<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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)(1) 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>
AMERICA ONLINE, INC.
22000 AOL Way
Dulles, VA 20166-9323
, 1998
------------------
Dear Stockholder,
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of America Online, Inc. (the ``Company'') to be held at __________ on
__________, 1998 at the Westfields International Conference Center, located at
14750 Conference Center Drive, Chantilly, Virginia.
At the Annual Meeting, four persons will be elected to the Board of
Directors. The Board of Directors recommends the election of the four nominees
named in the Proxy Statement. In addition, the Company will ask the
Stockholders to: approve and adopt an amendment to the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number of
shares of Common Stock; approve amendments to the Company's Employee Stock
Purchase Plan; and 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, or vote
via the Internet or by telephone in accordance with the instructions set forth
on the card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
[SIGNATURE]
Stephen M. Case,
Chairman of the Board and
Chief Executive Officer
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
PLEASE REMEMBER PROMPTLY TO RETURN YOUR PROXY OR VOTE
VIA THE INTERNET OR BY TELEPHONE.
- --------------------------------------------------------------------------------
<PAGE>
AMERICA ONLINE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held , 1998
----------
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
__________, 1998 at the Westfields International Conference Center, located at
14750 Conference Center Drive, Chantilly, Virginia at ________ for the
following purposes:
1. To elect four members to the Board of Directors, three of such members
to serve for a term ending in 2001 and one such member to serve for a term
ending in 2000, and until their successors are duly elected and qualified.
2. To amend the Company's Restated Certificate of Incorporation, as
amended, to increase the authorized number of shares of Common Stock from
600,000,000 to 1,800,000,000.
3. To approve an increase in the number of shares of Common Stock
authorized for issuance under the Company's Employee Stock Purchase Plan.
4. To approve an amendment of the eligibility requirements under the
Company's Employee Stock Purchase Plan.
5. 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, 1999.
6. 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 __________, 1998
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. Stockholders also may vote via the Internet or by telephone.
See "Voting Electronically or by Telephone."
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
George Vradenburg, III
Secretary
Dulles, Virginia
, 1998
- --------
<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 __________, 1998 at __________, 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 four nominees for Director named herein, FOR the amendment of
the Company's Restated Certificate of Incorporation, as amended, to increase the
authorized number of shares of Common Stock from 600,000,000 to 1,800,000,000,
FOR the approval of amendments to the Company's Employee Stock Purchase Plan,
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,
1999. 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. For purposes of the
proposal to amend the Company's certificate of incorporation to increase the
authorized number of shares of Common Stock (Item 2), abstentions and broker
non-votes will have the effect of a negative vote, and for purposes of each of
the other proposals, abstentions and broker non-votes will have no effect on the
vote.
The close of business on __________, 1998 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 _____________ 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 or will be available
electronically on or about ____________, 1998 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, telex, and other electronic
means, 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 Company has retained Corporate Investor
Communications, Inc. to assist in the solicitation of proxies, for a fee
estimated to be approximately $11,000 plus reasonable out-of-pocket expenses.
The Annual Report to Stockholders for the fiscal year ended June 30, 1998
is being mailed to the Stockholders with this Proxy Statement, but does not
constitute a part hereof.
<PAGE>
The Company effected a two-for-one stock split on March 16, 1998. All of
the information presented herein is on a post-split basis, except where
specifically indicated otherwise.
VOTING ELECTRONICALLY OR BY TELEPHONE
Instead of submitting your vote by mail on the enclosed proxy card, you can
vote electronically via the Internet or by telephone. Please note that there
are separate Internet and telephone voting arrangements depending on whether
shares are registered in the Company's stock records in your name or in the name
of a brokerage firm or bank.
The Internet and telephone voting procedures are designed to authenticate
Stockholders' identities, to allow Stockholders to vote their shares and confirm
that their instructions have been properly recorded. The Company has been
advised by counsel that the procedures that have been put in place are
consistent with the requirements of applicable law. Stockholders voting via the
Internet through either Boston EquiServe or ADP Investor Communication Services
should understand that there may be costs associated with electronic access,
such as usage charges from Internet access providers and telephone companies,
that would be borne by the Stockholder.
For Shares Registered Directly in the Name of the Stockholder
Stockholders with shares registered directly in their name in the Company's
stock records maintained by our transfer agent, Boston EquiServe, may vote their
shares (1) via the Internet at the following address on the World Wide Web:
http://www.__________________________, (2) by making a toll-free telephone call
from the U.S. and Canada to Boston EquiServe at (___) ___-____ or (3) by mailing
their signed proxy card. Specific instructions to be followed by registered
Stockholders are set forth on the enclosed proxy card.
For Shares Registered in the Name of a Brokerage Firm or Bank
A number of brokerage firms and banks are participating in a program
provided through ADP Investor Communication Services that offers telephone and
Internet voting options. This program is different from the program provided by
Boston EquiServe for shares registered in the name of the Stockholder. If your
shares are held in an account at a brokerage firm or bank participating in the
ADP Program, you may vote those shares by calling the telephone number
referenced on your voting form or via the Internet in accordance with
instructions set forth on the voting form. Votes submitted via the Internet
through the ADP Program must be received by ___________ on __________, 1998.
2
<PAGE>
SHARE OWNERSHIP
The following table sets forth certain information as of July 15, 1998,
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 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
---------------- ------ -------
Over 5% Stockholders:
- --------------------
<S> <C> <C>
American Century Companies, Inc. (2)(3) 13,243,600 5.9%
4500 Main Street
Kansas, Missouri 64141-9210
Putnam Investments, Inc. (2)(4) 13,136,090 5.8%
One Post Office Square
Boston, Massachusetts 02109
Current Directors and Director Nominee:
- --------------------------------------
Stephen M. Case (5)(6) 2,960,367 1.3%
Daniel F. Akerson (7) 50,000 **
Frank J. Caufield (7) 309,600 **
Robert J. Frankenberg (7) 88,000 **
General Alexander M. Haig, Jr. (7) 348,720 **
William N. Melton (6) 650,000 **
Dr. Thomas Middelhoff (8) -0- N/A
Robert W. Pittman (6) 291,357 **
________________ ___ ___
________________ ___ ___
Named Executive Officers Who Are Not Directors:
- ----------------------------------------------
Lennert J. Leader (6) 866,643 **
Kenneth J. Novack (6) 12,700 **
George Vradenburg, III (6) 118,900 **
All executive officers and Directors as a group (16 6,175,875 2.7%
persons) (6)
</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 Common
Stock.
(1) The number of shares of Common Stock issued and outstanding on July 15, 1998
was 225,575,683. The calculation of percentages is based upon the number of
shares of Common Stock issued and
3
<PAGE>
outstanding on such date, plus shares of Common Stock subject to options
held by the respective persons on July 15, 1998 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-thousandth of a share of the Company's Series A-1 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) American Century Companies, Inc. ("ACC"), American Century Investment
Management, Inc. ("ACIM"), an investment advisor and wholly-owned subsidiary
of ACC, and Mr. James E. Stowers, Jr., who controls ACC by virtue of his
beneficial ownership of a majority of the voting stock of ACC, report that
they may be deemed to "beneficially own" such securities by virtue of Rule
13d-3 under the Securities Exchange Act of 1934, as amended. American
Century Mutual Funds, Inc., an investment client of ACIM, reports that it is
the beneficial owner of and has sole voting and dispositive power over
13,176,400 of such shares of Common Stock.
(4) Putnam Investments, Inc. is a wholly-owned subsidiary of Marsh & McClennan
Companies, Inc. Included in the 13,136,090 shares of Common Stock
beneficially owned by Putnam Investments, Inc., are 12,492,730 shares
beneficially owned by Putnam Investment Management, Inc. and 643,360 shares
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 304,760 shares.
(5) Includes the following shares as to which Mr. Case shares beneficial
ownership: 8,172 shares held by a custodian on behalf of Mr. Case's minor
children under the Uniform Gifts to Minors Act and 30,469 shares held by his
spouse.
(6) Includes shares issuable within 60 days of July 15, 1998 upon the exercise
of options to purchase Common Stock as follows: Mr. Case - 1,963,000; Mr.
Melton - 350,000; Mr. Pittman - 290,000; Mr. Leader - 687,072; Mr. Novack
12,500; Mr. Vradenburg - 117,500; and all Directors and executive officers
as a group 4,695,980.
(7) Represents shares issuable within 60 days of July 15, 1998 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 has
been elected Chairman of Bertelsmann AG beginning in October 1998. Dr.
Middelhoff disclaims beneficial ownership of 5,418,560 shares of Common
Stock owned by Bertelsmann AG.
4
<PAGE>
MANAGEMENT
Directors
---------
The Company's Restated Certificate of Incorporation, as amended, and
Restated By-Laws provide for a classified Board of Directors. The Board of
Directors currently consists of ten members, classified into three classes as
follows: Frank J. Caufield, Robert J. Frankenberg, Robert W. Pittman and
__________ constitute a class with a term which expires at the upcoming Annual
Meeting (the "Class II Directors"); General Alexander M. Haig, Jr., Daniel F.
Akerson and __________ constitute a class with a term ending in 2000 (the
``Class I Directors''); and Stephen M. Case, William N. Melton and Dr. Thomas
Middelhoff constitute a class with a term ending in 1999 (the ``Class III
Directors"). For information on the Directors being nominated for re-election,
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.................... 40 Chairman of the Board and Chief
Executive Officer
Daniel F. Akerson.................. 49 Director
Frank J. Caufield.................. 58 Director
Robert J. Frankenberg.............. 51 Director
General Alexander M. Haig, Jr...... 73 Director
William N. Melton.................. 56 Director
Dr. Thomas Middelhoff.............. 45 Director
Robert W. Pittman.................. 44 President, Chief Operating Officer
and Director
______________..................... __ Director
______________..................... __ 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. He also served as Executive Vice
President from September 1987 to January 1991 and Vice President, Marketing,
from 1985 to September 1987. Mr. Case currently serves as a Director of the New
York Stock Exchange, Inc. and of WorldCom, Inc.
Mr. Akerson has been a Director of the Company since 1997. He served as
Chairman of the Board of Directors and Chief Executive Officer of Nextel
Communications, Inc. since March 1996. From 1993 until March 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.
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 Megabios
Corp., a biomedical company, and WebLogic, Inc., a supplier of Java application
servers and Java-to-database integration solutions.
5
<PAGE>
Mr. Frankenberg has been a Director of the Company since October 1995.
He has 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 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 Progenitor, Inc., and is
Executive Advisor to Precision Response Corporation.
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 is a Director of Transaction
Network Services, Inc.
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. For the last year, he has served as
Chairman Designated of Bertelsmann Industries, Gutersloh. From July 1990
through July 1994, he served as Chairman of the Management Board of Mohndruck
Graphische Betriebe GmbH and as Chief Executive Officer 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 Operating Officer of the Company in February
1998. He was President and Chief Executive Officer of AOL Networks, a division
of the Company, 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. Mr. Pittman had previously been President
and Chief Executive Officer of Time Warner Enterprises, a division of Time
Warner Entertainment Company, LP, a company engaged in entertainment, cable
networks and cable systems, from 1990 to September 1995, and Chairman and Chief
Executive Officer of Six Flags Entertainment Corporation, the second largest
theme park operator in the United States, from December 1991 to September 1995.
Mr. Pittman is a Director of Cendant Corporation. Mr. Pittman also has served
as President and Chief Executive Officer of MTV Networks, and was the creator of
the MTV network.
[BIOS TO BE PROVIDED]
Committees of the Board and Meetings
Meeting Attendance. During the fiscal year ended June 30, 1998, there
were 14 meetings of the Board of Directors, and 14 meetings of the Audit, and
Compensation and Management Development Committees of the Board of Directors.
No Director attended fewer than 75% of the total number of meetings of the Board
of Directors and its Committees on which he served during the fiscal year. In
addition, the members of the Board of Directors and its Committees acted at
various times by unanimous written consent pursuant to Delaware law.
6
<PAGE>
Audit Committee. The Audit Committee, which met seven times in fiscal
1998, currently has three members, Messrs. Caufield (Chair), Akerson and
Frankenberg. 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 and Management Development Committee. The Compensation
and Management Development Committee, which met seven times during fiscal 1998,
currently has three members, General Haig (Chair), Mr. Melton and Dr.
Middelhoff. The Compensation and Management Development Committee 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
procedures contribute to the success of the Company. The Stock and Option
Subcommittee of the Compensation and Management Development Committee, currently
composed of General Haig and Mr. Melton, administers the Company's stock plans,
including the 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 meets informally from
time to time during the year. The Nominating Committee currently has four
members, Mr. Melton (Chair), Mr. Akerson, General Haig and Dr. 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 to serve as Directors.
Compensation of Directors
The Company's policy is not to pay cash compensation to members of the
Board for serving as a Director or for their attendance at Board meetings or
Committee meetings.
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 receives an initial grant of an option 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
Subcommittee 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 and Management Development or Audit Committees (or other
committee designated by the Board) are granted each year an option to purchase
5,000 shares, with the Chair of each such committee receiving an option to
purchase 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 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 are immediately exercisable.
7
<PAGE>
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.
Name Age Positions with the Company
- ---- --- --------------------------
Kathryn A. Bushkin 49 Senior Vice President, Chief Communications
Officer
Miles R. Gilburne 47 Senior Vice President, Corporate Development
J. Michael Kelly 42 Senior Vice President, Chief Financial
Officer, Treasurer, Chief Accounting Officer
and Assistant Secretary
Lennert J. Leader 43 President, AOL Investments
Kenneth J. Novack 57 Vice Chairman
George Vradenburg, III 55 Senior Vice President, General Counsel and
Secretary
Ms. Bushkin was appointed as Senior Vice President, Chief Communications
Officer of the Company in October 1997. She was Senior Managing Director of
Hill and Knowlton, a public relations firm, from 1996 to 1997 and headed Hill
and Knowlton's U.S. Media Relations practice. For 12 years prior to that, she
was Director of Editorial Administration at U.S. News & World Report, where she
oversaw the magazine's news department, new media operations and long-term
projects. Ms. Bushkin also served as Press Secretary to Senator Gary Hart for
his Senate office and his 1984 Presidential campaign.
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. Kelly was appointed as Senior Vice President, Chief Financial Officer,
Treasurer, Chief Accounting Officer and Assistant Secretary of the Company
effective July 1998. Prior to joining the Company, he was Executive Vice
President - Finance and Planning and Chief Financial Officer of GTE Corporation,
one of the world's largest telecommunications companies. Mr. Kelly was
appointed GTE's Senior Vice President - Finance in 1994, receiving the
responsibility for Corporate Planning and Development during 1997. From 1991 to
1994, he served as Vice President - Controller of GTE. He first joined GTE in
1991 as Vice President - Finance and Business Development for its
Telecommunications Products & Services Group, in Atlanta, with responsibility
for the financial function and business development at the Company's cellular
business, federal systems operations, Airfone, and the Spacenet satellite unit.
Between 1987 and 1991, Mr. Kelly served in various management positions,
including Vice President and Controller, for Contel Corporation, which merged
with GTE in 1991. Prior to joining Contel, Mr. Kelly was Chief Financial
Officer of Planning Research Corporation, an information technology planning
firm based in McLean, Virginia, and Audit Manager for the accounting firm Fried,
Klausner and Georgeson in Washington, D.C. Mr. Kelly serves on an Advisory
Board of Directors of Chase Manhattan Corp.
Mr. Leader was appointed as President, AOL Investments of the Company in
February 1998. He was Senior Vice President, Chief Financial Officer and
Treasurer of the Company from September 1989 until July 1998, and was Assistant
Secretary from October 1994 until July 1998. He served as Secretary from 1989
through October 1993 and as Chief Accounting Officer from October 1993 until
July 1998. 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.
8
<PAGE>
Mr. Novack was appointed as Vice Chairman of the Company in May 1998. He
became Of Counsel to the Boston-based law firm of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, PC after his retirement as a member of that firm in August
1998. Mr. Novack joined Mintz Levin in 1966 as an associate and rose to the
position of Managing Partner in 1972. He was President and Chief Executive
Officer of the firm from 1991 to 1994 and served on its executive committee from
1970 until his retirement. He is a member of the Boards of Directors of Ekco
Group, Inc., a manufacturer of brand-name houseware products, and Organogenesis,
Inc., which designs, develops and manufactures medical therapeutics containing
living cells and/or natural connective tissue components. He has served as Co-
Chairman of the Boston Bar Association Committee on Securities Law and is
currently a Member of the American Bar Association Committee on Federal
Regulation of Securities and the American Law Institute.
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 and distributes entertainment, news and sports programming, 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.
9
<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, 1998 (collectively, the "named
executive officers") for services rendered to the Company in all capacities
during the three fiscal years ended June 30, 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- ---------
Compensation
------------
Awards
------
Other Securities
Name and Principal Annual Underlying All Other
Position Fiscal Year Salary Bonus Compensation Options (#) Compensation(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Case 1998 $426,667 $750,000 $0 1,300,000 $2,923
Chairman of the Board and 1997 $271,250 $0 $0 200,000 $3,826
Chief Executive Officer 1996 $200,000 $0 $0 0 $4,462
Robert W. Pittman 1998 $541,665 $750,000 $127,698(2) 900,000 $690
President and Chief 1997 $335,064 $125,000 $111,092(2) 1,000,000 $85
Operating Officer
George Vradenburg, III 1998 $380,000 $490,000 $115,000(3) 70,000 $1,845
Senior Vice President, 1997 $126,667 $95,000 $326,500(3) 480,000 $0
General Counsel and
Secretary
Kenneth J. Novack(4) 1998 $49,053 $950,000 $ 34,167 200,000 $20
Vice Chairman
Lennert J. Leader 1998 $273,333 $300,000 $0 300,000 $4,556
President, AOL 1997 $236,250 $46,875 $0 100,000 $4,257
Investments 1996 $195,000 $0 $0 0 $4,594
</TABLE>
(1) All Other Compensation for Mr. Case, Mr. Pittman, Mr. Vradenburg, Mr.
Novack, and Mr. Leader during fiscal 1998 includes the dollar value of
premiums paid by the Company with respect to term life insurance for their
benefit in the amounts of $420, $690, $1,845, $20 and $867, respectively.
All Other Compensation for Mr. Case and Mr. Leader during fiscal 1998 also
includes $2,503 and $4,046, respectively, of matching contributions made
under the Company's 401(k) Plan.
(2) For fiscal 1998, includes a housing allowance of $120,000 and for fiscal
1997, includes $80,000 for reimbursement of moving expenses.
(3) For fiscal 1998, includes a housing allowance equal to $110,000. For
fiscal 1997, represents $89,900 in relocation costs and $236,600 in housing
and travel allowances. Upon the first year of his employment passing
without a termination of employment, Mr. Vradenburg was no longer obligated
to repay these amounts under the terms of his employment agreement. See
"Certain Relationships and Related Transactions" below.
(4) Mr. Novack was appointed as Vice Chairman of the Company in May 1998.
Prior to that time, he was a consultant to the Company and received
compensation as such during fiscal 1998 which is reflected herein.
10
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information regarding the grant of stock options
during fiscal year 1998 to the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rate
of Stock Price
Appreciation for Option
Individual Grants Term(4)
---------------------------------------------------------------------------------------------------------
Fair
Number of % of Total Options Market
Shares Covered Granted to Exercise Value on
by Option Employees in Fiscal Price Date of Expiration
Name Grant(1) Year ($/share) Grant Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen M. Case 300,000(2) 1.7% $32.25 $32.25 8/29/07 $ 6,084,556 $15,419,458
1,000,000(3) 5.9% $50.00 $38.50 10/31/07 $12,712,443 $49,859,085
Robert W. Pittman 200,000(2) 1.1% $32.25 $32.25 8/29/07 $ 4,056,370 $10,279,639
700,000(3) 4.1% $50.00 $38.50 10/31/07 $ 8,898,710 $34,901,359
George Vradenburg, III 70,000(2) 0.4% $32.25 $32.25 8/29/07 $ 1,419,730 $ 3,597,874
Kenneth J. Novack 50,000(2) 0.3% $32.25 $32.25 8/29/07 $ 1,014,093 $ 2,569,910
50,000(2) 0.3% $35.75 $35.75 9/26/07 $ 1,124,149 $ 2,848,815
100,000(3) 0.6% $87.75 $87.75 5/12/08 $ 5,518,550 $13,985,090
Lennert J. Leader 100,000(2) 0.6% $32.25 $32.25 8/29/07 $ 2,028,185 $ 5,139,819
200,000(3) 1.2% $50.00 $38.50 10/31/07 $ 2,542,489 $ 9,971,817
</TABLE>
(1) Options are non-qualified stock options 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) These options become exercisable over a four-year period, 25% on each
anniversary of the grant date of the option.
(3) These options become exercisable in three equal annual installments
commencing on the fourth anniversary of the date of grant of the option and
continuing each anniversary thereafter such that the third and final
installment vests on the sixth anniversary of the date of grant.
(4) 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.
11
<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, 1998, 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 the Company's Common Stock.
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options at Value of the Unexercised In-The-
Fiscal Year-End Money Options at Fiscal Year-End(2)
---------------------------------------------------------------------
Shares Acquired Value Exercisable Unexercisable Exercisable Unexercisable
Name on Exercise Realized(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Case 2,700,000 $158,056,501 1,388,000 1,950,000 $142,937,646 $143,322,000
Robert W. Pittman 50,000 $ 3,890,065 240,000 1,650,000 $ 21,133,100 $120,814,000
George Vradenburg, III 92,000 $ 4,610,994 100,000 358,000 $ 9,244,000 $ 31,608,100
Kenneth J. Novack 221,000 $ 7,018,255 0 344,000 $ -0- $ 21,211,720
Lennert J. Leader 470,000 $ 26,263,610 462,072 575,000 $ 47,134,992 $ 46,047,000
</TABLE>
(1) The value realized represents the aggregate market value of the shares
covered by the option on the date of exercise less the aggregate exercise
price paid by the executive officer.
(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 $106.00, the closing
market price per share of the Company's Common Stock as reported on the New
York Stock Exchange on June 30, 1998.
Employment Contracts
In October 1996, the Company entered into an employment agreement with Robert
W. Pittman, the President and Chief Operating Officer 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 of the Company for a term of two years, subject to the terms and
conditions of a consulting agreement. In the Company's discretion, Mr. Pittman
will become a consultant of the Company for two years if the Company terminates
his employment for cause or if he terminates his employment for other than a
good reason. Mr. Pittman is subject to the terms of a confidentiality/non-
competition/proprietary rights agreement that remains in effect for the term of
the consulting agreement. Also, pursuant to the terms of the agreement, Mr.
Pittman may require the Company to purchase his prior residence, during the
first two years 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.
In November 1997, the Company entered into a letter agreement with George
Vradenburg, III, who is Senior Vice President, General Counsel and Secretary of
the Company. Pursuant to the terms of the agreement, if Mr. Vradenburg
terminates his employment for a good reason or if the Company terminates his
employment without cause, Mr. Vradenburg will become a consultant of the Company
for two years. In the Company's discretion, Mr. Vradenburg will become a
consultant of the Company for two years if the Company terminates his employment
for cause or if he terminates his employment for other than a good reason. Mr.
Vradenburg is subject to the terms of a confidentiality/non-
competition/proprietary rights agreement that remains in effect for the term of
the consulting agreement. Mr. Vradenburg's employment agreement provides for
the Company to make him certain loans and to advance certain expenses, as
described below under "Certain Relationships and Related Transactions."
The Company also has an agreement with Lennert J. Leader entered into in
December 1997 pursuant to which certain unvested options then held by Mr. Leader
(representing approximately 43% of the
12
<PAGE>
unvested options held by Mr. Leader at August 31, 1998) would become exercisable
in full in the event the Company terminated Mr. Leader's employment without
cause or he terminated his employment for a good reason.
The Company's 1992 Employee, Director and Consultant Stock Option Plan
provides that upon the occurrence of a "Corporate Change in Control" or a
"Transactional Change in Control" (as defined in the 1992 Plan), which include
(i) the acquisition (with certain exceptions) of 30% of the outstanding Common
Stock of the Company by a person, entity or group, (ii) certain changes in the
composition of the Board of Directors, (iii) certain mergers, reorganizations,
recapitalizations or consolidations involving the Company and (iv) the sale of
all or substantially all of the assets of the Company, the outstanding options
that have not yet vested will become fully vested upon the earliest of (a) the
normal vesting date, (b) one year from the applicable "Corporate Change in
Control" or "Transactional Change in Control" or (c) an involuntary employment
action, such as termination of employment without cause or a reduction in base
compensation, power, authority, duties or responsibilities.
Compensation Committee Interlocks and Insider Participation
On January 31, 1998, the Company completed the acquisition of the worldwide
online services businesses of CompuServe Corporation, and entered into a joint
venture agreement to operate the CompuServe European online business in
partnership with Bertelsmann AG (the "CompuServe Joint Venture"). Bertelsmann
AG paid $75 million to the Company for its 50% interest in the CompuServe Joint
Venture. The Company and Bertelsmann AG each invested an additional $25 million
in cash in the CompuServe Joint Venture. Dr. Middelhoff, a Director and member
of the Compensation and Management Development Committee of the Board of
Directors of the Company and a member of Bertelsmann's Executive Board, has been
designated as Chairman of Bertelsmann beginning in October 1998. Also, Dr.
Middelhoff is an emeritus member of the Steering Committee, which coordinates
the Company's and Bertelsmann's activities under their joint venture agreement
dated April 13, 1995 to establish online services in greater Europe.
13
<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, 1993 and ending on June 30, 1998 (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 each
of: (a) the Total Return Index for the New York Stock Exchange (the "NYSE
Market Index"); (b) the Nasdaq National Market (U.S. Companies) (the "Nasdaq
Market Index"); (c) the Total Return Index for the NYSE, the American Stock
Exchange and the Nasdaq National Market Computer and Data Processing Services
Stocks (U.S. and foreign Companies) (the "C&DP Index"); and (d) the Nasdaq
C&DP Index during such period, assuming a $100 investment on June 30, 1993. The
Company has in prior years presented a comparison to the Nasdaq Market Index and
the CRSP Total Return Index for Nasdaq C&DP companies, and is changing to the
NYSE Market Index due to the Company becoming listed on the NYSE instead of the
Nasdaq National Market. However, the Nasdaq Market Index and the Total Return
Index for Nasdaq C&DP companies are also presented in the graph. 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.
[LINE GRAPH APPEARS HERE]
----------------------------------------------------------
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
- --------------------------------------------------------------------------------
America Online, Inc. 100 154.1 475.7 945.9 1202.7 4546
- --------------------------------------------------------------------------------
NYSE Market Index 100 101 124.1 156.3 204.8 262.4
- --------------------------------------------------------------------------------
NYSE/AMEX/Nasdaq C&DP 100 105.2 162.7 213.5 271.3 407.4
Stocks
- --------------------------------------------------------------------------------
Nasdaq National Market 100 101 134.8 173 210.4 277.6
- --------------------------------------------------------------------------------
Nasdaq C&DP Stocks 100 100.2 163.6 217.2 274.2 415.1
- --------------------------------------------------------------------------------
14
<PAGE>
REPORT ON EXECUTIVE COMPENSATION BY THE
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation and Management Development Committee (the "Committee")
comprises three non-employee, independent members of the Board of Directors. It
is the responsibility of the Committee to review, recommend and approve changes
to the Company's compensation policies and benefits programs, to administer the
Company's stock 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 targeted 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 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 management and key employee total
compensation opportunity links total compensation to the Company's performance
and stock price appreciation and keeps pace with the Company's competitive
trends. The Company's size, success, and high profile have made its employees
and executives targets for competitors seeking talented employees.
Consequently, the Company has actively managed compensation levels to ensure
that they are in line with competitive norms. As a result of the competitive
reviews and compensation actions, the Committee believes that the base salary
and total cash compensation opportunity for senior management, as well as those
of the broad employee population, are consistent with competitive market levels.
Base Salaries
The Committee reviews each senior executive officer's salary annually. In
determining appropriate salary levels, the 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 Committee has
approved base salary increases for certain executive officers to be effective in
fiscal 1999 which, in conjunction with cash incentive awards targeted under the
Management Incentive Plan for fiscal 1999, will maintain total cash compensation
levels in line with competitive levels and with the Company's compensation
philosophy.
The 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. As part of the base
salary increases approved by the Committee, Mr. Case's base salary will be
increased to an annual rate of $600,000 in fiscal 1999. Mr. Case's base salary
increase for fiscal 1999, along with the incentive award targeted under the
Management Incentive Plan, provides Mr. Case with a total cash compensation
opportunity generally in line, although conservative, with competitive
compensation levels in relevant executive labor markets.
15
<PAGE>
Management Incentive Plan
Over the past several years, the Company has established itself as a global
leader in interactive services, including online services. In line with its
growth and development, the Company has adopted and refined compensation
practices which reflect what the Company believes to be "best practices" for
established, growing technology companies. Although equity compensation is and
will remain a key element of the Company's management compensation strategy, the
Company also maintains 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 Committee. Awards under
the plan are determined by the Company's performance as measured against certain
pre-established performance measures. At the beginning of fiscal 1998, the
Committee established performance goals related to the Company's earnings
performance. During the fiscal year, the Company substantially exceeded its
earnings objective and accomplished significant operational initiatives,
including the purchase of the online services businesses of CompuServe
Corporation, reorganization of the Company to focus on online services and
interactive media and to shed non-core networking businesses and the improvement
of key member satisfaction measures. Consequently, at the conclusion of the
fiscal year the Committee approved funding under the plan at 140% of the target
awards for senior executive officers for fiscal year 1998.
Stock Options
The 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 Committee has appointed a Stock and Option Subcommittee (the
"Subcommittee") composed of two "outside directors" as defined under Section
162(m) of the Internal Revenue Code consisting of General Haig and Mr. Melton.
This Subcommittee is responsible for administering the Company's stock programs,
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 fair market value of the Common Stock 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.
In determining the size of stock option grants, the Subcommittee 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 Subcommittee examines
the level of equity incentives held by each officer relative to the other
officers' equity positions, their tenure, responsibilities, experience, and
value to the Company. In August 1997, the Company granted options to nearly all
employees based on their performance during the preceding year. The Company's
named executive officers (5 people) received options to purchase an aggregate of
XXX,000 shares, or XX.X% of the _________ total options granted to employees as
part of this annual review process. Options granted 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. In addition, [___] officers
were awarded special retention grants of [_________] shares in fiscal 1998, with
extended vesting periods beginning on the fourth anniversary and vesting
annually in one-third increments through the sixth anniversary of the award. In
the aggregate, the named executive officers received options to purchase a total
of ____ shares, or ___% of the total options granted to employees in fiscal
1998.
Mr. Case received an option to purchase 150,000 shares as part of the August
1997 performance grants. In addition, Mr. Case was provided a supplemental
special retention grant of 500,000 shares in October 1997 (in each case, prior
to adjustment for the stock split in March 1998). At the time of the grant, Mr.
Case's existing option holdings that had been granted over many years were
substantially vested. The special retention grant was designed to secure the
long-term services of Mr. Case and provide him with an ongoing opportunity to
participate in Stockholder wealth creation by the Company. These special
retention options were granted with an above-market exercise price of $100
(prior to adjustment for the stock split),
16
<PAGE>
which was 30% above the fair market value on the date of grant. In addition, the
option had extended vesting requirements such that the first option vesting
would occur the fourth anniversary of grant, with one-third of the shares
vesting at each of the fourth, fifth, and sixth anniversaries of grant. Certain
of the other executive officers also received special retention grants with the
extended vesting schedule and, for Mr. Pittman and Mr. Leader, with an exercise
price equal to 130% of the fair market value of the Company's Common Stock at
the date of grant.
The Subcommittee 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 several fiscal years, in
consultation with independent outside consultants, the Subcommittee 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 Stock outstanding from 45.5% as of June 30, 1995 down to
23.6% as of June 30, 1998. In the same period, total return to Stockholders was
856%, representing average compound annual returns of 112.2%.
In coming years, the Company expects the outstanding options as a percentage
of Common Stock outstanding to decrease further as the Company rigorously
manages its stock option grant programs. The Subcommittee 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 Subcommittee 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. Because of the Company's continuing rapid growth
and the purchase of CompuServe Corporation's online services business in January
1998, the Subcommittee recommended and the Board of Directors approved in
January 1998 and July 1998 amendments to increase by an aggregate of 8,000,000
shares and 5,000,000 shares, respectively, 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 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
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 Subcommittee intends to continue
making grants to executive officers according to the terms and provisions of the
1992 Plan so that the income recognized by participants upon exercise may be
deducted by the Company.
Alexander M. Haig, Jr.
Chairman, Compensation and Management Development Committee
William N. Melton
Dr. Thomas Middelhoff
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
17
<PAGE>
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) reports 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, 1998, 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: Theodore J.
Leonsis (one transaction).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is certain information as of June 30, 1998 as to loans
made pursuant to employment agreements by the Company to 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 98 of 6/30/98 Interest Rate
----------------- ---------------------- ------- ---------- -------------
<S> <C> <C> <C> <C>
George Vradenburg, III Residential(1) $400,000 $400,000 *
Senior Vice President, Personal(1) $285,000 $285,000 *
General Counsel and Housing and Travel(2) $200,000 $ -0- Not Applicable
Secretary Housing Allowance(3) $118,950 $ -0- Not Applicable
Bruce R. Bond Personal(4) $500,000 $ -0- (4)
Former President and Chief Residential(4) $250,000 $ -0- (4)
Executive Officer, ANS
Communications, Inc.
</TABLE>
* Such loans were granted at interest rates equal to the "Applicable Federal
Rate" as established by the Internal Revenue Service. The Applicable
Federal Rate at June 30, 1998 was 5.58%.
(1) The residential and personal loans are repayable by Mr. Vradenburg upon the
earliest of (i) termination of Mr. Vradenburg's employment by the Company
for cause, (ii) termination by Mr. Vradenburg other than for a good reason,
or (iii) March 2000.
(2) The Company paid a housing and travel allowance to Mr. Vradenburg under the
terms of his employment agreement. Such allowance was repayable by Mr.
Vradenburg were his employment terminated by the Company for cause or by
him other than for a good reason within the first year of his employment,
which period expired in March 1998.
(3) The Company paid a housing allowance in fiscal 1997 and fiscal 1998 under
the terms of Mr. Vradenburg's employment agreement. Such costs were
repayable by Mr. Vradenburg were his employment terminated by the Company
for cause or by him other than for a good reason within the first year of
his employment, which period expired in March 1998.
(4) Such loans, which were assumed by WorldCom, Inc. in connection with the
Company's sale of ANS Communications, Inc. in January 1998, were granted at
interest rates equal to the prime rate.
In June 1997, The Company entered into an online commerce agreement with
CUC International, Inc. ("CUC"). On December 18, 1997, HFS, Inc. merged into
CUC, which changed its name after the merger to Cendant Corporation. Robert W.
Pittman, President, Chief Operating Officer and Director of the Company was a
director of HFS, Inc. prior to the merger and is now a director of Cendant
Corporation.
18
<PAGE>
Under the terms of the agreement, Cendant offers AOL's members the opportunity
to purchase goods and services at discounts through its shopping clubs. The
Company has received payments totaling approximately $50 million, primarily to
be credited over the three-year term of the agreement against future transaction
and membership commissions otherwise payable to the Company, plus additional
amounts based on a revenue-sharing arrangement. These payments totaled
approximately $_____ during fiscal year 1998.
The Company has paid attorneys fees totaling approximately $507,000 on behalf
of 18 current and former Directors and officers of the Company who were named as
defendants in the Orman v. America Online, Inc. class action lawsuit, which
alleged violations of federal securities laws. Approximately $390,000 of the
fees were incurred prior to July 1997, when the suit was initially dismissed.
The remaining fees were incurred thereafter in connection with the amended class
action lawsuit, in which the only individuals named as defendants were the Chief
Executive Officer and then Chief Financial Officer of the Company, and a related
derivative action against Directors of the Company. Substantially all of the
attorneys fees were covered by insurance.
Certain information respecting Directors, executive officers or other persons
holding a specified position or relationship that is not required to be included
for any portion of the period during which such a person did not hold a
particular position or relationship is not included herein.
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<PAGE>
ELECTION OF DIRECTORS
(Item 1)
The Company's Restated Certificate of Incorporation, as amended, and
Restated By-Laws provide for a classified Board of Directors. The Board of
Directors currently consists of ten members, classified into three classes as
follows: Frank J. Caufield, Robert J. Frankenberg, Robert W. Pittman and
__________ constitute a class with a term which expires at the upcoming Annual
Meeting (the "Class II Directors"); General Alexander M. Haig, Jr., Daniel F.
Akerson and _________ constitute a class with a term ending in 2000 (the "Class
I Directors"); and Stephen M. Case, William N. Melton and Thomas Middelhoff
constitute a class with a term ending in 1999 (the "Class III Directors"). The
Class II Directors to be elected at the Meeting will serve a three year term
expiring in 2001. One additional Class I Director is to be elected at the
Meeting to serve a two year term expiring in 2000 concurrently with the terms of
the Directors now serving as Class I Directors. Robert J. Frankenberg is not
standing for re-election to the Board of Directors. Therefore, following the
meeting there will be one Class II Director vacancy.
Background information appears below for each of the nominees for
election as 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 Term to
---- --- ------------------- -------
Expire
-------
<S> <C> <C> <C>
Frank J. Caufield 58 Mr. Caufield has been a Director of the Company since 1991. He 2001
has held the position of general partner of Kleiner Perkins
Caufield & Byers, a venture capital partnership, since 1978.
Also, he is a Director of Megabios Corp., a biomedical company,
and WebLogic, Inc., a supplier of Java application servers and
Java-to-database integration solutions.
Robert W. Pittman 44 Mr. Pittman has been a Director of the Company since October 2001
1995. He was appointed as President and Chief Operating
Officer of the Company in February 1998. He was President and
Chief Executive Officer of AOL Networks, a division of the
Company, 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.
Mr. Pittman had previously been President and Chief Executive
Officer of Time Warner Enterprises, a division of Time Warner
Entertainment Company, LP, a company engaged in entertainment,
cable networks and cable systems, since 1990, and Chairman and
Chief Executive Officer of Six Flags Entertainment Corporation,
the second largest theme park operator in the United States,
since 1991. Mr. Pittman is a Director of Cendant Corporation.
Mr. Pittman also has served as President and Chief Executive
Officer of MTV Networks, and was the creator of the MTV network.
______________ __ _________________________________________________________________ 2001
______________ __ _________________________________________________________________ 2000
</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.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF FRANK J. CAUFIELD,
ROBERT W. PITTMAN, __________ AND __________ AS DIRECTORS, AND PROXIES SOLICITED
BY
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<PAGE>
THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED,
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
(Item 2)
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), authorizes the issuance of 600,000,000 shares
of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01
par value. As of July 15, 1998, the Board of Directors of the Company approved
an amendment to the Certificate of Incorporation to increase the authorized
number of shares of Common Stock from 600,000,000 to 1,800,000,000 and to submit
the proposed amendment to the Stockholders at this Meeting.
Purpose and Effect of the Amendment
The general purpose and effect of the proposed amendment to the
Company's Certificate of Incorporation will be to authorize 1,200,000,000
additional shares of Common Stock. The Board of Directors believes that it is
prudent to have the additional shares of Common Stock available for general
corporate purposes, including payment of stock dividends, stock splits or other
recapitalizations, acquisitions, equity financings, and grants of stock options.
Although the Board of Directors has not decided to effect a stock
split, the Board wants to maintain the ability to effect a stock split. The
Company has a history of regular stock splits, having declared four such splits
since October 1994, each of which was effected by making a dividend of one
additional share for each share presently owned. In considering stock splits,
the Board's philosophy continues to be guided by a conviction not only that the
Company's ownership, and the liquidity afforded its Stockholders, expands in
relation to the number of shares outstanding, but also that the Company's shares
become more attractive to individual investors when it is possible to acquire a
larger number of them for the same total dollar amount. The Board of Directors
considers a number of factors, including general market conditions, in deciding
whether or when to effect a stock split, and any of these factors could cause
the Board to decide against effecting a stock split at any particular time. The
Company has determined that securing Stockholder approval of 1,200,000,000
additional authorized shares of Common Stock would be appropriate in order to
provide the Company with the flexibility to consider a combination of possible
actions, including acquisitions or stock splits, that might require the issuance
of additional shares of Common Stock.
The Company currently has 600,000,000 authorized shares of Common
Stock. As of July 31, 1998, the Company had _________ shares issued and
outstanding and of the remaining _________ authorized but unissued shares, the
Company has reserved approximately 7,200,000 shares in connection with the
possible exercise of outstanding warrants, 6,700,000 shares in connection with
the possible conversion of outstanding convertible subordinated debt, 64,700,000
shares pursuant to the Company's option plans and 340,000 shares pursuant to the
Company's Employee Stock Purchase Plan.
Except in connection with the reserved shares described above, the
Company currently has no arrangements or understandings for the issuance of
additional shares of Common Stock, although opportunities for acquisitions and
equity financings could arise at any time and the Company has a shelf
registration statement available for the issuance of up to approximately $450
million of debt or equity financings. If the Board of Directors deems it to be
in the best interest of the Company and the Stockholders to issue additional
shares of Common Stock in the future, the Board of Directors generally will not
seek further authorization by vote of the Stockholders, unless such
authorization is otherwise required by law or regulations.
The increase in the authorized number of shares of Common Stock could
have an anti-takeover effect. If the Company's Board of Directors desired to
issue additional shares in the future, such issuance could dilute the voting
power of a person seeking control of the Company, thereby deterring or rendering
more difficult a merger, tender offer, proxy contest or an extraordinary
corporate transaction opposed by the Company.
20
<PAGE>
Vote
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting will be required to approve the amendment
to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 600,000,000 to 1,800,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S RESTATED AND AMENDED CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK FROM 600,000,000 TO 1,800,000,000, AND PROXIES
SOLICTED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
APPROVAL OF AMENDMENTS TO THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN
(Items 3 & 4)
The Company's Stockholders are being asked to approve two amendments
to the Company's Employee Stock Purchase Plan (the "ESPP"). The proposed
amendments to the ESPP will (i) increase the number of shares of Common Stock
reserved for issuance under the ESPP from 1,600,000 to 3,600,000 and (ii) amend
the eligibility provisions of participants in the ESPP.
The Board of Directors believes that the proposed amendments to the
ESPP are in the best interest of the Company. The ESPP has become an important
employee benefit since its inception, with broad employee participation. The
Board of Directors believes that the proposed amendment to increase the number
of shares of Common Stock reserved for issuance under the ESPP is necessary for
the Company to remain competitive in its compensation practices and to attract,
retain, and motivate the highly skilled and talented personnel essential to the
Company's continued growth and success. The Board of Directors believes that
the amendment to change the eligibility provisions of participants in will
permit the ESPP to be administered more efficiently and will help avoid
inadvertent non-compliance with the ESPP.
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required for adoption of each of these amendments.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF BOTH OF
THE PROPOSED AMENDMENTS TO THE ESPP, AND PROXIES SOLICTED BY THE BOARD WILL BE
VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.
General Description of the ESPP
The Company's ESPP was adopted by the Board of Directors in May 1992
and approved by Stockholders at a meeting in October 1992, and a total of
1,600,000 shares of Common Stock were reserved for issuance thereunder. As of
July 31, 1998, there were approximately [338,000] shares available for future
issuance under the ESPP. The Board of Directors believes that increasing the
number of shares reserved for issuance under the ESPP by 2,000,000 will provide
the Company with equity award opportunities to attract, retain and motivate the
highly skilled and talented personnel necessary for the Company's continued
growth and success. The Company anticipates that the proposed increase in
shares reserved for issuance under the ESPP should meet the Company's retention
and motivation goals through approximately the next four years.
The ESPP is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Code. Under the ESPP, employees of the Company and its
subsidiaries who are eligible and elect to participate are granted options to
purchase Common Stock at a discount from the fair market value of such stock.
All employees who have been employed by the Company or a subsidiary for six or
more months may join the ESPP on the first day of any participation period (each
June 1 and December 1, a "Grant Date"). Participation in the ESPP is voluntary.
Currently, the ESPP provides that subsidiaries of the Company are
considered participating employers unless the Board designates such subsidiaries
as not being participating employers in the
21
<PAGE>
ESPP. The Board proposes to change the definition of "Employer" under the Plan,
such that a subsidiary would not be considered a participating employer unless
the Board acted to so designate the subsidiary. The Board believes that newly-
acquired subsidiaries and less than wholly-owned subsidiaries should not be
deemed participating employers unless it has an opportunity to consider whether
participation in the ESPP is appropriate, taking into consideration a number of
relevant factors, including the Company's future plans for such subsidiaries and
country practice and custom with respect to international subsidiaries.
Accordingly, the Board of Directors believes that the proposed amendment to
change the eligibility provisions of the ESPP would allow for more efficient
administration of the ESPP and help to avoid inadvertent non-compliance with the
ESPP.
The ESPP permits an enrolled employee to make contributions by having
withheld from his or her compensation during each semiannual exercise period
(June 1 through November 30 and December 1 through May 31) an amount ranging
from 1% to 10% (in whole percentages only) of compensation, which includes base
pay, overtime pay, bonuses, vacation pay, holiday pay, and short-term disability
payments, to purchase shares of Common Stock. Each participant's option allows
him or her to purchase Common Stock on the last trading day of the applicable
participation period (each an "Exercise Date") at a price equal to 85% of the
lesser of the fair market value of such stock (i) on the first trading day of
the applicable six-month participation period or (ii) on the last trading day of
the applicable six-month participation period.
A participant may discontinue his or her election to participate in
the ESPP by providing written notice to the Company as prescribed by the Stock
and Option Subcommittee of the Compensation and Management Development Committee
of the Board of Directors (the "Subcommittee"), but no later than the 15th day
of the month in which the six-month participation period ends. A participant is
deemed to have discontinued his or her participation and to have withdrawn from
the ESPP as of the first day of the applicable participation period upon the
termination of the employee's employment with the Company or its subsidiary for
any reason (other than a transfer to another employer which is the Company or
its subsidiary that is a participating employer or terminations of employment
due to death or disability), retirement during the first three months after the
applicable Grant Date, or termination or expiration of the ESPP. In the event a
participant retires during the last three months of a six-month participation
period or a participant's employment terminates as a result of disability or
death, payroll deductions cease and the balance can be refunded or used to
purchase shares at the end of the participation period, at the election of the
participant or the executor of the estate, as applicable.
Upon dissolution or liquidation of the Company, or upon a merger or
consolidation of the Company in which the Company is not the surviving
corporation, the holder of each option then outstanding under the ESPP will
thereafter be entitled to receive at the next Exercise Date upon the exercise of
such option for each share as to which such option shall be exercised, as nearly
as reasonably may be determined, the cash, securities and/or property which a
holder of one share of the Common Stock was entitled to receive upon and at the
time of such transaction. The Board of Directors shall take such steps as it
shall deem reasonably necessary to assure that the participants receive the
benefits described in this paragraph.
The ESPP may be terminated or amended by the Stockholders, the Board
of Directors or the Subcommittee, provided, however, that any amendment
approving an increase in the aggregate number of shares of Common Stock which
may be issued under the ESPP (other than an increase merely reflecting a change
in capitalization) must be approved by the Stockholders within one year after
such amendment is adopted by the Board of Directors or the Subcommittee or such
amendment is void from the date it was intended to be effective. No amendment
shall adversely affect any options previously granted to a participant, unless
such participant consents in writing to the amendment.
As of July 31, 1998, the number of people participating in the ESPP was
approximately _______.
Federal Income Tax Considerations
The options granted under the ESPP are intended to constitute qualified
stock options in an "employee stock purchase plan" under Section 423 of the
Code. No taxable income is realized at the time options are granted pursuant to
the ESPP or at the time of purchase of shares of Common Stock pursuant to the
ESPP. Upon the death of a participant owning ESPP shares or upon the disposition
of shares of Common Stock two years or more after the date of the grant of the
option to purchase such shares and at least one year after acquiring such
shares, the participant will recognize as ordinary income an amount equal to the
lesser of: (i) the excess of the fair market value of the shares on the date of
such death or
22
<PAGE>
disposition over the amount paid for such shares, or (ii) 15% of the fair market
value of the shares at the time of grant of the option. Any loss upon such a
disposition or the balance of any gain will be long term capital loss or gain.
The Company will not be entitled to a deduction corresponding to the
participant's ordinary income.
Upon disposition of the shares within two years after the date when a
participant was granted an option to purchase such shares or within one year
after the date the participant acquired such shares, the participant generally
will then recognize ordinary income, and the Company will have a corresponding
deduction, equal to the fair market value of the shares on the date of purchase
less the amount paid for the shares. The difference between the amount realized
on such a disqualifying disposition and the participant's basis in the shares
(his purchase price plus the amount of related ordinary income recognized) will
generally constitute capital gain or loss.
INDEPENDENT PUBLIC ACCOUNTANTS
(Item 5)
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, 1999. 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, 1998. 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.
23
<PAGE>
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement
relating to the 1999 Annual Meeting of Stockholders, Stockholder proposals must
be received, no later than __________, 1999. To be considered for presentation
at the Annual Meeting, although not included in the proxy statement, proposals
must be received no later than __________, 1999, nor earlier than __________,
1999. All Stockholder proposals should be marked for the attention of
Secretary, America Online, Inc., 22000 AOL Way, Dulles, Virginia 20166-9323.
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:
[SIGNATURE]
George Vradenburg, III
Secretary
Dulles, Virginia
_________, 1998
24
<PAGE>
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
__________ __, 1998 in connection with the Annual Meeting to be held at
__________ on __________, 1998 at the Westfields International Conference
Center, located at 14750 Conference Center Drive, Chantilly, Virginia and hereby
appoints Stephen M. Case, J. Michael Kelly and Sheila A. Clark and each of them
(with full power to act alone), the attorneys and proxies of the undersigned,
with power 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 entitled to vote at the 1998 Annual Meeting of Stockholders, and
at any adjournment or adjournments thereof, with all the powers the undersigned
would have if personally present. Without limiting the general authorization
hereby given, said proxies are, and each of them is, instructed to vote or 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 each of the proposals set
forth on the reverse side. With respect to the tabulation of proxies for
purposes of the proposal to amend the Company's Restated Certificate of
Incorporation to increase the authorized number of shares, abstentions and
broker non-votes are treated as votes against the proposal.
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 Four Directors (or if any nominee is not available for
election, such substitute as the Board of Directors may designate).
Nominees: Frank J. Caufield, Robert W. Pittman, __________ and
__________
SEE REVERSE SIDE FOR ALL OF THE 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.
[SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE]
25
<PAGE>
[x] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR Proposals 1-5.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors (see reverse) 4. Approval of an amendment of the
eligibility requirements under
the Company's Employee Stock
FOR VOTE Purchase Plan
ALL WITHHELD
[_] [_]
FOR AGAINST ABSTAIN
[_] [_] [_]
[_] ______________________________________
For all nominees except as noted above
2. Amendment of Restated Certificate 5. Proposal to ratify the appointment of
of Incorporation to increase the Ernst & Young LLP as the Company's
number of authorized shares. independent public accountants for the
fiscal year ending June 30, 1999.
FOR AGAINST ABSTAIN
[_] [_] [_]
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of an increase in the number
of shares of Common Stock authorized
for issuance under the Company's Employee
Stock Purchase Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
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, admini-
strator, trustee or guardian, please give full title as such.
Signature:________________ Date______ Signature:________________ Date_______
26
