<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
AMERICA ONLINE, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO OF AMERICAN ONLINE APPEARS HERE]
22000 AOL WAY
DULLES, VA 20166-9323
October 3, 1997
Dear Stockholder,
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of America Online, Inc. (the "Company") to be held at 10:00 a.m. on October
31, 1997 at the Westfields International Conference Center, located at 14750
Conference Center Drive, Chantilly, Virginia.
At the Annual Meeting, two persons will be elected to the Board of
Directors. The Board of Directors recommends the election of the two nominees
named in the Proxy Statement. In addition, the Company will ask the
stockholders to ratify the selection of Ernst & Young LLP as the Company's
independent public accountants.
Whether you plan to attend the Annual Meeting or not, it is important that
you promptly complete, sign, date and return the enclosed proxy card in
accordance with the instructions set forth on the card. This will ensure your
proper representation at the Annual Meeting.
Sincerely,
/s/ Stephen M. Case
Stephen M. Case, Chairman of the
Board
YOUR VOTE IS IMPORTANT.
PLEASE REMEMBER TO RETURN YOUR PROXY PROMPTLY.
<PAGE>
AMERICA ONLINE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 31, 1997
To the Stockholders of America Online, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of America
Online, Inc., a Delaware corporation (the "Company"), will be held on October
31, 1997 at the Westfields International Conference Center, located at 14750
Conference Center Drive, Chantilly, Virginia at 10:00 a.m. for the following
purposes:
1. To elect two members to the Board of Directors to serve for a term
ending in 2000 and until their successors are duly elected and
qualified.
2. To consider and act upon a proposal to ratify the appointment of Ernst &
Young LLP as the Company's independent public accountants for the fiscal
year ending June 30, 1998.
3. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on September 3, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournments thereof. A list of
such Stockholders will be available for inspection at the Westfields
International Conference Center, during ordinary business hours for the ten-
day period prior to the Annual Meeting.
All Stockholders are cordially invited to attend the Annual Meeting.
However, to ensure your representation you are requested to complete, sign,
date and return the enclosed proxy as soon as possible in accordance with the
instructions on the proxy card. A return addressed envelope is enclosed for
your convenience.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ George Vradenburg, III
George Vradenburg, III Secretary
Dulles, Virginia
October 3, 1997
<PAGE>
AMERICA ONLINE, INC.
22000 AOL WAY
DULLES, VIRGINIA 20166-9323
(703) 448-8700
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of America Online, Inc. (the "Company" or "America
Online"), a Delaware corporation, of proxies, in the accompanying form, to be
used at the Annual Meeting of Stockholders to be held at the Westfields
International Conference Center, located at 14750 Conference Center Drive,
Chantilly, Virginia on October 31, 1997 at 10:00 a.m., and any adjournments
thereof (the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the two nominees for Director named herein and FOR the
ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending June 30, 1998. A
proxy may be revoked by written instrument delivered to the Company at any
time before the proxy is voted. Any Stockholder who has executed a proxy but
is present at the Meeting, and who wishes to vote in person, may do so by
revoking his or her proxy as described in the preceding sentence. Shares
represented by valid proxies in the form enclosed, received in time for use at
the Meeting and not revoked at or prior to the Meeting, will be voted at the
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Company's common stock, par value $.01 per share
("Common Stock"), is necessary to constitute a quorum at the Meeting. With
respect to the tabulation of proxies for purposes of constituting a quorum,
abstentions and broker non-votes are treated as present, and for purposes of
any particular proposal, abstentions and broker non-votes have no effect on
the vote.
The close of business on September 3, 1997 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of that date, the Company had 101,251,844 shares of Common Stock
outstanding and entitled to vote. Holders of Common Stock are entitled to one
vote per share on all matters to be voted on by Stockholders. This Proxy
Statement and the accompanying proxy are being mailed on or about October 3,
1997 to all Stockholders entitled to notice of and to vote at the Meeting.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy material to such beneficial owners. Solicitation
of proxies by mail may be supplemented by telephone, telegram, and telex, and
personal solicitation by the directors, officers or employees of the Company.
No additional compensation will be paid to directors, officers or employees
for such solicitation.
The Annual Report to Stockholders for the fiscal year ended June 30, 1997 is
being mailed to the Stockholders with this Proxy Statement, but does not
constitute a part hereof.
<PAGE>
RECENT DEVELOPMENTS
On September 7, 1997, America Online entered into a Purchase and Sale
Agreement (the "Agreement") by and among America Online, ANS Communications,
Inc., a Delaware corporation and a wholly-owned subsidiary of AOL ("ANS"), and
WorldCom, Inc., a Georgia corporation ("WorldCom"), pursuant to which America
Online agreed to transfer to WorldCom its ANS subsidiary and WorldCom agreed to
transfer to America Online all of the online services businesses of CompuServe
Corporation, a Delaware corporation ("CompuServe"), and $175 million in cash,
subject to certain adjustments (the "Purchase and Sale"). Consummation of the
Purchase and Sale is subject to the satisfaction of certain conditions,
including, among others, the expiration or termination of any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and any foreign competition law or similar law, the receipt of
other required regulatory approvals, and the absence of certain adverse
changes. Consummation of the Purchase and Sale is also subject to the
consummation of WorldCom's acquisition of CompuServe pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") dated September 7, 1997, by and
among H&R Block, Inc., a Missouri corporation ("H&R Block"), H&R Block Group,
Inc., a Delaware corporation, a wholly-owned subsidiary of H&R Block and the
majority shareholder of CompuServe, WorldCom, and Walnut Acquisition Company,
L.L.C., a Delaware limited liability company which is wholly-owned by WorldCom
(the "Merger"). The closing of the Purchase and Sale is expected to occur on or
before March 1, 1998, as soon as practicable after the satisfaction of the
foregoing conditions. Stockholders are not being asked to vote on the Purchase
and Sale or any of the related transactions or agreements at the Meeting.
2
<PAGE>
SHARE OWNERSHIP
The following table sets forth certain information as of July 31, 1997,
concerning the ownership of Common Stock by (i) each stockholder of the Company
known by the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, (ii) each current member and nominee for
election of the Board of Directors of the Company, (iii) each executive officer
of the Company named in the Summary Compensation Table appearing under
"Executive Compensation," below and (iv) all current directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
-----------------------
NAME AND ADDRESS* NUMBER PERCENT
----------------- ------------ ----------
<S> <C> <C>
Over 5% Stockholders:
The Capital Group Companies, Inc. and
Capital Research and Management Company(2)(3).......... 12,833,220 13.7%
333 South Hope Street
Los Angeles, California 90071
Putnam Investments, Inc.(2)(4)......................... 7,727,146 8.3%
One Post Office Square
Boston, Massachusetts 02109
Current Directors and Director Nominees:
Stephen M. Case(5)(6).................................. 2,359,695 2.3%
Frank J. Caufield(7)................................... 169,800 **
Robert J. Frankenberg(7)............................... 20,000 **
General Alexander M. Haig, Jr.(7)...................... 179,360 **
James V. Kimsey(6)..................................... 1,052,391 1.0%
William N. Melton(6)................................... 390,000 **
Dr. Thomas Middelhoff(8)............................... 0 **
Robert W. Pittman(7)................................... 20,000 **
Daniel F. Akerson...................................... 0 **
Named Executive Officers Who Are Not Directors:
Bruce R. Bond(7)....................................... 0 **
Lennert J. Leader(6)................................... 533,439 **
Theodore J. Leonsis(6)................................. 319,302 **
All executive officers and directors as a group (14
persons)(6)........................................... 5,301,639 5.1%
</TABLE>
- - --------
* Addresses are given for beneficial owners of more than 5% of the Common
Stock only.
** Represents beneficial ownership of less than 1% of the Company's of Common
Stock.
(1) The number of shares of Common Stock issued and outstanding on July 31,
1997 was 100,716,429. The calculation of percentages is based upon the
number of shares of Common Stock issued and outstanding on such date, plus
shares of Common Stock subject to options held by the respective persons on
July 31, 1997
3
<PAGE>
and exercisable within 60 days thereafter. The persons and entities named in
the table have sole voting and dispositive power with respect to all shares
shown as beneficially owned by them, except as described below. Attached to
each share of Common Stock is a Preferred Share Purchase Right to acquire
one one-hundredth of a share of the Company's Series A Junior Participating
Preferred Stock, par value $.01 per share, which Preferred Share Purchase
Rights are not presently exercisable.
(2) Based solely upon information filed with the Securities and Exchange
Commission.
(3) The Capital Group Companies, Inc. reports that it does not have dispositive
or voting power over the reported shares of Common Stock but may be deemed
to "beneficially own" such securities by virtue of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. Capital Research and
Management Company, an investment advisor and wholly-owned subsidiary of
The Capital Group Companies, Inc. reports that it is the beneficial owner
of and has sole dispositive power over 9,914,400 shares of Common Stock.
The remaining shares are reported as being beneficially owned by other
subsidiaries of The Capital Group Companies, Inc., none of which by itself
owns 5% or more of the outstanding securities.
(4) Putnam Investments, Inc. is a wholly-owned subsidiary of Marsh & McClennan
Companies, Inc. Included in the 7,727,146 shares of Common Stock
beneficially owned by Putnam Investments, Inc., are 6,536,878 shares
beneficially owned by Putnam Investment Management, Inc. and 625,384 shares
of Common Stock beneficially owned by The Putnam Advisory Company, Inc.,
both registered investment advisers and wholly-owned subsidiaries of Putnam
Investments, Inc. Putnam Investments, Inc. shares voting power with The
Putnam Advisory Company, Inc. with respect to 420,514 shares.
(5) Includes 4,086 shares held by a custodian on behalf of Mr. Case's minor
children under the Uniform Gifts to Minors Act.
(6) Includes shares issuable within 60 days of July 31, 1997 upon the exercise
of options to purchase Common Stock as follows: Mr. Case--1,869,000; Mr.
Kimsey--812,424; Mr. Melton--140,000; Mr. Leader--403,536; Mr. Leonsis--
156,546; and all directors and executive officers as a group--4,027,210.
(7) Represents shares issuable within 60 days of July 31, 1997 upon the
exercise of options to purchase Common Stock.
(8) Dr. Middelhoff is a Director and a member of the Executive Board of
Bertelsmann AG, a joint venture partner of the Company. Dr. Middelhoff
disclaims beneficial ownership of 3,609,280 shares of Common Stock owned by
Bertelsmann AG.
4
<PAGE>
MANAGEMENT
DIRECTORS
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide for a classified Board of Directors. The Board of Directors currently
consists of eight members, classified into three classes as follows: James V.
Kimsey and Alexander M. Haig, Jr. constitute a class with a term which expires
at the upcoming Meeting (the "Class I Directors"); Frank J. Caufield, Robert J.
Frankenberg and Robert W. Pittman constitute a class with a term ending in 1998
(the "Class II Directors"); and Stephen M. Case, William N. Melton and Thomas
Middelhoff constitute a class with a term ending in 1999 (the "Class III
Directors"). At each annual meeting of stockholders, directors are elected for
a full term of three years to succeed those directors whose terms are expiring.
James V. Kimsey is not standing for re-election to the Board of Directors.
Daniel F. Akerson has been nominated to the Board of Directors to fill Mr.
Kimsey's seat, see "Election of Directors (Item 1)."
The names of the Company's directors and certain information about them are
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Stephen M. Case......... 39 Chairman of the Board; President, Chief
Executive Officer and Director
Frank J. Caufield....... 57 Director
Robert J. Frankenberg... 50 Director
General Alexander M. 72 Director
Haig, Jr...............
James V. Kimsey......... 58 Chairman Emeritus and Director
William N. Melton....... 55 Director
Dr. Thomas Middelhoff... 44 Director
Robert W. Pittman....... 43 President and Chief Executive Officer,
AOL Networks, and Director
</TABLE>
Mr. Case, a co-founder of the Company, has been Chairman of the Board of
Directors since October 1995, Chief Executive Officer of the Company since
April 1993 and a director since September 1992. Mr. Case has served as
President since July 1996 and served previously as President from January 1991
to February 1996. He also served as Executive Vice President from September
1987 to January 1991 and Vice President, Marketing, from 1985 to September
1987.
Mr. Caufield has been a director of the Company since 1991. He has held the
position of general partner of Kleiner, Perkins, Caufield & Byers, a venture
capital partnership, since 1978. Also, he is a director of Quickturn Design
Systems, Inc., an emulation technology company.
Mr. Frankenberg has been a director of the Company since October 1995. He was
held the position of President and Chief Executive Officer of Encanto Networks,
Inc., a producer of Java-based internet appliances, since June 1997. He was the
Chief Executive Officer, President and a director of Novell, Inc. from April
1994 to August 1996 and Chairman of the Board of Directors of Novell, Inc. from
August 1994 to August 1996. Mr. Frankenberg also served as Vice
President/General Manager, Personal Information Networks and Cooperative
Computing Groups of Hewlett-Packard Company from November 1989 to April 1994.
Mr. Frankenberg is a director of Electroglas, Inc., Caere Corporation, Secure
Computing Corporation and DAW Technologies, Inc. He is also Chairman of the
Board of Directors of Wall Data Incorporated.
General Haig has been a director of the Company since 1989. He has held the
position of Chairman and President of Worldwide Associates, Inc., an
international consulting company, since 1984. General Haig is the former U.S.
Secretary of State, former Vice Chief of Staff, Army, former White House Chief
of Staff and former Supreme Allied Commander, Europe. General Haig has been
awarded many military decorations, including the
5
<PAGE>
Distinguished Service Cross. A retired full General, U.S. Army, he also served
as the President and Chief Operating Officer of United Technologies Corp., and
is currently a director of Interneuron Pharmaceuticals, Inc., MGM Grand, Inc.
and Interactive Flight Technologies, Inc., and is Executive Advisor to
Precision Response Corporation.
Mr. Kimsey, a co-founder of the Company, has served as Chairman Emeritus of
the Board of Directors since October 1995 and as a director since 1985. Mr.
Kimsey served as Chairman of the Board of Directors from 1985 to October 1995.
He also served as President of the Company from 1985 to January 1991 and as
Chief Executive Officer from 1985 to April 1993. Mr. Kimsey serves as a
director for Capital One Financial Corp., a financing company, Capital One
Bank, a financial corporation, and BTG, Inc., a computer software and systems
company. Over the past 20 years, Mr. Kimsey has founded and served on the
boards of a number of businesses in the Washington, D.C. area.
Mr. Melton has been a director of the Company since September 1992. Since
1994, he has held the positions of President and Chief Executive Officer of
CyberCash, Inc., a leading developer of software and service solutions for
payments over the Internet. From 1981 to 1992, he held positions at Verifone,
Inc., including President and Chief Executive Officer from 1981 to 1986 and
Chairman of the Board from 1981 to 1992. Mr. Melton served as a director of
Verifone from 1992 to July 1996. Mr. Melton has also been a director of
Transaction Network Services, Inc. since 1990.
Dr. Middelhoff has been a director of the Company since May 1995. He has been
a member of the Executive Board of Bertelsmann AG, one of the world's largest
media companies, since July 1994 and was elected as Chairman of Bertelsmann AG
beginning in October 1998. From July 1990 through July 1994, he served as
Chairman of the Management Board of Mohndruck Graphische Betriebe GmbH and as a
member of the Board of Directors of Bertelsmann Industries, Gutersloh. Prior to
that, he served as Managing Director of Mohndruck Graphische Betriebe GmbH. Dr.
Middelhoff was nominated as a director of the Company pursuant to the terms of
a Common Stock Purchase Agreement with Bertelsmann AG.
Mr. Pittman has been a director of the Company since October 1995. He was
appointed as President and Chief Executive Officer of AOL Networks, a division
of the Company in November 1996. He held the positions of Managing Partner and
Chief Executive Officer of Century 21 Real Estate Corp. from October 1995 to
October 1996. Mr. Pittman had previously been President and Chief Executive
Officer of Time Warner Enterprises since 1990, a division of Time Warner
Entertainment Company, LP, a company engaged in entertainment, cable networks
and cable systems, and Chairman and Chief Executive Officer of Six Flags
Entertainment Corporation since 1991, the second largest theme park operator in
the United States. Mr. Pittman is a director of HFS, Inc. (formerly Hospitality
Franchise Systems, Inc.). Mr. Pittman also has served as president and chief
executive officer of MTV Networks, and was the creator of the MTV network.
COMMITTEES OF THE BOARD AND MEETINGS
Meeting Attendance. During the fiscal year ended June 30, 1997, there were
eleven meetings of the Board of Directors, and the various Committees of the
Board of Directors met a total of thirteen times. No director attended fewer
than 75% of the total number of meetings of the Board of Directors and its
Committees on which they served during the fiscal year. In addition, the
members of the Board of Directors and its Committees acted by unanimous written
consent pursuant to Delaware law.
Audit Committee. The Audit Committee, which met six times in fiscal 1997, has
two members, Messrs. Frankenberg and Melton. The Audit Committee reviews the
engagement of the Company's independent accountants, and reviews annual
financial statements, considers matters relating to accounting policy and
internal controls and reviews the scope of annual audits.
Compensation Committee. The Compensation Committee, which met six times
during fiscal 1997, has two members, General Haig (Chairman) and Mr. Caufield.
The Compensation Committee (i) reviews, approves and makes recommendations on
the Company's compensation policies, practices and procedures to ensure that
legal and fiduciary responsibilities of the Board of Directors are carried out
and that such policies, practices and
6
<PAGE>
procedures contribute to the success of the Company and (ii) administers the
Company's 1992 Employee, Director and Consultant Stock Option Plan, the 1987
Stock Incentive Plan, the 1985 Incentive Stock Option Plan (Restatement) and
the Employee Stock Purchase Plan.
Nominating Committee. The Nominating Committee, which met once during fiscal
1997, has four members, Messrs. Caufield, Frankenberg, Melton and Middelhoff.
The Nominating Committee's role, following consultation with all other members
of the Board of Directors, is to make recommendations to the full Board as to
the size and composition of the Board and to make recommendations as to
particular nominees; it does not consider nominees recommended by stockholders.
COMPENSATION OF DIRECTORS
The Company's policy is to pay no cash compensation to members of the Board
for attendance at Board meetings or Committee meetings. The Company paid Mr.
Kimsey, Chairman Emeritus and a director of the Company, $50,000 during fiscal
1997 for services rendered to the Company and paid $54,000 to rent office space
for Mr. Kimsey.
Directors are eligible to participate in the Company's 1992 Employee,
Director and Consultant Stock Option Plan (the "1992 Plan"). Under the 1992
Plan, each non-employee Director will receive an initial grant upon first being
elected or appointed to the Board of Directors, to purchase 10,000 shares of
Common Stock (or such higher number of options as is determined by the
Compensation Committee for recruitment purposes). The 1992 Plan also provides
for an annual grant on the date following the annual meeting of stockholders of
the Company of each year, after giving effect to the election of any director
or directors at such annual meeting of stockholders, to each non-employee
director (who has served for at least six months as a director) of an option to
purchase 10,000 shares of Common Stock. Non-employee directors who serve on the
Company's Compensation or Audit Committee (or other committee designated by the
Board) are granted an option to purchase 5,000 shares with each Chairman of
such committees receiving an additional 5,000 shares. Options granted for
service on committees are not cumulative for service on more than one
committee. All of such options granted to non-employee directors will have an
exercise price equal to the fair market value of the Common Stock on such grant
date, have a term of ten years, and be immediately exercisable (subject to
Section 16 of the Securities Exchange Act of 1934, as amended, the "1934 Act").
EXECUTIVE OFFICERS
The names of, and certain information regarding, executive officers of the
Company who are not directors of the Company, are set forth below. The
executive officers serve at the pleasure of the Board of Directors and the
Chief Executive Officer.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Bruce R. Bond........... 51 President and Chief Executive Officer, ANS
Communications
Miles R. Gilburne....... 46 Senior Vice President, Corporate Development
Lennert J. Leader....... 42 Senior Vice President; Chief Financial Officer,
Treasurer, Chief Accounting Officer and Assistant
Secretary
Theodore J. Leonsis..... 41 President and Chief Executive Officer, AOL Studios
Mark Stavish............ 42 Vice President, Human Resources and Facilities
George Vradenburg, III.. 54 Senior Vice President, General Counsel and
Secretary
</TABLE>
7
<PAGE>
Mr. Bond was appointed as President and Chief Executive Officer of ANS
Communications, a division of the Company in July 1996. He was Managing
Director of British Telecom's National Business Communications from 1993 to May
1996. He joined British Telecom, one of the world's leading providers of
integrated telecommunications services, in 1989 as Director of Corporate
Strategy after spending two years as Corporate Vice President for Strategic
Planning with US West. Before joining US West, Inc., a diversified
telecommunications company, Mr. Bond held a variety of posts in planning and
marketing with AT&T Corp., a long distance telephone carrier, and the Bell
Operating Companies. Mr. Bond is also a director of Witco Corporation, a
manufacturer of specialty chemical and petroleum products.
Mr. Gilburne joined the Company in February 1995 as Senior Vice President,
Corporate Development. Prior to joining the Company, 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. Leader has been Senior Vice President, Chief Financial Officer and
Treasurer since joining the Company in September 1989, and has been Assistant
Secretary since October 1994. He served as Secretary from 1989 through October
1993 and became Chief Accounting Officer in October 1993. Prior to joining the
Company, Mr. Leader was Vice President, Finance, of LEGENT Corporation, a
computer software and services company, from March 1989 to September 1989, and
Chief Financial Officer of Morino, Inc., a computer software and services
company, from 1986 to March 1989. Mr. Leader is a Certified Public Accountant
and was an audit manager at Price Waterhouse prior to joining Morino, Inc. in
1984.
Mr. Leonsis has been President and Chief Executive Officer of AOL Studios, an
operating division of the Company, since October 1996. Mr. Leonsis joined the
Company in September 1994 as President of the Company's America Online Services
Company, an operating division of the Company. For at least the prior five
years, Mr. Leonsis was President of Redgate Communications Corporation
("Redgate"), which was acquired by the Company in May 1994.
Mr. Stavish joined the Company as Vice President, Human Resources and
Facilities in February 1995. He was Director of Human Resources of PepsiCo, a
manufacturer and seller of beverage products and snack foods, from August 1987
to February 1995 and Manager of Human Resources of Mobil Oil, a manufacturer
and marketer of petrochemicals, packaging films and specialty chemical
products, from March 1977 to August 1987.
Mr. Vradenburg joined the Company as Senior Vice President, General Counsel
and Secretary in March 1997. He was a Senior Partner with the law firm of
Latham & Watkins and co-chair of its Entertainment & Media Practice Group from
1995 to 1997. Mr. Vradenburg previously served as Executive Vice President of
Fox, Inc., which owns and operates a television broadcasting network and
produces movies and television shows, from 1991 to 1995 and Senior Vice
President and General Counsel of CBS, Inc., a television and radio broadcasting
and cable programming company, from 1985 to 1991.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as to
compensation received by the Company's Chief Executive Officer and each of the
four other most highly compensated persons who were serving as executive
officers of the Company as of June 30, 1997 (collectively, the "named executive
officers") for services rendered to the Company in all capacities during the
three fiscal years ended June 30, 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -----------------------------
OTHER SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION(1)
- - ------------------ ------ -------- -------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Case......... 1997 $271,250 $0 $0 100,000 $3,826
Chairman of the Board, 1996 $200,000 $0 $0 0 $4,462
Chief Executive 1995 $200,000 $0 $0 1,000,000(2) $4,462
Officer and President
Robert W. Pittman ...... 1997 $335,064 $125,000 $111,092(3) 500,000 $85
President and CEO,
AOL Networks
Bruce R. Bond........... 1997 $384,616 $128,600 $0 20,000 $5,424
President and CEO,
ANS Communications
Theodore J. Leonsis..... 1997 $236,250 $46,875 $0 50,000 $33,072
President and CEO, 1996 $204,600 $0 $0 0 $25,911
AOL Studios 1995 $179,025 $0 $9,757(4) 400,000(2) $100,169
Lennert J. Leader....... 1997 $236,250 $46,875 $0 50,000 $4,257
Sr. VP; Chief Financial 1996 $195,000 $0 $0 0 $4,594
Officer; and Treasurer 1995 $188,333 $0 $0 400,000(2) $4,163
</TABLE>
- - --------
(1) All Other Compensation for Mr. Case, Mr. Pittman, Mr. Bond, Mr. Leonsis,
and Mr. Leader during fiscal 1997 includes the dollar value of premiums
paid by the Company with respect to term life insurance for their benefit
in the amounts of $330, $85, $924, $510 and $510, respectively. All Other
Compensation for Mr. Case, Mr. Bond, Mr. Leonsis, and Mr. Leader during
fiscal 1997 also includes $3,496, $4,500, $3,694 and $3,747, respectively,
of matching contributions made under the Company's 401(k) Plan. All Other
Compensation for Mr. Leonsis during fiscal 1997 also includes $28,868 of
reimbursement of insurance payments for the continuation of coverage
established prior to the acquisition of Redgate.
(2) Reflects two-for-one stock splits effected on April 27, 1995 and November
28, 1995.
(3) Includes $80,000 for reimbursement of moving expenses.
(4) Represents tax reimbursement payments.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding the grant of stock options
during the fiscal year 1997 to the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(2)
------------------------------------------------------- ------------------------------
NUMBER OF
SHARES % OF TOTAL OPTIONS
COVERED BY GRANTED TO EXERCISE
OPTION EMPLOYEES IN PRICE
NAME GRANT(1) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
---- ---------- ------------------ --------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Case......... 100,000 1.7% $26.25 10/24/06 $1,650,848 $4,183,574
Robert W. Pittman....... 400,000 6.9% $24.63 10/16/06 $6,113,167 $15,568,676
100,000 1.7% $70.00 10/24/06 $0 $0
Bruce Bond.............. 20,000 0.3% $26.25 10/24/06 $330,170 $836,715
Theodore J. Leonsis..... 50,000 0.9% $26.25 10/24/06 $825,424 $2,091,786
Lennert J. Leader....... 50,000 0.9% $26.25 10/24/06 $825,424 $2,091,787
</TABLE>
- - --------
(1) Options are non-qualified stock options, become exercisable over a four-
year period and generally terminate 90 days following termination of the
executive officer's employment with the Company or the expiration date,
whichever occurs earlier. The exercise price of each option was determined
to be equal to or greater than the fair market value per share of the
Common Stock on the grant date.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise of the option or the sale of the underlying shares. The
actual gains, if any, on the exercise of stock options will depend on the
future performance of the Common Stock, the option holder's continued
employment throughout the option period, and the date on which the options
are exercised.
10
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table provides information regarding the aggregate exercises of
options by each of the named executive officers. In addition, this table
includes the number of shares covered by both exercisable and unexercisable
stock options as of June 30, 1997, and the values of "in-the-money" options,
which values represent the positive spread between the exercise price of any
such option and the fiscal year-end value of America Online Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF THE UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
YEAR-END YEAR-END(2)
----------------------------------- --------------------------------
SHARES ACQUIRED
NAME ON EXERCISE VALUE REALIZED(1) EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
---- --------------- ----------------- ---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Case......... 629,024 $26,641,722 1,769,000 600,000 $92,575,226 $27,275,000
Robert W. Pittman....... 0 $0 20,000 500,000 $401,900 $12,400,000
Bruce Bond.............. 0 $0 0 20,000 $0 $587,500
Theodore J. Leonsis..... 100,136 $3,725,668 191,546 298,582 $9,773,777 $13,354,799
Lennert J. Leader....... 167,416 $7,270,558 353,536 250,000 $17,827,115 $11,203,750
</TABLE>
- - --------
(1) The value realized represents the aggregate market value of the shares
covered by the option less the aggregate exercise price paid by the
executive.
(2) The value of unexercised in-the-money options at fiscal year-end assumes a
fair market value for the Company's Common Stock of $55.625, the closing
market price per share of the Company's Common Stock as reported on the New
York Stock Exchange on June 30, 1997.
EMPLOYMENT CONTRACTS
On October 29, 1996, America Online entered into an employment agreement with
Robert W. Pittman as President and Chief Executive Officer of AOL Networks, a
division of the Company. In the event Mr. Pittman's employment is terminated by
him for a good reason or by the Company other than for cause or a permanent and
total disability, he will become a consultant to the Company for a term of two
years, subject to the terms and conditions of a consulting agreement. In the
event of his termination of employment, Mr. Pittman would be subject to non-
competition restrictions for a two year period. Also, pursuant to the terms of
the agreement, Mr. Pittman may require the Company to purchase his prior
residence, during the first two year's of his employment, at a fair market
value as determined by an independent appraiser chosen by the Company and
acceptable to Mr. Pittman. The Company has agreed to reimburse Mr. Pittman for
flight hours and use of a co-pilot if he determines the use of his private
aircraft is the easiest and safest method for travel on Company business.
However, the Company has no other obligation with respect to such flights, the
aircraft or use thereof.
On May 15, 1996, America Online entered into a letter agreement with Bruce R.
Bond as President and Chief Executive Officer, ANS Communications, Inc., a
subsidiary of the Company ("ANS"), pursuant to which Mr. Bond became entitled
to receive non-qualified stock options for 200,000 shares of ANS common stock
and incentive stock options for an additional 200,000 shares of ANS common
stock, exercisable in 25% annual installments (collectively, the "ANS Stock
Options"). In the event that (i) Mr. Bond has been since the grant date and
continues to be as of the second anniversary of his employment (i.e., July 15,
1998) an employee, director or consultant of ANS, and (ii) ANS has not become a
public company (or otherwise has achieved liquidity) by July 15, 1998, then Mr.
Bond can require ANS to acquire his vested options at fair market value (the
"Put"). Pursuant to the terms of Mr. Bond's option agreements for the ANS stock
options, if the ANS Common Stock, which is issuable upon exercise of his ANS
Stock Options, is substituted for cash or the stock of a public
11
<PAGE>
company, as would be the case upon consummation of the Purchase and Sale (see
General Information--Recent Developments), the Put expires. In the event that
Mr. Bond's employment is terminated without cause by the Company, his ANS stock
options that would have vested had he continued to be employed for the balance
of that year would immediately vest and the Company would be obligated to pay
severance for a twelve-month period in the amount of his then-current salary.
Following a change of control of ANS (as defined in the option agreements), the
ANS stock options vest upon the earliest of (i) a termination or downgrade of
employment without cause within one year of such change of control, or (ii) one
year. Consummation of the Purchase and Sale will constitute a "change of
control" under Mr. Bond's option agreements. However, Mr. Bond has agreed to
waive accelerated vesting of his ANS stock options that would otherwise occur
upon one year following the consummation of the Purchase and Sale. Also in
connection with the Purchase and Sale, Mr. Bond has signed a non-solicitation
agreement. The non-solicitation agreement provides for non-disclosure of
certain confidential information and provides that during the term of Mr.
Bond's employment and for one year following his termination of employment, he
will not solicit, divert, take away, interfere with or disrupt relationships
with, or attempt to do any of the foregoing with respect to, any customer,
supplier, employee, independent contractor, agent or representative of ANS or
any ANS affiliate. The acceleration waiver and the non-solicitation agreement
become void if the Purchase and Sale is not consummated. Mr. Bond also has
entered into an Employment Agreement with ANS which provides for (i) the
assignment of certain developments by Mr. Bond to ANS; (ii) the non-disclosure
of certain confidential information; and (iii) two weeks' notice of termination
(or compensation in lieu thereof).
Pursuant to an Employment Agreement dated April 1, 1993 between Redgate
Communications Corporation, a wholly-owned subsidiary of America Online, and
Theodore J. Leonsis, the Company would be obligated to pay certain benefits and
severance for a twelve-month period following Mr. Leonsis' death, permanent
disability, or without-cause termination of employment by the Company in the
amount of his then-current salary. In the event of his termination of
employment, Mr. Leonsis would be subject to non-competition restrictions for a
one-year period.
All of the stock option agreements with respect to Company Common Stock
between the Company and the named executive officers provide that at any time
following a merger, consolidation, sale or transfer of the Company, as
described in each individual option agreement (a "Change in Control"), Company
stock options not yet vested will become fully vested upon the earliest of (i)
one year following such Change of Control, or (ii) a downgrade in employment or
termination of employment without cause, as provided in such option agreements.
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the annual change in the Company's cumulative
total shareholder return on its Common Stock during a period commencing on
June 30, 1992 and ending on June 30, 1997 (as measured by dividing (i) the sum
of (A) the cumulative amount of dividends for the measurement period, assuming
dividend reinvestment and (B) the difference between the Company's share price
at the end and the beginning of the measurement period; by (ii) the share
price at the beginning of the measurement period) with the cumulative total
return of the CRSP Total Return Index for the Nasdaq National Market (U.S.
Companies) (the "Nasdaq Market Index") and the CRSP Total Return Index for
Nasdaq Computer and Data Processing Services Stocks (the "C&DP Index") during
such period, assuming a $100 investment on June 30, 1992. It should be noted
that the Company has not paid any dividends on the Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
AMERICA ONLINE, INC., NASDAQ MARKET INDEX AND C&DP INDEX
<TABLE>
<CAPTION>
Measurement Period AMERICA NASDAQ MARKET C&DP
(Fiscal Year Covered) ONLINE, INC. INDEX INDEX
- - --------------------- ------------ ------------- -------------
<S> <C> <C> <C>
FYE 6/30/1992 $ 100.0 $ 100.0 $ 100.0
FYE 6/30/1993 $ 274.1 $ 125.8 $ 127.4
FYE 6/30/1994 $ 422.2 $ 127.0 $ 127.6
FYE 6/30/1995 $ 1,301.7 $ 169.5 $ 208.4
FYE 6/30/1996 $ 2,592.6 $ 217.6 $ 276.8
FYE 6/30/1997 $ 3,296.3 $ 264.6 $ 349.4
</TABLE>
13
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee comprises two non-employee, independent members
of the Board of Directors. It is the responsibility of the Compensation
Committee to review, recommend and approve changes to the Company's
compensation policies and benefits programs, to administer the Company's stock
option plans, including approving stock option grants to executive officers
and certain other stock option grants, and to otherwise ensure that the
Company's compensation philosophy is consistent with the Company's best
interests and is properly implemented.
COMPENSATION PHILOSOPHY
The compensation philosophy of the Company is to (i) provide a competitive
total compensation package that enables the Company to attract and retain key
executive and employee talent needed to accomplish the Company's goals and
(ii) directly link compensation to improvements in Company performance and
increases in stockholder value as measured by the Company's stock price.
COMPENSATION PROGRAM
The Company's compensation program for all employees emphasizes variable
compensation, primarily through performance-based grants of long-term, equity-
based incentives in the form of stock options. Salaries at all employee levels
are generally managed at median market levels. The Company also maintains a
cash-based Management Incentive Plan with awards targeted to provide fully
competitive levels of total cash compensation based on the degree of
achievement of Company financial and operational performance measures.
The Compensation Committee conducts ongoing reviews of total compensation
levels, structure, and design with the assistance of an outside consultant.
The objective of the reviews is to ensure that that management and key
employee total compensation opportunity keeps pace with the Company's growth
and competitive trends and links the total compensation actually realized to
the Company's performance and stock price appreciation. As a result of prior
reviews, the Compensation Committee determined that: (i) management cash
compensation, historically consisting entirely of salary, had not kept pace
with the Company's growth and would likely become a barrier to success in the
extremely competitive labor markets the Company faces; and (ii) to address the
competitive shortfall in cash compensation, it was in the Company's interests
to make a significant proportion of cash pay performance-based. As a result,
in early fiscal 1997 the Compensation Committee approved the implementation of
the Management Incentive Plan for the second half of fiscal 1997.
BASE SALARIES
The Compensation Committee reviews each senior executive officer's salary
annually. In determining appropriate salary levels, the Compensation Committee
considers the officer's impact level, scope of responsibility, prior
experience, past accomplishments, and data on prevailing compensation levels
in relevant executive labor markets. Based on the findings of the most recent
compensation review, the Compensation Committee has approved base salary
increases for certain executive officers to be effective in fiscal 1998 which,
in conjunction with cash incentive awards targeted under the Management
Incentive Plan for fiscal 1998, will bring total cash compensation levels for
these officers into line with competitive levels and with the Company's
compensation philosophy.
The Compensation Committee annually reviews and approves the compensation of
Mr. Case, the Company's Chairman and Chief Executive Officer. Mr. Case's
compensation is determined in a manner consistent with the practices used in
determining the compensation of other executive officers of the Company.
14
<PAGE>
As part of the base salary increases approved by the Compensation Committee,
Mr. Case's base salary will be increased to an annual rate of $450,000 in
fiscal 1998. In recognition of the substantial equity stake Mr. Case has in the
Company, the Compensation Committee, based on the recommendation of Mr. Case,
currently is conservatively maintaining his salary below median competitive
levels with the intention to increase his salary over time toward median
levels. Mr. Case's base salary increase for fiscal 1998, along with the
incentive award targeted under the Management Incentive Plan, provides Mr. Case
with a total cash compensation opportunity generally below median competitive
compensation levels in relevant executive labor markets. Over time, additional
salary increases will be used to bring Mr. Case's base salary in line with
competitive levels.
MANAGEMENT INCENTIVE PLAN
Over the past several years, the Company has successfully pioneered the
Internet online service concept, attracted dominant market share, and pursued
aggressive growth in membership, revenue, and program/product offerings. In
line with the its growth and development, the Company has adopted compensation
practices which reflect what the Company believes to be "best practices" for
established, growing technology companies. While equity compensation is and
will remain a key element of the Company's management compensation strategy,
the Compensation Committee approved for implementation during the second half
of fiscal 1997 a cash-based Management Incentive Plan with awards based upon
Company financial and key operational performance measures.
The Management Incentive Plan is administered by the Compensation Committee.
Awards under the plan are determined by the Company's performance as measured
against certain pre-established performance measures. In early 1997, the
Compensation Committee established performance goals for second half of fiscal
1997 related to the Company's earnings performance. During the performance
period, the Company exceeded its earnings objectives and accomplished
significant operational improvements in a number of critical areas such as
membership, connectivity, alternative revenues, and customer turnover. However,
the Company's financial performance during the full fiscal year did not achieve
objectives at the beginning of the year, due primarily to certain restructuring
charges and a change in marketing expense recognition. As a result, the
Compensation Committee, based on Mr. Case's recommendations, reduced funding
under the plan to 50% of the target awards for senior executive officers other
than Mr. Case. Mr. Case was not awarded a bonus for fiscal 1997.
STOCK OPTIONS
The Compensation Committee believes that granting stock options on an ongoing
basis provides officers with a strong economic interest in maximizing stock
price appreciation over the longer term. The Company believes that the practice
of granting stock options is critical to retaining and recruiting the key
talent necessary at all employee levels to ensure the Company's continued
success.
The Compensation Committee is responsible for administering the Company's
stock option program, including individual stock option grants to officers and
aggregate grants to all plan participants. It is the Company's practice to set
option exercise prices at not less than 100% of the stock fair market value on
the date of grant. Thus, the value of the stockholders' investment in the
Company must appreciate before an optionee receives any financial benefit from
the option. Options are generally granted for a term of ten years. Options
granted to executive officers generally provide that they are not exercisable
until one year after the date of grant, at which time they become exercisable
on a cumulative basis at a maximum annual rate of 25% of the total number of
shares underlying the option grant.
15
<PAGE>
During fiscal 1997, the Compensation Committee approved a modification of the
Company's historical option grant practices to emphasize more moderate grants
to new hires balanced by highly competitive levels of ongoing and performance-
related grants to existing employees. Previously, the Company emphasized option
grants for new hires in lieu of providing fully competitive cash compensation
levels through base salary and cash incentive opportunities.
In determining the size of stock option grants, the Compensation Committee
considers the officer's responsibilities, the expected future contribution of
the officer to the Company's performance and the number of shares which
continue to be subject to vesting under outstanding options. In addition, the
Compensation Committee examines the level of equity incentives held by each
officer relative to the other officers' equity positions and their tenure,
responsibilities, experience, and value to the Company. In October 1996, the
Company granted options to nearly all employees based on their performance. The
Company's senior executives (8 people) received options to purchase an
aggregate of 970,000 shares, or 15.1% of the 6,413,388 total options granted to
employees during fiscal 1997. Mr. Case received an option to purchase 100,000
shares, or 1.6% of the total.
The Compensation Committee monitors the Company's equity-based compensation
program on an ongoing basis to ensure that stockholders resources are used
effectively and in the best interests of the Company. During the past two
fiscal years, in consultation with independent outside consultants, the
Compensation Committee has revised and monitored the program to ensure that
dilution from stock option plans is managed within levels consistent with the
Company's staffing levels and market value. During that time, the Company has
reduced outstanding options as a percentage of common shares outstanding from
45.5% as of June 30, 1995 down to 29.2% as of June 30, 1997. In coming years,
the Company expects such percentage to decrease further as the Company
rigorously manages its stock option grant programs. The Compensation Committee
will continue to monitor the Company's compensation program in order to
maintain the proper balance between cash compensation and equity-based
incentives and may consider further revisions in the future, although it is
expected that equity-based compensation will remain one of the principal
components of compensation.
The Compensation Committee believes that the Company's stock option plans
have been very effective in attracting, retaining, and motivating executives
and employees of the Company over time and have proven to be an important
component of the overall compensation program. During fiscal 1997, 83% of the
total options granted were made to non-officer employees. Because of the
Company's continuing rapid growth, the Compensation Committee recommended and
the Board of Directors approved in July 1997 an amendment to increase by an
aggregate of 3,000,000 shares the number of shares of Common Stock that may be
issued pursuant to the exercise of options granted under the 1992 Employee,
Director, and Consultant Stock Option Plan (the "1992 Plan").
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the U.S. Internal Revenue Code limits the tax deductibility
by a company of compensation in excess of $1 million paid to any of its five
most highly compensated executive officers. However, compensation which
qualifies as "performance-based" is excluded from the $1 million limit if,
among other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by
shareholders.
The Compensation Committee will continue to monitor the compensation levels
potentially payable under the Company's cash compensation programs, but intends
to retain the flexibility necessary to provide total cash compensation in line
with competitive practice, the Company's compensation philosophy, and the
Company's
16
<PAGE>
best interests. The 1992 Plan approved by the Company's stockholders with
subsequent amendments provides for option grants to be qualified as
"performance-based" under Section 162(m). The Compensation Committee intends to
continue making grants to officers according to the terms and provisions of the
1992 Plan so that income received by participants upon exercise may be
deductible by the Company.
Alexander M. Haig, Jr.
Chairman, Compensation Committee
Frank J. Caufield
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors and officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Directors, officers and
greater than ten percent holders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, except as noted below, based solely on review of
the copies of the above-mentioned reports furnished to the Company and written
representations regarding all reportable transactions, during the fiscal year
ended June 30, 1997, all Section 16(a) filing requirements applicable to its
Directors and officers and greater than ten percent beneficial owners were
complied with on time. The following person filed one late report: Stephen M.
Case (one transaction).
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is certain information as of June 30, 1997 as to loans made
pursuant to employment agreements by the Company to each of its directors and
executive officers that were outstanding during the fiscal year.
<TABLE>
<CAPTION>
LARGEST
AGGREGATE
AMOUNT
OUTSTANDING
IN FISCAL BALANCE AS
NAME AND POSITION NATURE OF INDEBTEDNESS YEAR 97 OF 6/30/97 INTEREST RATE
----------------- ---------------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
George Vradenburg, III.. Residential $400,000 $400,000 *
Senior Vice President, Personal $285,000 $285,000 *
General Counsel and Housing and Travel(1) $200,000 $200,000 N/A
Secretary Relocation(2) $36,600 $36,600 N/A
Bruce R. Bond,.......... Personal $500,000 $500,000 **
President and Chief Residential $250,000 $250,000 **
Executive Officer,
ANS Communications
</TABLE>
- - --------
* Such loans were granted at interest rates equal to the then "Applicable
Federal Rate" as established by the Internal Revenue Service. The Applicable
Federal Rate at June 30, 1997 was 6.23%.
** Such loans were granted at interest rate equal to the prime rate. The prime
rate at June 30, 1997 was 8.50%.
(1) A housing and travel allowance paid by the Company under the terms of Mr.
Vradenburg's employment. Such allowance is repayable by Mr. Vradenburg if
his employment is terminated for cause by the Company or other than for a
good reason by him within the first year of employment.
(2) Relocation costs paid by the Company under the terms of Mr. Vradenburg's
employment agreement. Such costs are repayable by Mr. Vradenburg if his
employment is terminated for cause by the Company or other than for a good
reason by him within the first year of employment.
18
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1)
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide for a classified Board of Directors. The Board of Directors currently
consists of eight members, classified into three classes as follows: James V.
Kimsey and Alexander M. Haig, Jr. constitute a class with a term which expires
at the upcoming meeting (the "Class I Directors"); Frank J. Caufield, Robert J.
Frankenberg and Robert W. Pittman constitute a class with a term ending in 1998
(the "Class II Directors") and Stephen M. Case, William N. Melton and Thomas
Middelhoff constitute a class with a term ending in 1999 (the "Class III
Directors"); At each annual meeting of stockholders, directors are elected for
a full term of three years to succeed those directors whose terms are expiring.
James V. Kimsey is not standing for re-election to the Board of Directors.
Daniel F. Akerson has been nominated to the Board of Directors to fill Mr.
Kimsey's seat.
At the Meeting, two Class I Directors will be elected to hold office for a
term of three years and until their successors have been duly elected and
qualified. Background information appears below for each of the nominees for
election as Class I Directors. Although the Company does not anticipate that
any of the persons named below will be unwilling or unable to stand for
election, in the event of such an occurrence, proxies may be voted for a
substitute designated by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------
<S> <C> <C>
Alexander M. Haig, Jr... 72 General Haig has been a director of the Company
since 1989. He has held the position of Chairman
and President of Worldwide Associates, Inc., an
international consulting company, since 1984.
General Haig is the former U.S. Secretary of
State, former Vice Chief of Staff, Army, former
White House Chief of Staff and former Supreme
Allied Commander, Europe. General Haig has been
awarded many military decorations, including the
Distinguished Service Cross. A retired full
General, U.S. Army, he also served as the
President and Chief Operating Officer of United
Technologies Corp., and is currently a director
of Interneuron Pharmaceuticals, Inc., MGM Grand,
Inc. and Interactive Flight Technologies, Inc.,
and Executive Advisor to Precision Response
Corporation.
Daniel F. Akerson....... 48 Mr. Akerson has served as Chairman of the Board
of Directors and Chief Executive Officer since
joining Nextel Communications, Inc. on March 6,
1996. From 1993 until March 5, 1996, Mr. Akerson
served as a general partner of Forstmann Little &
Co., a private investment firm ("Forstmann
Little"). While serving as a general partner of
Forstmann Little, Mr. Akerson also held the
positions of Chairman of the Board and Chief
Executive Officer of General Instrument
Corporation, a technology company acquired by
Forstmann Little. From 1983 to 1993, Mr. Akerson
held various senior management positions with MCI
Communications Corporation, including president
and chief operating officer. Mr. Akerson
currently serves as a director of American
Express Company.
</TABLE>
A plurality of the votes cast at the Meeting is required to elect each
nominee as a Director. Unless authority to vote for any of the nominees named
above is withheld, the shares represented by the enclosed proxy will be voted
FOR the election as Directors of such nominees.
19
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF ALEXANDER M. HAIG, JR. AND
DANIEL F. AKERSON AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.
INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
The Board of Directors has appointed Ernst & Young LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending June 30, 1998. The Board proposes that the stockholders ratify this
appointment. Ernst & Young LLP audited the Company's financial statements for
the fiscal year ended June 30, 1997. The Company expects that representatives
of Ernst & Young LLP will be present at the Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
In the event that ratification of the appointment of Ernst & Young LLP as the
independent public accountants for the Company is not obtained at the Meeting,
the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required to ratify the appointment of the
independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented to
the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy materials relating to
the 1998 Annual Meeting of Stockholders, stockholder proposals must be
received, marked for the attention of: Secretary, America Online, Inc., 22000
AOL Way, Dulles, Virginia 20166-9323, no later than June 8, 1998.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors:
/s/ George Vradenburg, III
George Vradenburg, III
Secretary
Dulles, Virginia
October 3, 1997
20
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3860-PS-97
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DETACH HERE
AMERICA ONLINE, INC.
THIS PROXY IS BEING SOLICITED BY AMERICA ONLINE, INC.'S
BOARD OF DIRECTORS
The undersigned, revoking previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated October
3, 1997 in connection with the Annual Meeting to be held at 10:00 a.m. on
October 31, 1997 at the Westfields International Conference Center, located
at 14750 Conference Center Drive, Chantilly, Virginia 20151 and hereby
P appoints Lennert J. Leader and Sheila A. Clark and each of them (with full
power to act alone), the attorneys and proxies of the undersigned, with power
R of substitution to each, to vote all shares of the Common Stock of America
Online, Inc. registered in the name provided herein which the undersigned is
O entitled to vote at the 1997 Annual Meeting of Stockholders, and at any
adjournment or adjournments thereof, with all the powers the undersigned
X would have if personally present. Without limiting the general authorization
hereby given, said proxies are, and each of them is, instructed to vote or
Y act as follows on the proposals set forth in said Proxy.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND
FOR THE RATIFICATION OF AUDITORS.
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof.
Election of Two Directors (or if any nominee is not available for
election, such substitute as the Board of Directors may designate).
NOMINEES: ALEXANDER M. HAIG, JR. AND DANIEL F. AKERSON
SEE REVERSE SIDE FOR BOTH PROPOSALS, IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE.
YOU NEED NOT MARK ANY BOXES.
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SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
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DETACH HERE
[X] Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors (see reverse).
FOR ALL WITHHELD ALL
[ ] [ ]
[ ]
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For all nominees except as noted above
2. Proposal to ratify the appointment of
Ernst & Young LLP as the
Company's independent public
accountants for the fiscal year FOR AGAINST ABSTAIN
ending June 30, 1998. [ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as name(s) appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature: Signature:
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Date: Date:
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