"), which in turn owns 50% of the limited
liability company interests in AOL Latin America and (ii) has control of all of
the equity interests in Latin American Interactive Services ("LAIS"), which in
turn owns 50% of the limited liability company interests in Management
(collectively, the "ODC Contributed Interests," and together with the AOL
Contributed Interests the "Contributed Interests").
C. AOL and ODC have formed the Company to act as a holding company that
will hold the outstanding equity interests of AOL Latin America and, indirectly,
the equity interests of the Operating Entities that will be formed to conduct
the Business in the Territory, and contemplate filing a Registration Statement
on Form S-1 with the United States Securities and Exchange Commission (the
"SEC") relative to shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"), of the Company and offering such Class A Common
Stock to the public upon the effectiveness of the Registration Statement (the
"IPO").
D. In connection with the IPO, AOL and ODC have agreed to contribute to
the Company, or cause to be contributed to the Company, all of the Contributed
Interests, AOL has agreed to execute, and cause its subsidiary CompuServe
Interactive Services, Inc. ("CompuServe") to execute, license agreements with
the Company, and the Company has agreed to issue in exchange
<PAGE>
therefore shares of its High Vote Preferred Stock and, with respect to AOL, a
warrant to acquire additional shares of the Company's capital stock, all in
accordance with the terms of this Agreement and as contemplated in the Restated
Certificate of Incorporation of the Company executed by the Company on the date
hereof (the "Certificate of Incorporation").
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants, agreements and conditions set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows (terms with initial capital
letters used herein without definition shall have the meanings given in the
Certificate of Incorporation):
1. AOL's Agreement to Contribute.
-----------------------------
In consideration of AOL being issued (i) _______ shares of Series B
Preferred Stock and (ii) a Warrant to purchase an aggregate of _____ shares of
Series B Preferred Stock and/or Class B Common Stock and/or Class A Common Stock
(plus a number of shares equal to the number of shares, if any, purchased by the
underwriters pursuant to their over-allotment option), in each case at an
exercise price per share equal to the price per share at which the Class A
Common Stock is sold to the public in the IPO, AOL hereby agrees to contribute,
convey and assign to the Company, upon the terms and conditions hereinafter set
forth, all of its right, title and interest in and to the AOL Contributed
Interests. In addition, AOL agrees to execute and deliver to the Company and
AOL Latin America, and to cause CompuServe to execute and deliver to the Company
and AOL Latin America, the license agreements.
2. ODC's Agreement to Contribute.
-----------------------------
In consideration of ODC being issued _______ shares of Series C Preferred
Stock, ODC hereby agrees to contribute, convey and assign to the Company, upon
the terms and conditions hereinafter set forth, all of its right, title and
interest in and to the ODC Contributed Interests.
3. Closing Date.
------------
The date upon which title to the Contributed Interests are so transferred
to the Company shall be referred to herein as the "Closing Date," which date
shall be the date on which the IPO has been declared effective by the SEC.
4. Contingencies.
-------------
2
<PAGE>
The obligation of AOL and ODC to so convey the Contributed Interests to the
Company and the obligation of AOL to execute and deliver the license and cause
CompuServe to execute and deliver the CompuServe license to the Company shall be
subject to the effectiveness of the IPO.
5. Representations and Warranties.
------------------------------
(a) To induce ODC to enter into this Agreement, AOL represents and
warrants to ODC and the Company that:
(i) AOL is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite power, authority and legal right to enter into this
Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly authorized, executed and
delivered by AOL and constitutes the legal, valid and binding
obligation of AOL, enforceable against it in accordance with its
terms.
(iii) AOL owns all right, title and interest in and to the AOL
Contributed Interests free and clear of all liens, claims and
encumbrances whatsoever.
(b) To induce AOL to enter into this Agreement, ODC represents and
warrants to AOL and the Company as follows:
(i) ODC is a corporation duly organized, validly existing and in
good standing under the laws of the British Virgin Islands and has all
requisite power, authority to enter into this Agreement and to perform
its obligations hereunder.
(ii) This Agreement has been duly authorized, executed and
delivered by ODC and constitutes the legal, valid and binding
obligation of ODC, enforceable against it in accordance with its
terms.
(iii) ODC owns all right, title and interest in and to the ODC
Contributed Interests free and clear of all liens, claims and
encumbrances whatsoever.
6. Closing.
-------
3
<PAGE>
The Closing Date shall occur promptly upon satisfaction of the contingency
set forth in Section 4. On the Closing Date, each of AOL and ODC shall deliver
to the Company the following:
(a) AOL shall deliver certificates representing all of the
outstanding shares of Holdings, duly endorsed and completed or with
separate stock powers or other instruments duly signed and completed to
effect the transfer of all of such shares to the Company, an Assignment of
Limited Liability Company Interests transferring to the Company its limited
liability company interests in Management, and such other instruments as
reasonably shall be necessary to assign to the Company all of its right,
title and interest in and to the AOL Contributed Interests;
(b) ODC shall deliver certificates representing all of the
outstanding shares of FedComm and LAIS, duly endorsed and completed or with
separate stock powers or other instruments duly signed and completed to
effect the transfer of all of such shares to the Company, and such other
instruments as reasonably shall be necessary to assign to the Company all
of its right, title and interest in and to the ODC Contributed Interests;
and
(c) AOL and ODC shall deliver or cause the delivery of any other
documents reasonably required by AOL, ODC or the Company to consummate the
transactions contemplated hereby.
7. Conditions to Closing.
---------------------
The following shall be conditions precedent to such transfer of the
Contributed Interests to the Company and the issuance by the Company of the
shares of High Vote Preferred Stock:
(a) The contingency set forth in Section 4 shall be satisfied; and
(b) Each and every warranty and representation of the respective
parties set forth in Section 5 shall be true and correct in all material
respects as of the Closing Date.
8. Assignment.
----------
None of the parties hereto may assign this Agreement or any of their rights
hereunder for any purpose whatsoever without the prior written consent of the
other parties hereto, which consent may be granted or withheld in the other
parties' sole discretion, and any purported assignment or assignments of this
4
<PAGE>
Agreement shall be absolutely void and of no force or effect.
9. Notices.
-------
All notices, demands, requests, consents or other communications required
or permitted to be given or made under this Agreement shall be in writing and
signed by the party giving the same and shall be deemed given or made when given
by personal service or three (3) days after mailing by certified or registered
mail, postage prepaid, to the intended recipient at the address set forth below
or any other address of which prior written notice has been given:
If to AOL: America Online, Inc.
22000 AOL Way
Dulles, VA 20166-9323, USA
Attn: President, AOL International
Fax No.: (703) 265-2502
If to the Company: America Online Latin America, Inc.
6600 N. Andrews Avenue, Suite 500
Fort Lauderdale, FL 33309, USA
Attn: President
Fax No.: (954) 772-7089
with a copy to: Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111, USA
Attn: Peter S. Lawrence, Esquire
Fax No.: (617) 542-2241
If to ODC: Riverview Media Corp.
325 Waterfront Drive
Wickham's Cay
Road Town, Tortola
British Virgin Islands
Attn: Legal Department
Fax No.: (284) 494-4980
with a copy to: Finser Corporation
550 Biltmore Way, Suite 900
Coral Gables, FL 33134, USA
Attn: Legal Department
5
<PAGE>
Fax No.: (305) 447-1389
10. Incorporation of Prior Agreements.
---------------------------------
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter hereof, and no prior written or oral agreement or
understanding pertaining to any such matter shall be effective for any purpose.
No provision of this Agreement may be amended or added to except by an agreement
in writing signed by the parties to this Agreement or their respective
successors in interest.
11. Section Headings.
----------------
Headings at the beginning of Sections and Paragraphs of this Agreement are
solely for convenience and are not a part of this Agreement.
12. Time is of the Essence.
----------------------
Time is of the essence of this Agreement.
13. Governing Law; Forum and Venue; Construction.
--------------------------------------------
This Agreement and the transaction herein contemplated shall be construed
in accordance with and governed by the laws of the State of Delaware without
reference to its conflicts of laws provisions. The parties hereto agree that,
to the extent permissible under applicable laws and rules of court procedure,
any action or proceeding between or among any of the parties with respect to
this Agreement shall be commenced only in a court of competent jurisdiction in
the State of Delaware, and in no other jurisdiction. The parties hereto have
participated fully in the negotiation and preparation of this Agreement and,
accordingly, this Agreement shall not be more strictly construed against any one
of the parties.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AMERICA ONLINE, INC.
By: /s/ Gerald Sokol, Jr.
----------------------------
Name: Gerald Sokol, Jr.
Title: Senior Vice President and
General Manager International
RIVERVIEW MEDIA CORP.
By: /s/ Cristina Pieretti
-------------------------------
Name: Cristina Pieretti
Title: Attorney-in-fact
AMERICA ONLINE LATIN AMERICA, INC.
By: /s/ Charles M. Herington
-----------------------------------
Name: Charles M. Herington
Title: Chief Executive Officer
Dcdocs:164447.6(3$vz06!.DOC)
7
<PAGE>
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of this
---------
____ day of _________, 2000 (the "Effective Date"), by and among America Online
--------------
Latin America, Inc., a Delaware corporation having its principal place of
business at 6600 N. Andrews Avenue, Suite 500, Fort Lauderdale, Florida 33309
(the "Company"), America Online, Inc., a Delaware corporation having its
-------
principal place of business at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"),
---
and Riverview Media Corp., a British Virgin Islands corporation having its
principal registered office at P.O. Box 12.128, Blanes Viales 5910, Monteviedo,
Uruguay ("ODC"). AOL and ODC are sometimes hereinafter referred to,
---
collectively, as the "Stockholders" and, individually, as a "Stockholder."
------------ -----------
WHEREAS, the Company has an authorized capital of _________ shares of
common stock, consisting of ________ shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), __________ shares of Class B Common
--------------------
Stock, par value $.01 per share (the "Class B Common Stock"), __________ shares
--------------------
of Class C Common Stock, par value $.01 per share (the "Class C Common Stock",
--------------------
and collectively with the Class A Common Stock and the Class B Common Stock, the
"Common Stock"), and _________ shares of Preferred Stock, par value $.01 per
------------
share (the "Preferred Stock"), consisting of ________ shares of Series B
---------------
Redeemable Convertible Preferred Stock, par value $.01 per share (the "Series B
--------
Preferred Stock"), and __________ shares of Series C Redeemable Convertible
- ---------------
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock");
------------------------
WHEREAS, as of the date hereof AOL owns all of the issued and outstanding
shares of Series B Preferred Stock and ODC owns all of the issued and
outstanding shares of Series C Preferred Stock;
WHEREAS, in connection with the provisions of a Contribution Agreement of
even date herewith by and between the Company, ODC and AOL, the Company has
issued to AOL a warrant (the "Warrant") to purchase shares of Series B Preferred
-------
Stock and/or Class B Common Stock and/or Class A Common Stock in an aggregate
amount equal to six percent (6%) of the Company's issued and reserved capital
stock;
WHEREAS, AOL and ODC may elect to convert any or all of the shares of
Series B Preferred Stock and Series C Preferred Stock into shares of Class B
Common Stock and Class C Common Stock, respectively;
WHEREAS, AOL and ODC may elect to convert the shares of Class B Common
Stock and Class C Common Stock received upon conversion of the shares of Series
B Preferred Stock and Series C Preferred Stock into shares of Class A Common
Stock;
WHEREAS, the Company, AOL and ODC have agreed that the Company shall, at
the request of a Holder (as defined herein), register under the Securities Act
(as defined herein) and register or qualify under any applicable state
securities or Blue Sky laws, shares of Class A Common Stock owned from time to
time by such Holder so as to permit the Holder to sell in the
<PAGE>
public markets the shares of Class A Common Stock into which such shares of
Class B Common Stock and Class C Common Stock are converted;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the parties hereto hereby agree as follows:
Section 1. Definitions
-----------
Section 1.1 Capitalized terms used herein without definition have the
meanings assigned to such terms in the Stockholders' Agreement (as defined
herein). As used in this Agreement, the following terms shall have the following
meanings:
"Advice" shall have the meaning given in Section 6(c).
------
"Agreement" shall have the meaning given in the Preamble.
---------
"AOL" shall have the meaning given in the Preamble.
---
"Business Day" shall mean any day, other than a Saturday or Sunday, on
------------
which federally chartered banks in the United States are open for business.
"Class A Common Stock" shall have the meaning given in the first Whereas
--------------------
Clause.
"Class B Common Stock" shall have the meaning given in the first Whereas
--------------------
Clause.
"Class C Common Stock" shall have the meaning given in the first Whereas
--------------------
Clause.
"Commission" means the Securities and Exchange Commission, or any successor
----------
agency performing the functions currently performed by the Securities and
Exchange Commission.
"Common Stock" shall have the meaning given in the first Whereas Clause.
------------
"Company" shall have the meaning given in the Preamble.
-------
"Demand Filing Date" shall have the meaning given in Section 3.2.
------------------
"Demand Holder" shall have the meaning given in Section 3.1.
-------------
"Demand Registration" shall have the meaning given in Section 3.1.
-------------------
"Demand Request" shall have the meaning given in Section 3.1.
--------------
"Effective Date" shall have the meaning given in the Preamble.
--------------
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder, as amended.
"Holder" means, as of any date, AOL, ODC and each other Person to whom
------
either of them shall have assigned any rights hereunder in accordance with the
provisions of Section 10.6 and who owns Registrable Securities as of such date.
"Indemnified Party" shall have the meaning given in Section 8.3.
-----------------
"Indemnifying Party" shall have the meaning given in Section 8.3.
------------------
"IPO" means the initial public offering of the Class A Common Stock
---
pursuant to an offering registered under the Securities Act.
"Lock-Up Agreement" means the agreement between each Stockholder and an
-----------------
underwriter for the IPO, pursuant to which such Stockholder agrees that it will
not, during the Lock-Up Period (as defined below) offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
any shares of Common Stock now owned or hereafter acquired directly by the
Stockholder or with respect to which the Stockholder has or hereafter acquires
the power of disposition.
"Lock-Up Period" means the respective period agreed to in a Lock-Up
--------------
Agreement by each Stockholder and an underwriter for the IPO during which time
such Stockholder agrees that it will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock, or any securities convertible into or exchangeable for any shares of
Common Stock now owned or hereafter acquired directly by the Stockholder or with
respect to which the Stockholder has or hereafter acquires the power of
disposition.
"Losses" shall have the meaning given in Section 8.1.
------
"ODC" shall have the meaning given in the Preamble.
---
"Preferred Stock" shall have the meaning given in the first Whereas Clause.
---------------
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means any prospectus included in a Registration Statement
----------
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus
3
<PAGE>
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by any Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such Prospectus.
"Register," "Registered" and "Registration," whether or not capitalized,
-------- ---------- ------------
mean and refer to a registration effected by preparing and filing a Registration
Statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such Registration Statement.
"Registrable Securities" means any shares of Class A Common Stock issued
----------------------
upon conversion of shares of Class B Common Stock or Class C Common Stock
issuable upon conversion of the Series B Preferred Stock and Series C Preferred
Stock, respectively; provided, however, that the shares of Class A Common Stock
that are Registrable Securities shall cease to be Registrable Securities (x)
upon the consummation of any sale of such shares pursuant to (i) an effective
Registration Statement under the Securities Act or (ii) Rule 144, (y) at such
time as such shares of Class A Common Stock (which are issued or which may
become issued upon conversion or exchange of any other security) become eligible
for sale under Rule 144(k) under the Securities Act and (z) with respect to any
Holder, on the first date when all of the Registrable Securities then held by
such Holder are eligible for sale during a single three month period under Rule
144.
"Registration Expenses" shall have the meaning given in Section 7.
---------------------
"Registration Statement" means any Registration Statement and any
----------------------
additional Registration Statement, including (in each case) the Prospectus,
amendments and supplements to such Registration Statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference in such Registration Statement to be filed
pursuant to the terms of this Agreement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder, as amended.
4
<PAGE>
"Series B Preferred Stock" shall have the meaning given in the first
------------------------
Whereas Clause.
"Series C Preferred Stock" shall have the meaning given in the first
------------------------
Whereas Clause.
"Stockholder" shall have the meaning given in the Preamble.
-----------
"Stockholders' Agreement" means that certain Stockholders' Agreement of
-----------------------
even date herewith by and among the Company, AOL and ODC.
"Subsidiary" shall have the meaning given in the Registration Rights
----------
Agreement.
"Underwritten Registration or Underwritten Offering" means a registration
--------------------------------------------------
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective Registration Statement.
"Warrant" shall have the meaning given in the third Whereas Clause.
-------
Section 2. "Piggy-Back" Registrations
--------------------------
Section 2.1 If at any time after the IPO the Company shall determine to
register for its own account or the account of others under the Securities Act
(including (i) in connection with a public offering by the Company other than
the IPO or (ii) a demand for registration made by any stockholder of the Company
including any of the parties hereto) any of its equity securities (other than on
Form S-4 or Form S-8 or their then equivalents relating to shares of Common
Stock to be issued solely in connection with any acquisition of an entity or
business or shares of Common Stock issuable in connection with stock option or
other employee benefit plans) it shall send to each Holder written notice of
such determination and if, within 30 days after receipt of such notice, such
Holder shall so request in writing, the Company shall use its best efforts to
include in such Registration Statement all or any part of the Registrable
Securities such Holder requests to be registered.
Section 2.2 If, in connection with any offering described in Section 2.1
of this Agreement involving an underwriting of common stock to be issued by the
Company, the managing underwriter shall impose a limitation on the number of
shares of such common stock which may be included in the Registration Statement
because in its judgment, such limitation is necessary to effect an orderly
public distribution, then, in the discretion of such managing underwriter, the
Company shall include in such Registration Statements only such portion of the
Registrable Securities with respect to which such Holders have requested
inclusion pursuant hereto as such limitation permits after the inclusion of all
shares of common stock to be registered by the Company for its own account. Any
exclusion of Registrable Securities shall be made pro rata among such Holders
seeking to include such shares, in proportion to the number of such shares
sought to be included by such Holders.
Section 3. "Demand" Registrations
----------------------
5
<PAGE>
Section 3.1 At any time commencing at least 180 days after the effective
date of any registration statement covering the IPO, each Holder (a "Demand
------
Holder") may, from time to time, make a written request (each a "Demand
- ------ ------
Request") for registration under the Securities Act (a "Demand Registration") of
-------------------
all or part of the Registrable Securities held by such Holder; provided,
however, that the Registrable Securities requested to be registered shall, on
the date that the Demand Request is delivered, (i) constitute at least one
percent (1%) of the shares of Common Stock outstanding, which shall include all
shares of Common Stock issuable upon conversion or exchange of all then
outstanding Preferred Stock, or (ii) have an aggregate minimum market value of
at least $50,000,000 before calculation of underwriting discounts and
commissions. Each Demand Request shall specify the number of Registrable Shares
proposed to be sold by such Demand Stockholder.
Section 3.2 Within 15 days after receipt of each Demand Request, the
Company shall give written notice of such Demand Request to all non-requesting
Holders and shall use its best efforts to cause a Registration Statement
covering such of the Registrable Securities as may be requested by any Holders
thereof (including the Holder or Holders giving the initial notice of intent to
offer) to be filed with the Commission not later than 120 days after receipt of
a Demand Request (the "Demand Filing Date") and shall use all commercially
------------------
reasonable efforts to cause the same to be declared effective by the Commission
as promptly as practicable after such filing. Both the Demand Request and any
request to join in such Demand Request shall be considered a single Demand
Request.
Section 3.3 Notwithstanding any other provision set forth in this Section
3, no Holder shall be entitled to deliver a Demand Request within 90 days after
the effectiveness of any Registration Statement filed (i) by the Company
pursuant to an Underwritten Offering by the Company other than the IPO or (ii)
on behalf of any Demand Holder or any other Holder of demand registration rights
with respect to the Common Stock.
Section 3.4 The Company may defer the filing (but not the preparation) of
a Registration Statement required by this Section 3 until a date not later than
120 days after the Demand Filing Date if:
(a) at the time the Company receives the Demand Request, there is (i)
material non-public information regarding the Company which the Board
reasonably determines not to be in the Company's best interest to disclose
and which the Company is not otherwise required to disclose, or (ii) there
is a significant business opportunity (including but not limited to the
acquisition or disposition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines
not to be in the Company's best interest to disclose; or
(b) prior to receiving the Demand Request, the Board had determined to
effect an Underwritten Offering and the Company had taken substantial steps
and is proceeding with reasonable diligence to effect such offering.
6
<PAGE>
A deferral of the filing of a Registration Statement pursuant to this Section
3.5 shall be lifted, and the requested Registration Statement shall be filed
forthwith, if, (x) in the case of a deferral pursuant to clause (a)(i), the
material non-public information is made public by the Company, (y) in the case
of a deferral pursuant to clause (a)(ii), the significant business opportunity
is disclosed by the Company or is terminated, or (z) in the case of a deferral
pursuant to clause (b), the proposed registration for the Company's account is
abandoned. In order to defer the filing of a registration statement pursuant to
this Section 3.5, the Company shall promptly (but in any event within 10 days),
upon determining to seek such deferral, deliver to each Demand Holder a
certificate signed by an executive officer of the Company stating that the
Company is deferring such filing pursuant to this Section 3.5 and an
approximation of the anticipated delay. Within 20 days after receiving such
certificate, the holders of a majority of the Registrable Securities held by the
Demand Holder and each other Holder and for which registration was previously
requested may withdraw such Demand Request by giving written notice to the
Company.
Section 4. Registration Procedures
-----------------------
Whenever any Holder has requested that any Registrable Securities be
registered pursuant to this Agreement, the Company shall use its best efforts to
effect the registration of such Registrable Securities and in furtherance
thereof the Company shall:
(a) prepare and file with the Commission on any appropriate form under
the Securities Act with respect to such Registrable Securities and use its
best efforts to cause such Registration Statement to become effective;
(b)(i) prepare and file with the Commission such amendments, including
post-effective amendments and supplements to the Registration Statement as
may be necessary to keep the Registration Statement continuously effective
as to the applicable Registrable Securities for a period of not less than
180 days (or (1) such lesser period as is necessary for the underwriters in
an underwritten offering to sell unsold allotments or (2) such longer
period as may be commercially reasonable if such Registration Statement is
for a shelf registration conducted pursuant to the provisions of Rule 415
(or any similar provisions then in force) promulgated under the Securities
Act); (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and, as so supplemented or amended, to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as possible
to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and, as promptly as
possible, provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of
the Securities Act and the Exchange Act with respect to the disposition of
all Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by
the Stockholders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented;
7
<PAGE>
(c) (i) furnish to the Holders of Registrable Securities to be sold,
their counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Stockholders, their
counsel and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act;
(d) notify the Holders of Registrable Securities to be sold, their
counsel and any managing underwriters as promptly as possible (and in the
case of (i), below, not less than five (5) days prior to such filing) and
confirm such notice in writing no later than one (1) Business Day following
the day:
(i) when a Prospectus or any Prospectus supplement or post-
effective amendment to the Registration Statement is proposed to be
filed;
(ii) when the Commission notifies the Company whether there will
be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement;
(iii) when the Registration Statement or any post-effective
amendment thereto has become effective;
(iv) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information;
(v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose;
(vi) when any of the representations and warranties of the
Company contained in any agreement (including any underwriting
agreement) contemplated hereby shall cease to be true and correct in
all material respects;
(vii) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for
such purpose; and
(viii) of the occurrence of any event that makes any statement
made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so
8
<PAGE>
that, in the case of the Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment;
(f) if requested by any managing underwriter, if any Registrable
Securities are to be sold in connection with an Underwritten Offering, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment
to the Registration Statement such information as the Company reasonably
agrees should be included therein and (ii) thereafter make all required
filings of such Prospectus supplement or such post-effective amendment as
soon as practicable;
(g) furnish to each Holder of Registrable Securities to be sold, their
counsel and any managing underwriters, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with
the Commission;
(h) promptly deliver to each Holder of Registrable Securities to be
sold, their counsel, and any underwriters, without charge, as many copies
of the Prospectus or Prospectuses (including each form of Prospectus) and
each amendment or supplement thereto as such Persons may reasonably
request; and the Company hereby consents to the use of such Prospectus and
each amendment or supplement thereto by each of the selling Stockholders
and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto;
(i) prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders,
any underwriters and their counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such Registrable Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions within the United States as any selling
Holder or underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective for at least 180 days
(or such shorter period as the applicable Registration Statement shall be
effective)and to do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however, that the
9
<PAGE>
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any material tax
in any such jurisdiction where it is not then so subject;
(j) cooperate with the selling Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold pursuant to a Registration
Statement, which certificates shall be free, to the extent permitted by
applicable law, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any
such managing underwriters or Stockholders may request at least two
Business Days prior to any sale of Registrable Securities;
(k) upon the occurrence of any event contemplated by Section
4(d)(viii) of this Agreement, as promptly as possible, prepare a supplement
or amendment, including a post-effective amendment, to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file
all other required documents so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(l) use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the securities exchange,
quotation system, market or over-the-counter bulletin board on which
similar securities issued by the Company are then listed;
(m) enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and
take all such other actions in connection therewith (including those
reasonably requested by any managing underwriters in order to expedite or
facilitate the disposition of such Registrable Securities, and those
reasonably requested by the selling Holders whether or not an underwriting
agreement is entered into):
(i) make such representations and warranties to such selling
Holders and such underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm the same if
and when requested;
(ii) in the case of an Underwritten Offering, obtain and deliver
copies thereof to the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each such
underwriter, in form, scope and substance reasonably satisfactory to
any such managing underwriters and counsel to the selling Stockholders
covering the matters customarily covered in
10
<PAGE>
opinions requested in Underwritten Offerings and such other matters as
may be reasonably requested by such counsel and underwriters;
(iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time
of delivery of any Registrable Securities sold pursuant thereto,
obtain and deliver copies to the selling Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of
any Subsidiary (as defined in the Stockholders' Agreement) of the
Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in
the Registration Statement), addressed to each selling Holder and each
of the underwriters, if any, in form and substance as are customary in
connection with Underwritten Offerings;
(iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to
the selling Holders and the underwriters than those set forth in
Section 8 of this Agreement (or such other provisions and procedures
acceptable to the managing underwriters and such selling Holders); and
(v) deliver such documents and certificates as may be reasonably
requested by the selling Holders, their counsel and any managing
underwriters to evidence the continued validity of the representations
and warranties made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company;
(n) make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant
retained by such selling Holder or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and
its subsidiaries, and cause the officers, directors, agents and employees
of the Company and its subsidiaries to supply all information in each case
reasonably requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration Statement;
provided, however, that any information that is determined in good faith by
the Company to be of a confidential nature at the time of delivery of such
information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person,
is required by law; (iii) such information becomes generally available to
the public other than as a result of a disclosure or failure to safeguard
by such Person; or (iv) such information becomes available to such Person
from a source other
11
<PAGE>
than the Company and such source is not known by such Person to be bound by
a confidentiality agreement with the Company;
(o) comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earnings statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 not later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment
or best efforts Underwritten Offering and (ii) if not sold to underwriters
in such an offering, commencing on the first day of the first fiscal
quarter of the Company after the effective date of the Registration
Statement, which statement shall conform to the requirements of Rule 158;
(p) require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities
as is required by law to be disclosed in the Registration Statement, and
the Company may exclude from such registration the Registrable Securities
of any such selling Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. If the
Registration Statement refers to any such Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have
the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then
in force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to
the time that such reference ceases to be required; and
(q) not file a Registration Statement to which the Holder of a
majority of the Registrable Securities covered thereby or its counsel or
any managing underwriter shall reasonably object in writing within three
(3) Business Days of their receipt thereof
Section 5. Lock-Up Agreement
-----------------
Each Holder agrees, if such Holder is so requested by the managing
underwriter in the IPO, to enter into a Lock-Up Agreement, provided that the
Lock-Up Period required therein shall not exceed 180 days.
Section 6. Stockholder Covenants
---------------------
Each Holder hereby covenants and agrees that:
(a) it will not sell any Registrable Securities under the Registration
Statement until it has received notice from the Company that such
Registration Statement and any post-effective amendments thereto have
become effective;
12
<PAGE>
(b) it and its officers, directors or Affiliates (as defined in the
Stockholders' Agreement), if any, will comply with the Prospectus delivery
requirements of the Securities Act as applicable to them in connection with
sales of Registrable Securities pursuant to a Registration Statement;
(c) upon receipt of a notice from the Company of the occurrence of any
event of the kind described in Section 4(d)(iv), (v), (vi), (vii) and
(viii) of this Agreement, such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement or until it is advised in writing
(the "Advice") by the Company that the use of the applicable Prospectus may
------
be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
Section 7. Registration Expenses
---------------------
Except to the extent limited by the applicable state law, all fees and
expenses incident to the performance of or compliance with this Agreement by the
Company shall be borne by the Company whether or not pursuant to an Underwritten
Offering and whether or not any Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to any
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any securities exchange or market on which Registrable
Securities are required hereunder to be listed, and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Stockholders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, determine)); (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing Prospectuses if the printing of
Prospectuses is requested by the managing underwriters, if any; (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company; (v) Securities Act liability insurance, if the Company desires such
insurance; (vi) fees and expenses of all other Persons retained by the Company
in connection with the consummation of the transactions contemplated by this
Agreement; and (vii) all of the internal expenses of the Company incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties, the expense of any
annual audit, the fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange as required hereunder (all
such expenses being referred to herein as "Registration Expenses"); provided,
---------------------
however, that except as expressly set forth herein, in no event shall
Registration Expenses include any underwriting discounts, commissions, or fees
attributable to the sale of the Registrable Securities or any counsel,
accountants or other persons retained by the Holders incurred in connection with
the consummation of the transactions contemplated by this Agreement.
13
<PAGE>
Section 8. Indemnification and Contribution
--------------------------------
Section 8.1 Indemnification by the Company. The Company shall,
------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder and their agents, brokers, investment advisors and employees of each
of them and each underwriter of the Registrable Securities and their officers,
directors, affiliates, partners and any broker or dealer through whom such
shares may be sold and each Person, if any, who controls (within the meaning of
Section 15 of the Securities Act) such Holder or any such underwriter, to the
fullest extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
------
untrue statement of a material fact contained in any Registration Statement, any
Prospectus or any form of Prospectus or in any amendment or supplement thereto
or in any preliminary Prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of Prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading (in the case of any Prospectus or form of
Prospectus or supplement thereto, in light of the circumstances under which they
were made), except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in any
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
Section 8.2 Indemnification by Holders. Each Holder shall, severally and
--------------------------
not jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of Prospectus, or arising solely out of or based solely
upon any untrue statement or omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained or omitted, as the case may be, in any information so furnished in
writing by such Holder to the Company specifically for inclusion in the
Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of Prospectus or to the extent that such
information relates to such Holder or such
14
<PAGE>
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
Section 8.3 Conduct of Indemnification Proceedings.
--------------------------------------
(a) If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified
-----------------
Party promptly shall notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall assume
-------------------
the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.
(b) An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof,
provided, however, the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the Indemnifying
Party has agreed in writing to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any
such Proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at
the reasonable expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense thereof and such counsel
shall be at the reasonable expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.
(c) All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend
15
<PAGE>
such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten (10) Business Days
of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may
require such Indemnified Party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).
Section 8.4 Contribution.
------------
(a) If a claim for indemnification under Section 8.1 or 8.2 is
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to
the amount paid or payable by such Indemnified Party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as
any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates
to information supplied by, such Indemnifying Party or Indemnified Party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth herein, any reasonable
attorneys' or other reasonable fees or expenses incurred by such party in
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.
In no event shall the liability of any selling Holder hereunder be greater
in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(b) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 8, no
Stockholder shall be required to contribute, in the aggregate, any amount
in excess of the amount by which the proceeds actually received by such
Stockholder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
16
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(c) The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
Section 8.5 Rule 144. Following the IPO, the Company covenants that:
--------
(a) it will file the reports required to be filed by the Company under
the Securities Act and the Exchange Act, so as to enable the Holders to
sell Registrable Securities pursuant to Rule 144 under the Securities Act;
(b) it shall cooperate with any Holder in connection with any sale,
transfer or other disposition by such Holder of any Registrable Securities
pursuant to Rule 144 under the Securities Act;
(c) it will take such action as any Holder may reasonably request, all
to the extent required from time to time to enable such Holder to sell its
Common Stock without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions; and
(d) upon the request of any Holder, it shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has
complied with such requirements.
Section 9. Term of Registration Rights.
---------------------------
The rights of Holders with respect to the registration rights granted
pursuant to this Agreement shall remain in effect, subject to the terms hereof,
so long as there are Registrable Securities or securities which are directly or
indirectly convertible or exchangable for Registrable Securities issued and
outstanding.
Section 10. Miscellaneous.
-------------
Section 10.1 Entire Agreement; Amendments. This Agreement contains the
----------------------------
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
Section 10.2 Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided pursuant to this Agreement shall
be in writing and shall be deemed to have been received (a) upon hand delivery
(receipt acknowledged) or delivery by telex (with correct answer back received),
telecopy or facsimile (with transmission confirmation report) at the address or
number designated below (if delivered on a Business Day during normal business
hours where such notice is to be received), or the first Business Day following
such delivery (if delivered on a Business Day after normal business hours where
such notice is to be received) or
17
<PAGE>
(b) on the second Business Day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The address for the Company shall be:
America Online Latin America, Inc., 6600 N. Andrews Avenue, Suite 500, Fort
Lauderdale, FL 33309, USA; Attention: Chief Executive Officer; fax: (954) 772-
7089. The addresses for each Holder shall be maintained by the Company. Copies
of all notices shall be sent to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., One Financial Center, Boston, Massachusetts 02111, Attn: Peter S.
Lawrence, Esq.; fax: (617) 542-2241, or such other address as may be designated
in writing hereafter, in the same manner, by such person.
Section 10.3 Remedies. In the event of a breach by the Company or by a
--------
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
Section 10.4 No Inconsistent Agreements. Neither the Company nor any of its
--------------------------
Subsidiaries has, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any of its Subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person. Without limiting the generality of the foregoing, the Company
shall not grant to any Person the right to request the Company to register any
securities of the Company under the Securities Act unless the rights so granted
are subject in all respects to the prior rights in full of the Holders, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
Section 10.5 Amendments and Waivers. No provision of this Agreement may be
----------------------
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Holders; or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the Holders. The Company shall not offer or pay any
consideration to a Holder for consenting to such an amendment or waiver unless
the same consideration is offered to each Holder and the same consideration is
paid to each Holder which consents to such amendment or waiver.
18
<PAGE>
Section 10.6 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of each of
the parties. The rights of each Holder hereunder, including the right to have
the Company register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by each Holder
together with the Registrable Security, or the securities into which such
Registrable Securities are convertible or exchangeable into, to which such
rights relate if: (a) the Holder agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee, and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (d) the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (e) such transfer shall have been made in accordance with
the applicable requirements of any agreement applicable to the transfer of such
shares, including, without limitation, the Stockholders' Agreement. The rights
to assignment shall apply to the Holders (and to subsequent) successors and
assigns.
Section 10.7 No Third-Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 10.8 Cumulative Remedies. The remedies provided herein are
-------------------
cumulative and not exclusive of any remedies provided by law.
Section 10.9 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
19
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
AMERICA ONLINE LATIN AMERICA, INC.
By: /s/ Charles M. Herington
-------------------------------
Name: Charles M. Herington
-----------------------------
Title: Chief Executive Officer
----------------------------
AMERICA ONLINE, INC.
By: /s/ Gerald Sokol, Jr.
-------------------------------
Name: Gerald Sokol, Jr.
-----------------------------
Title: Senior Vice President and
General Manager International
-----------------------------
RIVERVIEW MEDIA CORP.
By: /s/ Cristina Pieretti
-------------------------------
Name: Cristina Pieretti
-----------------------------
Title: Attorney-in-Fact
----------------------------
20
<PAGE>
Exhibit 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS, OR IF, IN
THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICA ONLINE LATIN AMERICA,
INC., AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS LEGEND SHALL BE
ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
WARRANT TO PURCHASE UP TO ______ SHARES OF STOCK
OF AMERICA ONLINE LATIN AMERICA, INC.
No.: W-1 ____________ __, 2000
THIS CERTIFIES THAT, America Online, Inc. ("Holder") or its registered
assigns, for value received, is entitled to purchase, on the terms and subject
to the conditions hereinafter set forth, from America Online Latin America,
Inc., a Delaware corporation (the "Company"), at any time, and from time to
time, during the period beginning on the date hereof and ending at 5:00 p.m.
local Miami, Florida time on the tenth anniversary of the date hereof (the
"Expiration Date"), that number of shares (the "Warrant Shares") of Series B
redeemable convertible preferred stock, par value one cent ($0.01) per share, of
the Company (the "Series B Preferred Stock"), as determined in accordance with
the provisions of Section 2 hereof.
SECTION 1. EXERCISE PRICE. The exercise price per Warrant Share at which
this Warrant (the "Warrant") may be exercised shall be [equal to the initial
public offering price of the Class A Common Stock] ________ Dollars ($_____)
(the "Exercise Price"), as adjusted from time to time in accordance with the
provisions of Section 4 hereof. If this Warrant is exercised for Warrant
Securities (as defined below) other than the Series B Preferred Stock, the
Exercise Price for each share of such other Warrant Securities shall be
calculated by dividing the then current Exercise Price per share of Series B
Preferred Stock by the then effective Series B Conversion Ratio (as such term is
defined in the Company's Certificate of Incorporation, as the same may be
amended and restated from time to time).
SECTION 2. EXERCISE OF WARRANT.
2.1. Number of Warrant Shares for Which Warrant is Exercisable.
---------------------------------------------------------
(a) Number and Type of Shares. The number of Warrant Shares for which
-------------------------
this Warrant may be exercised at any time prior to its expiration shall be equal
to _________________ (_________) [6% of the Company's outstanding Class A
Common Stock as of the date of this Warrant, including any shares that may be
issued upon exercise of an over-allotment option in the initial public offering
and the total number of shares of Class A Common Stock reserved for issuance
upon conversion of outstanding capital stock and up to 5% of such number of
outstanding and reserved shares to be reserved for issuance under the Company's
employee stock option plan], as adjusted and in effect at the
<PAGE>
date of any partial or full exercise of this Warrant. If any over-allotment
option is exercised by the Company's underwriters in connection with the
Company's initial public offering after the number of shares into which this
Warrant is exercisable is established, the number of shares into which this
Warrant is exercisable shall be increased appropriately. At the option of the
Holder, in its sole discretion, the Holder may exercise this Warrant for Warrant
Shares consisting of (i) shares of Series B Preferred Stock, and/or (ii) shares
of the Company's Class B common stock, par value one cent ($0.01) per share (the
"Class B Common Stock"), and/or (iii) shares of the Company's Class A common
stock, par value one cent ($0.01) per share (the "Class A Common Stock", and
collectively with the Series B Preferred Stock and the Class B Common Stock, the
"Warrant Securities"). At any time that the Holder elects to exercise this
Warrant for shares of Class B Common Stock or Class A Common Stock, the maximum
number of shares of each such class that the Holder shall be entitled to receive
shall be equal to (y) in the case of Class B Common Stock, up to that number of
shares of Class B Common Stock then issuable upon conversion of the maximum
number of shares of Series B Preferred Stock then issuable upon exercise of this
Warrant, and (z) in the case of Class A Common Stock, up to that number of
shares of Class A Common Stock then issuable upon conversion of the maximum
number of shares of Class B Common Stock then issuable upon conversion of the
maximum number of shares of Series B Preferred Stock then issuable upon exercise
of this Warrant.
2.2. Procedure for Exercise of Warrant.
---------------------------------
(a) To exercise this Warrant in whole or in part, the Holder
shall deliver to the Company, at its principal executive office (or such other
office of the Company in the United States as the Company may designate by
notice in writing to the Holder) on or prior to 5:00 p.m. local Miami, Florida
time on the Expiration Date, (i) the Warrant Certificate attached hereto
completed to specify the type and number of Warrant Securities as to which the
Holder is electing to exercise under this Warrant, (ii) consideration in an
amount equal to the aggregate Exercise Price of the Warrant Securities being
purchased, consisting of (A) cash or a certified or official bank check, payable
to the order of the Company, (B) cancellation by the Holder of indebtedness of
the Company to the Holder, or (C) a combination of (A) and (B) above, and (iii)
if this Warrant is being exercised in whole or the last fraction of this Warrant
is being exercised, this Warrant.
(b) Notwithstanding any provisions herein to the contrary, if
the fair market value of one share of the Warrant Securities for which this
Warrant is being exercised is greater than the Exercise Price for one share of
such Warrant Securities (determined at the date of calculation, as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares of such Warrant Securities equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by surrender of
this Warrant at the principal office of the Company, together with the properly
endorsed Warrant Certificate, substantially in the form as attached hereto, in
which event the Company shall issue to the Holder that number of shares of such
Warrant Securities computed using the following formula:
WS = WSP x (FMV-EP)
--------------
FMV
2
<PAGE>
WHERE:
WS equals the number of shares of the applicable Warrant Securities to be
issued to the Holder;
WSP equals the number of shares of the applicable Warrant Securities
purchasable under the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the date of such
calculation);
FMV equals the fair market value of one share of the applicable Warrant
Securities being exercised (at the date of such calculation); and
EP equals the per share Exercise Price of the applicable Warrant Securities (as
adjusted to the date of such calculation) of the Warrant.
For purposes of the above calculation, the fair market value ("FMV") of one
share of the Warrant Securities shall be determined in accordance with the
provisions of Section 2.3 hereof. Notwithstanding the foregoing, where there
exists a public market for the Class A Common Stock at the time of such
exercise, the FMV per share of (i) Class A Common Stock or Class B Common Stock
shall be equal to the average of the closing bid and asked prices of the Class A
Common Stock quoted in the Over-The-Counter Market Summary or the average of the
last reported sale price of the Class A Common Stock or the closing price quoted
on the Nasdaq National Market System or on any exchange on which the Class A
Common Stock is listed, whichever is applicable, as published in The Wall Street
Journal for the five (5) trading days prior to the date of determination of the
FMV, and (ii) Series B Preferred Stock shall be equal to the FMV of one share of
Class B Common Stock, calculated as set forth in clause (i) above, multiplied by
the then effective Series B Conversion Ratio. Upon receipt of the Warrant
Certificate, the consideration, if any, and the Warrant, as applicable, the
Holder shall be deemed to be the holder of record of the Warrant Securities
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such Warrant
Securities shall not then be actually delivered to the Holder, and the Company
shall, as promptly as practicable, and in any event within five (5) business
days thereafter, execute or cause to be executed and delivered to the Holder, or
as the Holder may direct, a certificate or certificates representing the
aggregate number of shares of Warrant Securities specified in said Warrant
Certificate. Each stock certificate so delivered shall be in such denomination
as may be requested by the Holder. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of said stock
certificate or certificates, deliver to the Holder a certificate evidencing the
fraction of this Warrant which remains exercisable. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section 2.2,
except that, in case such stock certificates shall be registered in a name or
names other than the name of the Holder, funds sufficient to pay all stock
transfer taxes, which shall be payable upon the execution and delivery of such
stock certificate or certificates, shall be paid by the Holder to the Company at
the time of delivering this Warrant to the Company as mentioned above.
3
<PAGE>
2.3 Fair Market Value. Except as set forth above, for determining
-----------------
the FMV of one share of Warrant Securities in connection with a "net exercise"
pursuant to the provisions of Section 2.2 hereof, the following shall apply:
(a) Agreement of the Company and the Holder. If the Company and the
---------------------------------------
Holder can agree in writing as to the FMV, such agreed value shall be the FMV.
If no agreement on the FMV can be reached within five (5) days from the date of
the exercise of this Warrant, then the FMV shall be determined pursuant to
subsection (b) below.
(b) Third Party Appraisal. If the FMV is not agreed upon as provided
---------------------
in subsection (a) above within the period therein stated, then five (5) days
thereafter, an appraiser or appraisers shall be jointly selected by the Company
and the Holder, and the determination of such jointly selected appraiser or
appraisers as to the FMV shall be binding and conclusive upon all parties. If
the Company and the Holder are unable to reach an agreement as to an appraiser,
the provisions of subsection (c) below shall apply. For purposes of this
subsection (b), the FMV shall take into account, among other things, earnings
and book value of the Company, but shall not take into account any minority
stockholder, marketability or other such discount.
(c) Additional Appraiser. If the Company and the Holder do not agree
--------------------
upon the selection of an appraiser or appraisers, as provided in subsection (b)
within the period therein stated, then, within three (3) days after the
expiration of the five (5) day period provided for in subsection (b) above, each
of the Company and the Holder shall deliver, by written notice to the other, a
list of three appraisers and each of the Company and the Holder shall select one
(1) appraiser from the list delivered by the other. If either party falls to
deliver a list of appraisers or to select an appraiser from such list within
said three (3) day period, the other party may select an appraiser from its list
and such appraiser shall serve as the sole appraiser. Each of the appraisers so
selected shall, within ten (10) days of being selected, determine the FMV. If
the lower of the two (2) appraisals is at least ninety percent (90%) of the
higher appraisal, then the FMV shall be equal to the average of the two (2)
appraisals. If the lower of the two (2) appraisals is less than ninety percent
(90%) of the higher appraisal, then the two (2) appraisers shall appoint a third
appraiser within three (3) days after the end of said ten (10) day period, and
such third appraiser shall, within ten (10) days of being selected, determine
the FMV. The FMV shall be equal to (A) the average of (x) the third appraisal
and (y) whichever of the first two appraisals is closest in dollars to the third
appraisal or (B) the third appraisal, if such appraisal is exactly mid-way
between the first two appraisals. The determination of such appraiser shall be
determinative of the FMV and shall be binding, final and conclusive on the
Company and the Holder.
(d) Costs of Appraisals. The parties shall share equally the entire
-------------------
cost of any appraisals hereunder.
2.4 Transfer Restriction Legend. This Warrant and each certificate
---------------------------
for Warrant Securities initially issued upon exercise of this Warrant, unless at
the time of exercise such Warrant Securities are registered under the Securities
Act of 1933, as amended (the "Act"), shall bear the following legend (and any
additional legend required by any securities exchange upon
4
<PAGE>
which such Warrant Securities may, at the time of such exercise, be listed and
any applicable state securities administration or commission) on the face
thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD
OR TRANSFERRED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS,
OR IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICA ONLINE
LATIN AMERICA, INC., AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
2.5 Acknowledgment of Continuing Obligation. The Company will, at
---------------------------------------
the time of the exercise of this Warrant, in whole or in part, upon request of
the Holder, acknowledge in writing its continuing obligation to the Holder in
respect of any rights to which the Holder shall continue to be entitled after
such exercise in accordance with this Warrant, provided, that the failure of the
Holder to make any such request shall not affect the continuing obligation of
the Company to the Holder in respect of such rights.
2.6 Investment Representation. The Holder of this Warrant, by
-------------------------
acceptance hereof, acknowledges that (i) the Holder is an accredited investor
within the definition of Regulation D of the Act, (ii) this Warrant and, upon
exercise, the Warrant Securities, are being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and (iii)
the Holder will not offer, sell, transfer, assign or otherwise dispose of this
Warrant or the Warrant Securities issued upon exercise hereof, unless registered
under the Act and applicable state securities laws or pursuant to an opinion of
counsel reasonably satisfactory to the Company that an exemption from
registration under such laws is available. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm, in writing, in a form
reasonably satisfactory to the Company, that the Warrant Securities so purchased
are being acquired solely for the Holder's own account and not as a nominee for
any party for investment.
2.7 Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current FMV of a share, determined in accordance with the
provisions of Sections 2.2 and 2.3 hereof.
2.8 Registration Rights. The shares of Class A Common Stock issuable
-------------------
upon exercise of this Warrant or upon the conversion of the Class B Common Stock
that is issuable upon conversion of the Series B Preferred Stock that is
issuable upon exercise of this Warrant are entitled to registration rights
granted in and pursuant to that Registration Rights Agreement of even date
herewith by and between the Company, the Holder and the other parties named
therein.
5
<PAGE>
SECTION 3. OWNERSHIP, TRANSFER.
3.1 Ownership of this Warrant. The Company may deem and treat the
-------------------------
person in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Section 3.
3.2 Exchange, Transfer and Replacement. This Warrant is exchangeable
----------------------------------
upon the surrender hereof by the Holder to the Company at its office or agency
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of Warrant Shares purchasable hereunder, each of such new
Warrants to represent the portion of this Warrant exchanged as shall be
designated by the Holder at the time of such surrender. Subject to the terms of
this Warrant, this Warrant and all rights hereunder are transferable in whole or
in part upon the books of the Company by the Holder in person or by duly
authorized attorney, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant duly endorsed at said office or
agency of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any exchange, transfer or
replacement. The Company shall pay all expenses, taxes (other than stock
transfer taxes and income taxes) and other charges payable in connection with
the preparation, execution and delivery of Warrant Securities pursuant to this
Section 3. Notwithstanding the foregoing, this Warrant may not be transferred
to any Person other than a Wholly Owned Affiliate (as such terms are defined in
the Certificate of Incorporation) of America Online, Inc.
SECTION 4. ADJUSTMENT OF EXERCISE PRICE.
4.1 Adjustment of Exercise Price.
----------------------------
(a) Subdivision or Combination of Shares. If the Company, at any time
------------------------------------
while this Warrant is outstanding, shall subdivide or combine any of its Warrant
Securities, the Exercise Price shall be proportionately reduced, in case of
subdivision of shares, to reflect the increase in the total number of shares of
such Warrant Securities outstanding as a result of such subdivision, as at the
effective date of such subdivision, or shall be proportionately increased, in
the case of combination of shares, to reflect the reduction in the total number
of shares of such Warrant Securities outstanding as a result of such
combination, as at the effective date of such combination.
(b) Stock Dividends. If the Company, at any time while this Warrant
---------------
is outstanding, shall pay a dividend in, or make any other distribution of, any
of its Warrant Securities, the Exercise Price shall be adjusted (as at the date
of such payment or other distribution) to that price determined by multiplying
the Exercise Price in effect immediately prior such payment or other
distribution, by a fraction (i) the numerator of which shall be the total number
of shares of such Warrant Securities outstanding immediately prior to such
6
<PAGE>
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of such Warrant Securities outstanding immediately after such
dividend or distribution (plus if the Company paid cash for fractional shares,
the number of additional shares which would have been outstanding had the
Company issued fractional shares in connection with said dividends).
(c) Adjustment of the Warrant Securities. Upon any adjustment in the
------------------------------------
Exercise Price as the result of the provisions of this Section 4, the number of
Warrant Securities purchasable pursuant to this Warrant shall be adjusted so
that the adjusted number of Warrant Securities shall be equal to the number of
Warrant Securities then purchasable hereunder multiplied by a fraction (i) the
numerator of which shall be the Exercise Price immediately prior to such
adjustment, and (ii) the denominator of which shall be the Exercise Price
immediately after such adjustment.
(d) No adjustment in the Exercise Price shall be required pursuant to
Section 2.1 or this Section 4 unless such adjustment would require an increase
or decrease of at least $.05 in such price; provided, however, that any
adjustments which by reason of this subsection are not required to be made shall
be carried forward and taken into account in any subsequent adjustment required
to be made hereunder.
(e) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Warrant Shares issuable upon exercise of each Warrant to
be mailed to the Holder, at its address appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
(f) All calculations under Section 2.1 or this Section 4 shall be made
to the nearest cent or to the nearest share of Warrant Securities, as the case
may be.
(g) Irrespective of any adjustments in the Exercise Price or the
number or kind of Warrant Securities purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(h) If the Company shall admit any "Strategic Partner" (i.e., any Person
----
who acquires 25% or more of the equity of the Company and who provides a
strategic benefit to the Company in the form of a contractual relationship or
contribution of material, in-kind assets) the number of Warrant Securities
purchasable pursuant to this Warrant shall be increased by an amount equal to
the number of Warrant Securities issued to the Strategic Partner multiplied by
-------------
six percent (6%). The Exercise Price will not be adjusted in such event.
4.2 Reorganization, Reclassification, Recapitalization, Consolidation,
------------------------------------------------------------------
Merger or Sale. If any capital reorganization, reclassification or
- --------------
recapitalization of the capital stock of the Company, or consolidation or merger
of the Company, or sales of all or substantially all of its assets to another
entity, shall be effected in such a way that holders of any of the Warrant
Securities shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for any of the Warrant Securities, then, as a
condition of such reorganization,
7
<PAGE>
reclassification, recapitalization, consolidation, sale or merger, lawful and
adequate provisions shall be made whereby each holder of Warrants shall
thereupon be entitled to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the Warrant Securities, such shares
of stock, securities, cash or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of any of the Warrant
Securities equal to the number of shares of Warrant Securities as would have
been received upon exercise of the Warrants at the Exercise Price then in effect
immediately before such reorganization, reclassification, recapitalization,
consolidation, sale or merger, and in any such case appropriate provisions shall
be made with respect to the rights and interests of the holders to the end that
the provisions hereof (including without limitation provisions for adjustments
of the applicable Exercise Price) shall thereafter be applicable, as nearly as
may be practicable, in relation to any rights to acquire or shares of stock or
securities delivered to holders in connection with such reorganization,
reclassification, recapitalization, consolidation, sale or merger. Prior to the
consummation of any consolidation or merger or sale of assets of the Company,
the successor corporation resulting from such consolidation or merger, or the
purchaser of such assets, shall agree in writing to be bound by the provisions
hereof. Before taking any action that would cause an adjustment reducing the
Exercise Price below the then-existing par value of the shares of any of the
Warrant Securities issuable upon exercise of this Warrant, the Company shall
take any corporate action that may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of such Warrant Securities at such adjusted Exercise Price.
SECTION 5. COVENANTS OF THE COMPANY. The Company hereby covenants and
agrees that:
5.1. Reservation of Shares. The Company will reserve and set apart and
---------------------
have at all times, free from pre-emptive rights, (i) a number of shares of
authorized but unissued Series B Preferred Stock deliverable upon the exercise
of the Warrant, (ii) a number of shares of authorized but unissued Class B
Common Stock deliverable upon the conversion of the Series B Preferred Stock,
and (iii) a number of shares of authorized but unissued Class A Common Stock
deliverable upon the conversion of the Class B Common Stock issuable upon
conversion of the Series B Preferred Stock, and, in each case, any other rights
or privileges provided for herein sufficient to enable it at any time to fulfill
all its obligations hereunder.
5.2. Avoidance of Certain Actions. The Company will not, by amendment
----------------------------
of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder of this Warrant against dilution or
other impairment.
5.3. Governmental Approvals. If any shares of any of the Warrant
----------------------
Securities required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
Federal law (other than the Act) or under any state law
8
<PAGE>
before such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, as expeditiously as possible, use its best efforts to
cause such shares to be duly registered or approved, as the case may be.
5.4. Binding on Successors. This Warrant shall be binding upon any entity
---------------------
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
SECTION 6. NOTIFICATIONS BY THE COMPANY. In case at any time:
(a) the Company shall declare any dividend payable in stock upon any
of the Warrant Securities or make any distribution (other than cash dividends
which are not in a greater amount per share than the most recent cash dividend
or, with respect to the Series B Preferred Stock, the stated dividend rate
thereof) to the holders of any of the Warrant Securities;
(b) the Company shall propose to make an offer for subscription pro
rata to the holders of any of its Warrant Securities of any additional shares of
stock of any class or other rights;
(c) there shall be proposed any other transaction of a type referred
to in Section 4 hereof, and
(d) there shall be proposed a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder of the date on which (i) the books of the Company shall close or a
record shall be taken for such dividend, distribution, subscription rights, or
other transaction, and (ii) such reorganization, reclassification,
consolidation, merger, sale, dissolution, other transaction, liquidation or
winding-up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of record of such shares of Warrant Securities
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Warrant Securities for, or receive in
respect of their Warrant Securities, securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, other transaction, liquidation, or winding-up, as the case may be.
Such written notice shall be given not less than five (5) Business days prior to
the taking of the action in question.
SECTION 7. NOTICES. Any notice or other document required or permitted to
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to the Holder at the address listed in the stock records of
the Company or to such other address as shall have been furnished to the Company
in writing by such Holder in accordance herewith. Any notice or other document
required or permitted to be given or delivered to the Company shall be delivered
at, or sent by certified or registered mail to, the principal office of the
Company, at 6600 N. Andrews Avenue, Suite 500, Fort Lauderdale, Florida 33309,
Attention: Chief Executive Officer or such other name or address as shall have
been furnished to the Holder by the Company in accordance herewith.
9
<PAGE>
SECTION 8. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Warrant Securities, and
no mere enumeration herein of the rights or privileges of the Holder, shall (a)
give rise to any rights of the Holder as a stockholder of the Company, or (b)
give rise to any liability of the Holder for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
SECTION 9. GOVERNING LAW. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without giving effect to its conflicts of laws provisions.
SECTION 10. MISCELLANEOUS. No term of this Warrant may be amended, except
with the joint written consent of the Holder and the Company. The headings in
this Warrant are for purposes of reference only and shall not affect the meaning
or construction of any of the provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, America Online Latin America, Inc. has caused this
Warrant to be signed by its duly authorized officer on the date first written
above.
AMERICA ONLINE LATIN AMERICA, INC.
By: /s/ Charles M. Herington
--------------------------
Name: Charles M. Herington
Title: Chief Executive Officer
11
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND
IS PERMITTED TO TRANSFER THE WITHIN WARRANT OF
AMERICA ONLINE LATIN AMERICA, INC.
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers unto ______________________ the right to purchase ___________ of the
number of shares of Warrant Securities covered by the within Warrant, and does
hereby irrevocably constitute and appoint ___________________, attorney to
transfer the Warrant on the books of the Company with full power of
substitution. All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Warrant to which this Assignment is
attached.
Signature:________________________________(SEAL)
Address: _________________________________
_________________________________
Dated:_________________
In the presence of: [Name of Wholly-Owned Affiliate]
_________________ By:________________________
NOTICE:
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
12
<PAGE>
WARRANT CERTIFICATE
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THE WITHIN WARRANT OF
AMERICA ONLINE LATIN AMERICA, INC.
The undersigned hereby irrevocably exercises the right to purchase:
(i) __________ shares of Series B Preferred Stock, and/or
(ii) __________ shares of Class B Common Stock, and/or
(iii) __________ shares of Class A Common Stock,
obtainable by exercise of the within Warrant, according to the conditions
thereof and (y) herewith makes payment of the Exercise Price in the amount of
$___________ for such shares in full, or (z) elects to utilize its "net
exercise" option under Section 2.2(b) of the Warrant, in which case the
calculation of such net exercise is set forth below. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Warrant to which this Warrant Certificate is attached.
Net Exercise (see page 3 of the Warrant for an explanation of the formula):
------------
For Series B Preferred Stock:
WS = WSP x (FMV-EP) results in _____________= ____________ shares of Series
-------------- B Preferred Stock
FMV
For Class B Common Stock:
WS = WSP x (FMV-EP) results in _____________= ___________ shares of Class B
-------------- Common Stock
FMV
For Class A Common Stock:
WS = WSP x (FMV-EP) results in _____________= ___________ shares of Class A
-------------- Common Stock
FMV
13
<PAGE>
Signature:___________________(SEAL)
Address:_____________________
_____________________
Dated:_____________________
In the presence of : [Name of Wholly-Owned Affiliate]
___________________________ By:____________________
14
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 20, 2000, except as to Note 1, as to which the
date is ___________ in Amendment No. 2 to the Registration Statement (Form S-1
No. 333- ) and related Prospectus of America Online Latin America, Inc. for
the registration of ___________ shares of its Class A common stock.
Ernst & Young LLP
McLean, Virginia
The foregoing consent is in the form that will be signed upon the completion of
the reorganization as described in Note 1 to the financial statements.
/s/ Ernst & Young LLP
McLean, Virginia
March 13, 2000
