As filed with the Securities and Exchange Commission on June 11, 1998
Registration No. 333-46633
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICA ONLINE, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1322110
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22000 AOL Way, Dulles, Virginia 20166-9323 (703) 448-8700
(Address, including zip code, and telephone, including area code, of
registrant's principal executive offices)
Stephen M. Case
Chief Executive Officer
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 448-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Sheila A. Clark, Esquire
Vice President and
Deputy General Counsel
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 448-8700
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C> <C>
Title of each class of Amount to be registered Proposed maximum Proposed maximum Amount of
securities to be registered(1) offering price aggregate offering registration
per unit price fee
4% Convertible Subordinated Notes due
November 15, 2002...................... $350,000,000 100%(2)(3) $350,000,000(2) $103,250(7)
Common Stock, par value $.01 per share(4) 6,705,790(4) shares -- -- -- (6)
Common Stock, par value $.01 per share. 204,139(5) shares $(7) $(7) (7)
Total......................... -- -- $(7) (7)
</TABLE>
(1) Common Stock being registered hereby includes associated Preferred
Share Purchase Rights, which initially are attached to and traded with the
shares of the Registrant's Common Stock. Value attributable to such rights,
if any, is reflected in the market price of the Common Stock.
(2) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(i) of the Securities Act of 1933.
(3) Exclusive of accrued interest and distributions, if any.
(4) Such shares of Common Stock are issuable upon conversion of the
Convertible Notes registered hereunder. Pursuant to Rule 416, this
Registration Statement also covers such shares as may be issued upon
conversion of the Convertible Notes as a result of anti-dilution
adjustments. Adjusted to reflect the Company's two-for-one stock split paid
on March 16, 1998.
(5) Adjusted to reflect the Company's two-for-one stock split paid on March 16,
1998 and to add 107,581 additional shares held by selling stockholders.
(6) Pursuant to Rule 457(i) of the Securities Act of 1933, there is no filing
fee with respect to the shares of Common Stock issuable upon conversion of
the Notes because no additional consideration will be received in
connection with the exercise of the conversion privilege.
(7) The Registrant paid a fee of $104,846 with the filing of the initial
registration statement on February 20, 1998. The 96,558 increase in the
number of registered shares is due to a two-for-one stock split paid on
March 16, 1998 and no additional fee is due on these shares pursuant to
Rule 416(b) of the Securities Act of 1933. The Company is also registering
108,581 additional shares for a registration fee of $2,690 estimated solely
for the purpose of calculating the registration fee pursuant to Rule 457(c)
of the Securities Act of 1933, based upon the average of the high and low
sale prices of the Common Stock as reported on the New York Stock Exchange
on June 8, 1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
AMERICA ONLINE, INC.
$350,000,000
of 4% Convertible Subordinated Notes due November 15, 2002 and
the Shares of Common Stock Issuable upon Conversion thereof
and
204,139 Shares of Common Stock
This Prospectus relates to (i) the $350,000,000 principal amount of 4%
Convertible Subordinated Notes due November 15, 2002 (the "Notes") of America
Online, Inc., a Delaware corporation (the "Company" or "America Online"), held
by certain selling securityholders described herein (the "Note Selling
Securityholders"), and the shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company issuable upon conversion of the Notes (the
"Conversion Shares") together with (ii) 204,139 shares of Common Stock unrelated
to the Notes (the "Resale Stock") held by certain selling securityholders
described herein (the "Stock Selling Securityholders," and together with the
Note Selling Securityholders, the "Selling Securityholders"). The Notes were
issued and sold on November 17, 1997 to the Initial Purchasers (as defined
herein) and were simultaneously sold by the Initial Purchasers in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), in the United States to persons reasonably
believed by the Initial Purchasers to be qualified institutional buyers as
defined in Rule 144A under the Securities Act, and outside the United States to
non-U.S. persons in offshore transactions in reliance on Regulation S under the
Securities Act.
The Notes, Conversion Shares and Resale Stock (collectively, the
"Offered Securities") may be offered and sold from time to time by the Selling
Securityholders pursuant to this Prospectus. The Offered Securities may be sold
by the Selling Securityholders from time to time directly to purchasers or
through agents, underwriters or dealers. See "Selling Securityholders" and "Plan
of Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Securityholders will receive all of the net proceeds
from the sale of the Offered Securities and will pay all underwriting discounts,
selling commissions and transfer taxes, if any, applicable to any such sale. The
Company is responsible for payment of all other expenses incident to the
registration of the Offered Securities. The Selling Securityholders and any
broker/dealers, agents or underwriters that participate in the distribution of
the Offered Securities may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements.
The Notes are convertible into shares of Common Stock of the Company at
any time prior to maturity, unless previously redeemed or repurchased, at a
conversion price of $52.1937 per share (equivalent to 19.1594 shares per $1,000
principal amount of Notes), subject to adjustment in certain events. The Common
Stock is quoted on the New York Stock Exchange ("NYSE") under the symbol AOL. On
June 10, 1998, the closing sale price of the Common Stock, as reported by the
NYSE, was $89.25 per share.
Interest on the Notes is payable semiannually on May 15 and November 15
of each year, commencing on May 15, 1998. The Notes may be redeemed at the
option of the Company on or after November 15, 2000, in whole or in part at the
redemption prices set forth herein. See "Description of Notes--Optional
Redemption." The Notes are not entitled to any sinking fund.
In the event of a Change in Control (as defined in the Indenture
pursuant to which the Notes were issued), each holder of Notes may require the
Company to repurchase its Notes, in whole or in part, for cash or, at the
Company's option, Common Stock (valued at 95% of the average closing prices for
the five trading days immediately preceding and including the third trading day
prior to the repurchase date) at a repurchase price of 100% of the principal
amount of Notes to be repurchased, plus accrued interest to the repurchase date.
See "Description of Notes--Repurchase at Option of Holders Upon a Change in
Control."
The Notes are general, unsecured obligations subordinated in right of
payment to all existing and future Senior Debt (as defined herein) of the
Company and effectively subordinated in right of payment to all indebtedness and
other liabilities of the Company's subsidiaries. As of March 31, 1998, the
Company had approximately $576,001,000 of indebtedness and other liabilities
(including amounts available under a credit facility) that would have
constituted Senior Debt. As of March 31, 1998, the Company had approximately
$376,001,000 of Senior Debt outstanding. As of March 31, 1998, the Company's
subsidiaries had approximately $105,178,000 of indebtedness and other
liabilities (including trade payables and excluding intercompany liabilities) as
to which the Notes would have been effectively subordinated. See "Description of
Notes." The Indenture does not restrict the Company or its subsidiaries from
incurring additional Senior Debt or other indebtedness or liabilities. See
"Description of Notes."
THE NOTES AND COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized in connection with any offering made hereby to
give any information or to make any representations other than as contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus is
not an offer to sell, or a solicitation of an offer to buy, by any person in any
jurisdiction in which it is unlawful for such person to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sales made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
The date of this Prospectus is , 1998.
AVAILABLE INFORMATION
The Company is subject to certain informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024 of the Commission's office at 450
Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549, and at its regional
offices located at 7 World Trade Center, Suite 1300, New York, NY 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies
of such reports, proxy statements and other information can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, DC 20549 at prescribed rates. The Commission also maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants (including America Online) that file
electronically with the Commission. The address of this site is
http://www.sec.gov. The Company's Common Stock is listed on the New York Stock
Exchange (the "NYSE") under the symbol "AOL" and reports, proxy and information
statements and other information concerning the Company may also be inspected at
the offices of the NYSE at 20 Broad Street, New York, NY 10005. Additional
updating information with respect to the securities covered herein may be
provided in the future to purchasers by means of appendices to this Prospectus.
The Company has filed with the Commission in Washington, DC a
registration statement (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act with
respect to the securities offered or to be offered hereby. This Prospectus does
not contain all of the information included in the Registration Statement,
certain items of which are omitted in accordance with the rules and regulations
of the Commission. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997, filed pursuant to Section 13 or 15(d) of the
Exchange Act (File Number 0-19836).
(b) The Company's Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1997, December 31, 1997, as amended, and
March 31, 1998 filed pursuant to Section 13 or 15(d) of the Exchange
Act (File Number 0-19836).
(c) The Company's Current Reports on Forms 8-K for events
dated September 7, 1997, November 12, 1997, November 17, 1997, January
31, 1998 (as amended on April 17, 1998), February 13, 1998 and June 5,
1998 filed pursuant to Section 13 or 15(d) of the Exchange Act (File
No. 0-19836).
All reports and other documents subsequently filed by the Company with
the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, prior to the termination of this offering, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, on the written or oral request of such
person, a copy of any or all documents incorporated by reference herein, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference therein). Requests for such copies should be directed
to: Sheila A. Clark, Vice President and Deputy General Counsel, America Online,
Inc., 22000 AOL Way, Dulles, Virginia 20166-9323, telephone number (703)
448-8700.
TABLE OF CONTENTS
Page
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 2
SUMMARY 4
RISK FACTORS 6
USE OF PROCEEDS 13
RATIO OF EARNINGS TO FIXED CHARGES 14
DESCRIPTION OF NOTES 14
DESCRIPTION OF CAPITAL STOCK 27
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES 31
SELLING SECURITYHOLDERS 34
PLAN OF DISTRIBUTION 38
LEGAL MATTERS 38
EXPERTS 39
SUMMARY
The following summary of the business of the Company is qualified in
its entirety by and should be read together with the more detailed information
and financial statements included or incorporated by reference in this
Prospectus.
The Company
America Online, including its subsidiaries, is a global leader in
interactive services, with over $1.6 billion in revenues during fiscal 1997. The
Company's AOL Internet online service has approximately 12 million members
worldwide as of April 1998, a 100% increase from two years earlier. The Company
has acquired the worldwide online services businesses of CompuServe Corporation,
which has more than 2 million members worldwide as of April 1998. The Company
generates revenues principally through subscription fees, as well as
increasingly from advertising, commerce and other revenues. The Company offers
its AOL Internet online services in the U.S. and Canada and, through joint
ventures, in Austria, France, Germany, Japan, Sweden, Switzerland and the United
Kingdom, and offers access to its AOL service in over 100 countries.
The Company's mission is to become the recognized leader in the global
interactive medium that is changing the way people communicate, stay informed,
are entertained, learn, shop and do business. To accomplish this mission, the
Company's strategy is to continue to improve and expand its service by building
unique and engaging programming and other content and services for delivery into
every home through every distribution means available. The Company seeks to
establish and build its brand names, among others, America Online, AOL, AOL
Studios, CompuServe, AOL.COM and AOL Instant Messenger. By offering a broad
range of high quality Internet online branded content, products and services,
the Company seeks to build its subscriber base as a platform for increasing
subscription revenues and revenues from advertising and electronic commerce.
The Company has reorganized its operations into three interactive
service and content brand groups, AOL Interactive Services, CompuServe
Interactive Services and AOL Studios. Through its AOL Interactive Services
group, which oversees the Company's AOL Internet online service as well as the
AOL.COM website and AOL Instant Messenger, the Company offers its members a
broad range of original programming, features and tools. The AOL service
includes five screennames for each account, member service and support 24 hours
a day, 7 days a week and personal tools designed to encourage members to share
information and ideas and to customize the AOL service to best suit their
individual and business needs. Offerings include electronic mail, Buddy Lists,
Instant Messages, interactive news and magazines, entertainment, weather,
sports, games, stock quotes, financial services transactions, online shopping,
Internet access with search capabilities, software files, computing support,
online classes and auditorium events, online meeting rooms and conversations
(chat), and parental, mail and marketing controls.
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 Company operates the CompuServe online
services businesses for the United States and the rest of the world (other than
Europe) through a wholly-owned subsidiary, CompuServe Interactive Services,
Inc., a Delaware corporation, which comprises the Company's CompuServe
Interactive Services group. The AOL Bertelsmann joint venture is operated
through CompuServe Interactive Services Ltd., an Irish company, owned 50% each
by the Company and Bertelsmann.
Through its AOL Studios unit, the Company creates and builds original
content for current AOL online services (AOL Interactive Services and CompuServe
Interactive Services), future AOL services and AOL web based service offerings
(AOL.COM), focusing on branded properties in categories such as local content,
multiplayer games, entertainment, romance, sports and women's issues. AOL
Studios manages AOL's interest in Digital City, Inc. ("DCI"), which is owned
approximately 80% by the Company and 20% by the Tribune Company. DCI provides
local, community-based interactive content and services.
America Online was incorporated in Delaware on May 24, 1985. The
Company's principal executive offices are located at 22000 AOL Way, Dulles,
Virginia 20166-9323. Its telephone number at that address is (703) 448-8700.
Recent Developments
New Shareholder Rights Plan. The Company adopted a new shareholder
rights plan on May 12, 1998 (the "New Plan") that has been implemented by
declaring a dividend, distributable to shareholders of record on June 1, 1998,
of one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. All rights granted under the Company's former shareholder rights
plan have been redeemed in conjunction with the implementation of the New Plan.
The Rights have the anti-takeover effect of causing substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Company's Board of Directors. The Rights will expire on May 12, 2008 unless
redeemed by the Company prior to that date. See "Risk Factors--Anti-Takeover
Defense Provisions" and "Description of Capital Stock--New Shareholder Rights
Plan."
Investment in the FamilyEducation Company. In April 1998, the Company
and the FamilyEducation Company announced that they entered into a strategic
relationship to build online school communities. The Company will invest in the
FamilyEducation Company, and the FamilyEducation Network (FEN) will become an
anchor tenant within the Company's Research & Learn and Families channels under
a four-year exclusive carriage agreement. The Company will promote FEN online
and conduct a local parental awareness campaign designed to involve Company
members nationwide. See "Risk Factors--Relationships with Providers."
NetChannel Acquisition. In May 1998, the Company announced that it will
acquire NetChannel, Inc., a Web-enhanced television company. The acquisition
will allow the Company to use NetChannel's programming development experience
and technology in connection with the development of an AOL-branded service to
offer interactive content developed for the television medium. The total
purchase price will be approximately $29 million, comprised of approximately $17
million in cash and $12 million of net assumed liabilities.
NetChannel, Inc. is a Web-based personalized television company that
was founded in 1996. The NetChannel service, launched in September 1997, was
discontinued on May 3, 1998. It had approximately 10,000 subscribers. Its
hardware partner was Thomson Consumer Electronics, which supported the
NetChannel service on its RCA Network Computers. See "Risk
Factors--Acquisitions."
Mirabilis Acquisition. The Company acquired Mirabilis Ltd, an
Israel-based company, on June 5, 1998 pursuant to an Agreement of Purchase and
Sale under which America Online acquired the assets of Mirabilis, including its
ICQ instant communications and chat technology, for $287 million in cash and
contingent payments starting in America Online's fiscal year 2001 of up to
$120 million over three years based on certain specified growth performance
standards. A substantial portion of the $287 million purchase payment is
expected to be accounted for as in-process R&D in the Company's fourth
quarter ending June 30, 1998. The business will continue to be based
largely in Tel Aviv and operated as a free Web-based service with its own brand
identity. Launched in November 1996, ICQ's instant communications and chat
technology informs users when family, friends and business colleagues are
online and enables them to exchange messages in real-time. As of June 1998,
more than 12 million users have registered to use the technology.
See "Risk Factors--Acquisitions."
RISK FACTORS
An investment in the Notes and Common Stock being offered by this
Prospectus involves a high degree of risk. In addition to the other information
contained in this Prospectus or incorporated herein by reference, prospective
investors should carefully consider the following risk factors before purchasing
the Notes and Common Stock offered hereby. This Prospectus and other statements
made by the Company to the public contain and incorporate by reference
forward-looking statements within the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to the
discussion set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 (the "Form 10-K") and in the Company's
quarterly reports on Form 10-Q for the quarters ended September 30, 1997,
December 31, 1997 and March 31, 1998 and in "Business" in the Company's Form
10-K, incorporated by reference into this Prospectus. Such statements are based
on current expectations that involve a number of uncertainties including those
set forth in the risk factors below. Actual results could differ materially from
those projected in the forward-looking statements.
Competition
The Company competes in a rapidly-changing marketplace with a wide
range of other companies in the communications, advertising, entertainment and
information, media, direct mail and commerce fields. Current competitors of the
Company for usage, subscribers, advertising and electronic commerce include
online services (for example, the Microsoft Network and Prodigy Services
Company), various national and local Internet service providers using
industry-standard browser and navigational software, long distance and regional
telephone companies who may offer competing services directly to their customers
as part of their telephone service (among others, AT&T Corp., MCI Communications
Corporation and various regional Bell operating companies), cable companies, and
suppliers of operating systems or personal computer manufacturers who may
incorporate functional equivalents to the Company's services in their products.
The Company also competes for usage and advertising and electronic commerce
revenues with major Web sites operated by search services and other companies
such as Yahoo! Inc., Netscape Communications Corporation, Infoseek Corporation,
CNET, Inc., Lycos, Inc. and Excite, Inc. Recently announced strategic alliances
among certain of the Company's competitors (for example, Yahoo! with MCI, Excite
with each of AT&T and Netscape, and Lycos with AT&T) could strengthen the
Company's competition. On a broader scale, the Company competes with global
media companies such as newspapers, radio and television stations and content
providers, such as CBS Corporation, The Walt Disney Company and Time Warner
Inc., and with direct marketing and telemarketing companies.
The development of midband and broadband distribution technologies,
including cable Internet access services offered by @Home Network, Road Runner
Group (owned by Time Warner Inc.) and MediaOne, Inc. (a subsidiary of US WEST
Media Group), advanced telephone-based access services offered through digital
subscriber line (DSL) technologies offered by local telecommunications companies
and other advanced digital services offered by broadcast and satellite
companies, is intensifying the competition to which the Company is subject.
Emerging convergent technologies offering combinations of television and
interactive computer services, such as those offered by WebTV, offer yet an
additional competitive alternative to the offerings of the Company. The Company
has recently announced that it has agreed to acquire NetChannel, Inc., but there
can be no assurance that the acquisition will be consummated or that its
technology will become commercially successful. See "Summary--Recent
Developments" and "Risk Factors--Changing Technologies."
Some of the present competitors and potential future competitors of the
Company may have greater financial, technical, marketing and/or personnel
resources than the Company. The competitive environment could (i) require price
reductions and increased spending on marketing, network capacity, content
procurement and product development, (ii) limit the Company's opportunities to
enter into and/or renew agreements with content providers and distribution
partners, (iii) limit its ability to develop new products and services, (iv)
limit its ability to continue to grow its subscriber base, (v) result in
increased attrition in the Company's subscriber base and (vi) negatively impact
the Company's ability to meet its business objective of changing its business
model into one in which increasingly more revenues and profits are generated
from sources other than online service subscription revenues, such as
advertising and electronic commerce. Any of the foregoing events could have an
impact on revenues or result in an increase in costs as a percentage of
revenues, which could have a material adverse effect on the Company's business,
financial condition and operating results.
Network Capacity and Operations
Among other pricing plans, the Company has adopted a flat-rate pricing
plan which provides access to AOL for a flat monthly fee with no additional
hourly charges (the "Flat-Rate Plan"). Due to the rapid growth in subscriber
usage resulting from flat-rate pricing, the Company and its data communications
access providers have at times experienced difficulty in providing adequate
server and network capacity, respectively. As a result, members at times have
encountered difficulty in accessing and using the AOL service. In response to
such difficulties, the Company has increased its investments in system capacity,
including constructing a new data center and adding network modems, but there
can be no assurance that access problems will not recur.
America Online employs a diversified portfolio approach in designing,
structuring and operating its network services. America Online manages AOLnet, a
TCP/IP network of third-party network service providers, including Sprint
Corporation, BBN Corporation, a part of GTE Internetworking, and WorldCom,
Inc.'s wholly-owned subsidiaries ANS Communications, Inc. (acquired from the
Company) and UUNET Technologies, Inc. The Company anticipates continuing to
build AOLnet, in order to increase its network capacity, provide its members
with higher speed access, and reduce data network costs on a per-hour basis.
There can be no assurance that the AOLnet build-out or other efforts to expand
server and network capacity will be successful, or if they are successful, that
customer demand will develop for the capacity created, and the failure to do so
could have a material adverse effect on the Company's business, financial
condition and operating results. Also, a substantial majority of the Company's
network services are provided on a fixed cost or minimum commitments basis.
Accordingly, if the number of subscribers or usage significantly decreases,
network costs will not correspondingly decrease; as a result, any such decrease
in subscribers or usage could cause a material adverse effect on the Company's
business, financial condition and operating results.
In addition, supply shortages exist from time to time for local
exchange carrier lines from local telephone companies that the Company requires
to expand network capacity. The buildout of AOLnet requires a substantial
investment in telecommunications equipment, which the Company is financing
principally through leasing and asset-backed debt financing. Supply shortages or
the failure to obtain the necessary financing for the buildout of AOLnet could
have a material adverse effect on the Company's ability to expand network
capacity.
The CompuServe Interactive Service relies on data network services
provided pursuant to a Network Services Agreement between AOL, CompuServe
Incorporated, a wholly-owned subsidiary of WorldCom, and UUNet Technologies,
Inc., with an initial term ending December 31, 2002, subject to possible
extension by AOL under certain circumstances. AOL has committed to use
exclusively the network services for the CompuServe service provided under such
agreement through 1999 and for at least 66% of the usage under the CompuServe
service for the remainder of the initial term of the agreement. The smooth
operation of and access capacity on the CompuServe service are dependent on the
network services provided under the agreement and are subject to disruptions
resulting from service failures by the network services provider.
The Company's operations are dependent on its ability to protect its
computer equipment and the information stored in its data centers against damage
by fire, power loss, telecommunications failures, service failures by third
party network service providers, unauthorized intrusions and other events.
Although the Company believes it has taken prudent measures to reduce the risk
of interruption in its operations for such causes, there can be no assurance
that these measures will be sufficient. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on its business, financial condition and operating results. Although the Company
carries property and business interruption insurance to cover its operations,
the coverage may not be adequate to compensate for losses that may occur.
Software defects and server and network expansion could also cause service
outages, and although the Company has made efforts to reduce outages, there can
be no assurance that its efforts to reduce outages will be successful, and the
failure to do so could have a material adverse effect on the Company's business,
financial condition and operating results.
Increasing Usage and Costs; Effects of Price Increase on Costs, Margins and
Revenues
The Company's business model relies both on online service revenues
from subscription fees and on revenues generated from non-subscription based
sources such as advertising, electronic commerce and sales of merchandise. Since
the adoption of the Flat-Rate Plan in December 1996, the Company has experienced
greater increases than anticipated in the average total usage hours per member
per month (from less than 17 hours per member per month in the third quarter of
fiscal 1997 to over 23 hours per member per month in the third quarter of fiscal
1998). While the growth and management of AOLnet have provided overall lower per
hour data communications costs, such lower costs have been and are expected to
continue to be offset by the additional costs of network services resulting from
increased total usage hours.
In response to increasing usage and consequent data communications
costs, the Company has, effective April 1, 1998, increased the monthly fee under
the Flat-Rate Plan by $2.00 per month (the "Price Increase"), in an effort to
increase subscription-based revenues in an amount sufficient to offset the
additional costs associated with additional usage and to fund continuing
additional investments needed to maintain and enhance the member experience. Any
resulting increase in subscription-based revenues may not be sufficient to
offset increasing usage and data communications costs or to fund the investments
necessary to maintain and enhance the member experience.
The Price Increase may result in new competitive pricing actions or
offerings or cause existing competitive offerings to the AOL service to become
more attractive to AOL members. The Price Increase may have a material adverse
effect on the Company's performance by reducing demand for the AOL service among
existing or prospective subscribers, slowing or reversing subscriber growth or
reducing subscriber retention rates. If subscriber growth slows or reverses or
retention rates decrease, growth in the advertising, commerce and other revenues
may slow and may require that the Company increase its marketing expenses beyond
what may otherwise be anticipated. The Company believes that reduced growth in
advertising, commerce and other revenues or that increases in marketing expenses
would cause a reduction in gross and operating margins. Therefore, there can be
no assurance that the Price Increase will increase subscription-based revenues
or that the Price Increase will not lead to a significant decrease in
non-subscription based revenues. The described effects of the Price Increase on
costs, margins, revenues and competitive conditions could have a material
adverse effect on the Company's business, financial condition and operating
results.
Changing Business Conditions
The changing business model and resulting expansion of its business and
changes in its operations have placed significant demands on the Company's
administrative, operational and financial resources. The Company's future
performance will depend in part on its ability to manage its growth and to adapt
its administrative, operational and financial control systems to the needs of an
expanded and evolving entity. The failure of management to anticipate, respond
to and manage changing business conditions could have a material adverse effect
on the Company's business, financial condition and results of operations.
Seasonality
The growth in subscriber acquisitions and usage appears to be highest
in the second and third fiscal quarters, when sales of new computers and
computer software are highest due to the holiday season, and following the
holiday season, when new computer and software owners are discovering Internet
online services while spending more time indoors due to winter weather. However,
because of the Company's limited history with the Flat-Rate Plan (which was
adopted effective as of December 1, 1996), the Company does not know whether
such increases in subscriber acquisitions and usage are primarily attributable
to seasonal factors or to increased demand for Internet online services as a
result of the growing market demand and utility for such services.
Beginning with the second quarter of fiscal 1998, the Company believes
it has begun to see the effects of seasonality in securing advertising
commitments. The Company expects that advertising commitments will be highest in
the second fiscal quarter each year due to calendar-year budgeting cycles of
many advertisers. However, because of the Company's recent focus on developing
advertising revenues, the Company does not know whether increases in securing
advertising commitments are due to seasonal factors or to increased interest by
advertisers in the Company's medium and distribution channels or other factors.
Relationships with Providers
As the marketplace in which the Company operates changes and as
competition intensifies in the online services markets, it may become more
difficult or expensive to secure and maintain relationships with electronic
commerce, advertising, marketing, technology and content providers. Although the
Company does not believe that any single relationship is material to its
business, financial condition, or results of operations, there can be no
assurance that the failure to establish new relationships or that the loss of a
number of relationships or significantly increased costs or decreased revenues,
as the case may be, to maintain relationships would not have a material adverse
effect on the Company's business, financial condition and operating results. In
addition, the Company faces risks associated with accepting warrants in lieu of
cash in certain electronic commerce agreements, as the value of such warrants is
dependent upon the common stock price of the issuer at the time the warrants are
earned.
Acquisitions
Since the beginning of January 1996, the Company has acquired or merged
with, among others, the Johnson-Grace Company, the ImagiNation Network, Inc.
(doing business as WorldPlay Entertainment), LightSpeed Media, Inc., Extreme
Fans, Inc., Personal Library Software, Total New York, Inc. (which was acquired
by Digital City, Inc., an approximately 80%-owned subsidiary of the Company)
and, on January 31, 1998, the worldwide online services businesses of CompuServe
Corporation ("CompuServe Interactive"). The Company announced in May, 1998 that
it had agreed to acquire NetChannel, Inc., a Web-enhanced television company and
announced on June 8, 1998 that it had acquired the assets of Mirabilis Ltd,
including its ICQ instant communications and chat technology. There can be no
assurance that CompuServe Interactive, NetChannel and Mirabilis can be
successfully managed and operated by the Company. See "Summary--Recent
Developments." Acquisitions by the Company involve risks, including successful
integration and management of acquired technology, operations and personnel. The
integration of acquired businesses may also lead to the loss of key employees of
the acquired companies and diversion of the attention of existing management
from other ongoing business concerns. In addition, acquisitions may result in
significant charges for in-process research and development or other matters.
Any of these factors could have a material adverse effect on the Company's
business, financial condition and operating results.
New Businesses, Operations and International Ventures
The Company pursues new products and services to leverage its
technological and other competencies. There can be no assurance that the Company
will be able to successfully develop, or achieve commercial acceptance for,
these new products and services. Demand for and market acceptance of new
products and services are subject to a high degree of uncertainty.
Critical issues concerning commercial activities via the Internet,
including security, reliability, cost, ease of use and access, remain unresolved
and may adversely impact the growth and development of the Company's business.
The Company offers its online services in the United States and Canada,
and through joint ventures, in Austria, France, Germany, Japan, Sweden,
Switzerland, and the United Kingdom. The Company has recently announced its
intention to offer online services, through a joint venture, in Australia and,
through a license and distribution arrangement, in Hong Kong in 1998. In
addition, the Company's acquisition of CompuServe's business has significantly
expanded its presence in Europe and Japan. There can be no assurance that the
Company or its partners will be able to, or to continue to, successfully market,
sell and deliver its services in these markets. In addition, there are certain
significant risks inherent in doing business on an international level, such as
laws governing content that differ greatly from those in the United States,
unexpected changes in regulatory requirements, political risks, export
restrictions, export controls relating to encryption technology, tariffs and
other trade barriers, fluctuations in currency exchange rates, issues regarding
intellectual property and potentially adverse tax consequences, any or all of
which could impact the Company's international operations.
See "Risk Factors--Government Regulation; Legal Uncertainties."
Changing Technologies
As the marketplace in which the Company operates continues to evolve,
the Company will be required to offer its existing services through advanced
distribution technologies such as cable, satellite, broadcast and enhanced
telephone distribution, and to offer advanced services such as voice and
full-motion video. Currently, Internet online services are accessed primarily
through standard telephone systems by personal computers via modems. As online
and interactive digital services, including Internet access, entertainment and
information services become accessible by cable, satellite, television or other
consumer electronic devices, and become commercially deliverable over other
wired conduits such as digital subscriber lines, coaxial and fiber optic cable,
the Company may have to develop new technology or modify its existing technology
to keep pace with these developments. Competitors of the Company have better
access to those technologies and could gain advantage by implementing new access
technologies more quickly and at lower cost than the Company. Pursuit of these
technological advances will require substantial expenditures, and there can be
no assurance that the Company will succeed in adapting its online service
business to alternate access devices and conduits as rapidly or successfully as
its competitors. See "Risk Factors--Competition."
Government Regulation; Legal Uncertainties
In the United States and most countries in which the Company conducts
its major operations, the Company is not currently subject to direct regulation
other than pursuant to laws applicable to businesses generally. Adverse changes
in the legal or regulatory environment relating to the interactive online
services and Internet industry in the United States, Europe, Japan or elsewhere
could have a material adverse effect on the Company's business, financial
condition and operating results. A number of legislative and regulatory
proposals from various international bodies and foreign and domestic governments
in the areas of telecommunication regulation, access charges, encryption
standards, content regulation, consumer protection, intellectual property,
privacy, electronic commerce, and taxation, among others, are now under
consideration. The Company is unable at this time to predict which, if any, of
such proposals may be adopted and, if adopted, whether such proposals would have
an adverse effect on the Company's business, financial condition and operating
results. See also "Risk Factors--New Businesses, Operations and International
Ventures."
Moreover, the manner in which existing domestic and foreign laws
(including Directive 95/46/EC of the European Parliament and of the European
Council on the protection of individuals with regard to the processing of
personal data and on the free movement of such data, to become effective in the
individual member states by October 24, 1998) will or may be applied to online
service and Internet access providers is uncertain, as is the effect on the
Company's business given different possible applications. Similarly, the Company
is unable to predict the effect on the Company from the potential future
application of various domestic and foreign laws governing content, export
restrictions, privacy, consumer protection, export controls on encryption
technology, tariffs and other trade barriers, intellectual property and taxes.
Reliance on Key Personnel
The Company's success depends in part upon the performance of its
executive officers and other key employees. The loss of the services of one or
more of its key personnel could have a material adverse effect on the Company's
business, financial condition and operating results. The Company depends on its
continued ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel.
Volatility of Share Price
The market price of the Company's Common Stock has a history of
volatility. Factors such as quarterly variations in financial results and
membership growth and usage, new pricing strategies, the announcement of
technological innovations, mergers, acquisitions, strategic partnerships or new
product offerings by the Company or its competitors, the entrance of new
competitors into the online services market and changes in content providers may
have a significant impact on the market price of the Common Stock. Moreover, the
Common Stock could experience price volatility based on market conditions.
Litigation and Other Proceedings
The Company is a party to various litigation matters, investigations
and proceedings, including a lawsuit filed on behalf of shareholders against the
Company and its chief executive officer and chief financial officer alleging
violations of the federal securities laws. Such class action lawsuit was filed
in federal court in Alexandria, Virginia against the Company, its officers,
outside directors and its auditors in February 1997. In July 1997, the court
dismissed the complaint, finding that the allegations of the complaint were not
sufficiently specific. The plaintiffs filed an amended complaint in September
1997, this time naming the Company, its chief executive officer and its chief
financial officer as defendants. Although the case is scheduled to be tried in
1998, the Company has entered into a preliminary agreement to settle the action,
subject to negotiation of final documentation and approval by the court. As part
of the settlement, the Company will make up to $35 million in payments, a
substantial portion of which it expects to be covered by insurance. A
shareholder derivative suit related to such class action lawsuit has also been
filed in Delaware chancery court against certain current and former directors of
the Company and remains pending.
The Company, one of its subsidiaries and two officers are named in a
lawsuit alleging, among other matters, that the Company breached an agreement
and has monopolized and attempted to monopolize an alleged market for online
games. The complaint seeks $100 million in damages and requests other relief. A
trial date has been set for late June 1998.
In late May 1998, the Company entered into an Assurance of Voluntary
Compliance with representatives of the offices of 44 State Attorneys General
regarding the Company's advertising, consumer and marketing practices. The
settlement provides that the Company will provide additional disclosures in its
advertising and marketing materials and individualized notice to members of
material changes in the member agreement or increases in member fees. The
Assurance also requires the Company to make a $2.6 million payment to the states
to cover investigative costs and fund future Internet consumer protection and
education efforts and contains other terms which will not have a material
adverse effect on the financial condition or results of operations of the
Company.
The costs and other effects of pending or future litigation,
governmental investigations, legal and administrative cases and proceedings
(whether civil or criminal), settlements, judgments and investigations, claims
and changes in those matters (including those matters described above), and
developments or assertions by or against the Company relating to intellectual
property rights and intellectual property licenses, could have a material
adverse effect on the Company's business, financial condition and operating
results.
Year 2000 Potential Problems
The Company utilizes a significant number of computer software programs
and operating systems across its entire organization, including applications
used in operating the AOL Service, the CompuServe Service, their proprietary
software, member services, network access, content providers, joint ventures and
various administrative and billing functions. To the extent the Company's and
CompuServe's software applications contain source codes that are unable to
appropriately interpret the upcoming calendar year 2000, some level of
modification, or even possibly replacement of such applications, may be
necessary. The Company has appointed a Year 2000 Task Force to perform an audit
to assess the scope of the Company's risks and bring its applications into
compliance. This Task Force is currently in the process of completing its
identification of applications that are not Year 2000 compliant. In addition,
the Company has begun to ask its vendors, joint venture partners and content
partners about their progress in identifying and addressing problems that their
computer systems may face in correctly processing date information related to
the Year 2000.
The Company is conducting its Year 2000 audit, and is unable to make a
reasonable estimate of the costs associated with Year 2000 compliance.
Accordingly, no assurance can be given that any or all of the Company's or
third party systems are or will be Year 2000 compliant or that the costs
required to address the Year 2000 issue or the impact of a failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on
the Company's business, financial condition or results of operations.
Future Sales of Common Stock
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices of the Common Stock. Shareholders of
approximately 5,419,834 shares of America Online Common Stock (outstanding or
issuable upon exercise of certain rights), in addition to the approximately
6,705,790 shares, subject to adjustment, issuable upon conversion of the Notes
registered hereunder, have rights of registration of their shares for resale. In
connection with a master data communications agreement, the Company has issued a
warrant to purchase 7,200,000 restricted shares of the Company's common stock
under the terms of which the Company would be required to register such shares
on Form S-3 within 45 days of a full exercise. Additional shares are subject to
registration statements on Form S-8 in connection with the Company's stock
option plans. The sales of any of the foregoing shares could have a material
adverse effect on the then-prevailing market price of Common Stock.
Anti-Takeover Defense Provisions
The Company's Restated Certificate of Incorporation and Restated
By-laws contain certain provisions that could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Certain of such provisions allow
the Company to issue preferred stock with rights senior to those of its Common
Stock and impose various procedural and other requirements which could make it
more difficult for stockholders to effect certain corporate actions. In
addition, the Company has a new shareholder rights plan pursuant to which
holders of Common Stock are entitled to one preferred share purchase right for
each outstanding share of Common Stock they hold, exercisable under certain
defined circumstances involving a potential change of control. The Rights have
the anti-takeover effect of causing substantial dilution to a person or group
that attempts to acquire the Company in terms not approved by the Company's
Board of Directors. See "Description of Capital Stock--New Shareholder Rights
Plan." The foregoing provisions could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock.
Subordination of the Notes
The Notes are unsecured and subordinated in right of payment in full to
all existing and future Senior Debt of the Company, including the Company's
existing revolving credit facility. As a result of such subordination, in the
event of the Company's liquidation or insolvency, payment default with respect
to Senior Debt, or upon acceleration of the Notes due to an event of default,
the assets of the Company will be available to pay obligations on the Notes only
after all Senior Debt has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
As of March 31, 1998, the Company had approximately $576,001,000 of
indebtedness and other liabilities (including amounts available under a credit
facility) that would have constituted Senior Debt. As of March 31, 1998, the
Company had approximately $376,001,000 of Senior Debt outstanding. As of March
31, 1998, the Company's subsidiaries had approximately $105,178,000 of
indebtedness and other liabilities (including trade payables and excluding
intercompany liabilities) as to which the Notes would have been effectively
subordinated. The Indenture does not prohibit or limit the incurrence of Senior
Debt or the incurrence of other indebtedness and other liabilities by the
Company or its subsidiaries. The incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. The Company expects from
time to time to incur additional indebtedness and other liabilities, including
Senior Debt, and also expects that its subsidiaries will from time to time incur
additional indebtedness and other liabilities. See "Description of
Notes--Subordination".
Absence of Market for the Notes; Transfer Restrictions on the Notes
There is no existing public trading market for the Notes (which
currently are registered to trade on the PORTAL System in the United States and
the Euroclear System outside the United States), and there can be no assurance
as to the liquidity of any such market that may develop, the ability of the
holders of Notes to sell such securities, the price at which the holders of
Notes would be able to sell such securities or whether a trading market, if it
develops, will continue. If such market were to exist, the Notes could trade at
prices higher or lower than their principal amount, depending on many factors,
including prevailing interest rates, the market for similar securities and the
operating results of the Company. The Company does not intend to apply for
listing of the Notes on any securities exchange or for inclusion of the Notes on
any automated quotation system.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Securityholders of the Notes, Conversion Shares or Resale Stock offered
hereby. See "Selling Securityholders."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
for the nine months ended March 31, 1998 and for each of the last five fiscal
years.
Nine Months Ended
March 31, Fiscal Year ended June 30,
1998 1997 1996 1995 1994 1993
Ratio of Earnings to
Fixed Charges....... 1.88x -- 4.63x -- 4.98x 4.39x
For purposes of computing the ratio of earnings to fixed charges,
earnings represent earnings from continuing operations before income taxes plus
interest expense on indebtedness, amortization of debt discount and premium and
the portion of rent expense deemed representative of an interest factor. Fixed
charges include interest on indebtedness (whether expensed or capitalized),
amortization of debt discount and premium and the portion of rent expense deemed
representative of an interest factor. For the years ended June 30, 1997 and
1995, the deficiency of earnings to fixed charges totaled $448.3 million and
$16.0 million, respectively.
DESCRIPTION OF NOTES
The Notes were issued under an Indenture, dated as of November 17, 1997
(the "Indenture"), between the Company and State Street Bank and Trust Company,
as Trustee (the "Trustee"), copies of which are available for inspection at the
Corporate Trust Office of the Trustee in Boston, Massachusetts. In addition, the
Trustee maintains an office or agency in the Borough of Manhattan, The City of
New York, where Notes may be surrendered for registration of transfer or
exchange, for payment or where notices and demands to or upon the Trustee may be
served. Wherever particular defined terms of the Indenture (including the Notes
and the various forms thereof) are referred to, such defined terms are
incorporated herein by reference (the Notes and various terms relating to the
Notes being referred to in the Indenture as "Securities"). References in this
section to the "Company" are solely to America Online, Inc. and not to its
subsidiaries. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the detailed provisions of the Notes and the
Indenture, including the definitions therein of certain terms.
General
The Notes are unsecured subordinated obligations of the Company,
limited to $350,000,000 aggregate principal amount, and mature on November 15,
2002. Payment in full of the principal amount of the Notes is due on November
15, 2002. The Notes bear interest at the rate of 4% per annum from November 17,
1997, payable semiannually on May 15 and November 15 of each year, commencing on
May 15, 1998.
The Notes are convertible into shares of Common Stock initially at the
conversion price stated on cover page hereof, subject to adjustment upon the
occurrence of certain events described under "--Conversion Rights", at any time
on or after March 12, 1998, prior to the close of business on the maturity date,
unless previously redeemed or repurchased.
The Notes are redeemable under the circumstances and at the redemption
prices set forth below under "--Optional Redemption", plus accrued interest to
the redemption date. The Notes are also subject to repurchase by the Company at
the option of the Holders, as described below under "Repurchase at Option of
Holders Upon a Change in Control."
Form and Denomination
Except as provided below, Notes sold to Qualified Institutional Buyers
otherwise than in reliance on Regulation S are represented by one or more global
Notes in definitive, fully registered form without interest coupons
(collectively, the "Restricted Global Note") and were deposited with the Trustee
as custodian for DTC and registered in the name of a nominee of DTC. The
Restricted Global Note (and any Notes issued in exchange therefor) are subject
to certain restrictions on transfer set forth therein and in the Indenture and
bear the legend regarding such restrictions set forth under "Notice to
Investors".
Notes issued pursuant to Regulation S ("Regulation S Notes") are
represented by one or more global notes in fully registered form without
interest coupons (collectively, the "Regulation S Global Note" and, together
with the Restricted Global Note, the "Global Notes" or each individually, a
"Global Note") registered in the name of a nominee of DTC and deposited with the
Trustee, for the accounts of the Euroclear System ("Euroclear") and Cedel Bank,
societe anonyme ("CEDEL"). Until the 40th day after November 17, (such period,
the "Restricted Period"), beneficial interests in the Regulation S Global Note
may be held only through Euroclear or CEDEL, unless delivery is made through the
Restricted Global Note in accordance with the certification requirements
described below. The Regulation S Global Note (and any Notes issued in exchange
therefor) bear the legend set forth in bold type on the cover of the version of
the Offering Circular used in connection with the offering of the Regulation S
Notes.
Prior to the expiration of the Restricted Period, a beneficial interest
in a Regulation S Global Note may be transferred to a person who takes delivery
in the form of an interest in the Restricted Global Note only upon receipt by
the Trustee of a written certification from the transferor (in the form provided
in the Indenture) to the effect that such transfer is being made to a person who
the transferor reasonably believes is purchasing for its own account or accounts
as to which it exercises sole investment discretion and that such person and
each such account is a Qualified Institutional Buyer, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction (a "Restricted Global Note Certificate"). After the expiration of
the Restricted Period, such certification requirements will no longer apply to
such transfers.
Beneficial interests in the Restricted Global Note may be transferred
to a person who takes delivery in the form of an interest in a Regulation S
Global Note, only upon receipt by the Trustee of a written certification from
the transferor (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S
or Rule 144 under the Securities Act (a "Regulation S Global Note Certificate")
and that, if such transfer occurs prior to the expiration of the Restricted
Period, the interest transferred will be held immediately thereafter through
Euroclear or CEDEL. Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and will become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
Except in the limited circumstances described below under "--Global
Notes," owners of beneficial interests in Global Notes will not be entitled to
receive physical delivery of certificated Notes. The Notes are not issuable in
bearer form.
The Notes were issued only in fully registered form, without exception.
The Notes were initially issued in minimum denominations of $1,000. No service
charge was made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
government charge payable in connection therewith.
The Company initially appointed the Trustee at its corporate trust
office as paying agent, transfer agent, registrar and conversion agent for the
Notes. In such capacities, the Trustee will be responsible for, among other
things, (i) maintaining a record of the aggregate holdings of Notes represented
by the Regulation S Global Note and the Restricted Global Note and accepting
Notes for exchange and registration of transfer, (ii) ensuring that payments of
principal, premium, if any, and interest in respect of the Notes received by the
Trustee from the Company are duly paid to DTC or its nominees, (iii)
transmitting to the Company any notices from holders, (iv) accepting conversion
notices and related documents, and transmitting the relevant items to the
Company and (v) delivering certificates for Common Stock issued in conversion of
the Notes.
The Company will cause each transfer agent to act as a registrar and
will cause to be kept at the office of each transfer agent a register in which,
subject to such reasonable regulations as it may prescribe, the Company will
provide for the registration of the Notes and registration of transfers of the
Notes. The Company may vary or terminate the appointment of any paying agent,
transfer agent or conversion agent, or appoint additional or other such agents
or approve any change in the office through which any such agent acts, provided
that there shall at all times be a paying agent, a transfer agent and a
conversion agent in the Borough of Manhattan, The City of New York, New York.
The Company will cause notice of any resignation, termination or appointment of
the Trustee or any paying agent, transfer agent or conversion agent, and of any
change in the office through which any such agent will act, to be provided to
Holders of the Notes.
Global Notes
The following description of the operations and procedures of DTC,
Euroclear and CEDEL is provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
Upon the issuance of the Regulation S Global Note and the Restricted
Global Note, DTC credited, on its internal system, the respective principal
amount of the individual beneficial interests represented by such Global Notes
to the accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Notes will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respects to interests of
participants) and the records of participants (with respect to interest of
persons other than participants).
As long as DTC, or its nominee, is the registered Holder of a Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
and Holder of the Notes represented by such Global Note for all purposes under
the Indenture and the Notes. Unless DTC notifies the Company that it is
unwilling or unable to continue as depository for a Global Note, or ceases to be
a "Clearing Agency" registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or announces an intention permanently to cease
business or does in fact do so, or an Event of Default has occurred and is
continuing with respect to a Global Note, owners of beneficial interests in a
Global Note will not be entitled to have any portions of such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form and will not be considered the owners or
Holders of the Global Note (or any Notes presented thereby) under the Indenture
or the Notes. In addition, no beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with DTC's
applicable procedures (in addition to those under the Indenture referred to
herein and, if applicable, those of Euroclear and CEDEL). In the event that
owners of beneficial interests in a Global Note become entitled to receive Notes
in definitive form, such Notes will be issued only in registered form in
denominations of $1,000 and integral multiples thereof.
Investors may hold their interests in the Regulation S Global Note
through CEDEL or Euroclear, if they are participants in such systems, or
indirectly through organizations which are participants in such systems. After
the expiration of the Restricted Period (but not earlier), investors may also
hold such interests through organizations other than CEDEL and Euroclear that
are participants in the DTC system. CEDEL and Euroclear will hold interests in
the Regulation S Global Note on behalf of their participants throughout
customers' securities accounts in their respective names on the books of their
respective depositories, which, in turn, will hold such interests in the
Regulation S Global Note in customers' securities accounts in the depositories'
names on the books of DTC. Investors may hold their interests in the Restricted
Global Note directly through DTC, if they are participants in such system. All
interests in a Global Note, including those held through Euroclear or CEDEL, may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear and CEDEL may also be subject to the procedures and
requirements of such system.
Payments of the principal of, premium, if any, and interest on Global
Notes will be made to DTC or its nominee as the registered owner thereof.
Neither the Company, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Subject to the following considerations, beneficial interests in the
Global Notes will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in such interests will therefore settle in immediately
available funds. The Company expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a Global Note representing
any Notes held by it or its nominee, will immediately credit participants'
accounts with payment in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Notes for such Notes as shown
on the records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interest in such Global Notes held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described above, cross-market transfers between DTC participants, on the
one hand, and Euroclear or CEDEL participants, on the other hand, will be
effected by DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL,
as the case may be, by its respective depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or CEDEL, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depository to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or receiving payment in
accordance with normal procedures or same-day funds settlement applicable to
DTC. Euroclear participants and CEDEL participants may not deliver instructions
directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear
or CEDEL participant purchasing an interest in a Global Note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received on Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregated principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute such Notes to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
Although DTC, Euroclear and CEDEL have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests in
the Global Notes among participants of DTC, Euroclear and CEDEL, they are under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee nor
any of their respective agents will have any responsibility for the performance
by DTC, Euroclear and CEDEL, their participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
Certificated Notes
If DTC is at any time unwilling or unable to continue as a depository
for the reasons set forth above under "--Global Notes," or in the case of a
Global Note held for an account of Euroclear or CEDEL, Euroclear or CEDEL (as
the case may be) is closed for business for 14 continuous days or announces an
intention to cease or permanently ceases business, the Company will issue
certificates for the Notes in definitive, fully registered, non-global form
without interest coupons in exchange for the Regulation S Global Note or
Restricted Global Note, as the case may be.
In the case of certificates for Notes in non-global form issued in
exchange for the Restricted Global Note, such certificates will bear the legend
referred to under "--Notices" (unless the Company determines otherwise in
accordance with applicable law), subject, with respect to such Notes, to the
provisions of such legend. The holder of a Note in non-global form may transfer
such Note, subject to compliance with the provisions of such legend, by
surrendering it at the office or agency maintained by the Company for such
purpose in the Borough of Manhattan, the City of New York, which initially will
be the office of the Trustee. Upon the transfer, exchange or replacement of
Notes bearing the legend, or upon specific request for removal of the legend on
a Note, the Company will deliver only Notes that bear such legend, or will
refuse to remove such legend, as the case may be, unless there is delivered to
the Company such satisfactory evidence, which may include an opinion of counsel,
as may reasonably be required by the Company that neither the legend nor the
restrictions on transfer set forth therein are required to ensure compliance
with the provisions of the Securities Act. Before any Note in non-global form
may be transferred to a person who takes delivery in the form of an interest in
any Global Note, the transferor will be required to provide the Trustee with a
Restricted Global Note Certificate or a Regulation S Global Note Certificate, as
the case may be.
Notwithstanding any statement herein, the Company and the Trustee
reserve the right to impose such transfer, certification, exchange or other
requirements, and to require such restrictive legends on certificates evidencing
Notes, as they may determine are necessary to ensure compliance with the
securities laws of the United States and the States therein and any other
applicable laws, to ensure that the Shelf Registration Statement or amendment
covering the Notes and the Common Stock is declared effective by the Commission
or as DTC, Euroclear or CEDEL may require.
Conversion Rights
The Holder of any Note has the right, at the Holder's option, to
convert any portion of the principal amount of a Registered Note that is an
integral multiple of $1,000, into shares of Common Stock at any time on or after
March 12, 1998, and prior to the close of business on the maturity date, unless
previously redeemed or repurchased at a conversion rate of 19.1594 shares per
$1,000 principal amount of Notes (equivalent to a conversion price of $52.1937
per share) (subject to adjustment as described below). The right to convert a
Note called for redemption or delivered for repurchase will terminate at the
close of business on the redemption date or repurchase date for such Note.
The right of conversion attaching to any Note may be exercised by the
Holder by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from the Conversion Agent. The conversion date will be the date
on which the Note and the duly signed and completed notice of conversion are so
delivered, unless otherwise provided by such notice. As promptly as practicable
on or after the conversion date, the Company will issue and deliver to the
Trustee a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction of
a share or, at the Company's option, rounded up to the next whole number of
shares; such certificate, and payment, if any, will be sent by the Trustee to
the Conversion Agent for delivery to the Holder. Any Note surrendered for
conversion during the period from the close of business on any Regular Record
Date to the opening of business on the next succeeding Interest Payment Date
(except Notes called for redemption on a Redemption Date or to be repurchased on
a Repurchase Date and as a result, the right to convert such Notes with respect
to which the Holder has exercised redemption or repurchase rights would
terminate during such period) must be accompanied by payment in New York
Clearing House Funds or other funds acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the principal amount of
such Notes being surrendered for conversion. In the case of any Note which has
been converted after any Regular Record Date but before the next Interest
Payment Date, interest the Stated Maturity of which is on such Interest Payment
Date shall be payable on such Interest Payment Date notwithstanding such
conversion, and such interest shall be paid to the Holder of such Note on such
Regular Record Date. As a result of the foregoing provisions, Holders that
surrender Notes for conversion on a date that is not an Interest Payment Date
will not receive any interest for the period from the Interest Payment Date next
preceding the date of conversion to the date of conversion or for any later
period, even if the Notes are surrendered after a notice of redemption (except
for the payment of interest on Notes called for redemption on a Redemption Date
or to be repurchased on a Repurchase Date for which the right to convert such
Notes would terminate during the period between a Regular Record Date and the
Interest Payment Date to which it relates). No other payment or adjustment for
interest, or for any dividends in respect of Common Stock, will be made upon
conversion. Holders of Common Stock issued upon conversion will not be entitled
to receive any dividends payable to holders of Common Stock as of any record
time before the close of business on the conversion date. No fractional shares
will be issued upon conversion but, in lieu thereof, the Company will calculate
an appropriate amount to be paid in cash based on the market price of Common
Stock at the close of business on the day of conversion. Such market price will
be calculated by the Company and shall be deemed to be the average of the daily
Closing Prices per share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and ending not later
than, the earlier of the day in question and the day before the "ex" date with
respect to an issuance or distribution requiring such computation. The term "ex"
date, when used with respect to any issuance or distribution, means the first
date on which the Common Stock trades without the right to receive such issuance
or distribution. "Closing Price Per Share" means, for any day, the last reported
sales price per share on the NYSE. A "Trading Day" is any day on which the NYSE
is open for business.
A Holder delivering a Note for conversion will not be required to pay
any taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless the person
requesting such issue has paid to the Company the amount of any such tax or duty
or has established to the satisfaction of the Company that such tax or duty has
been paid.
The conversion rate is subject to adjustment in certain events,
including: (a) dividends (and other distributions) payable in Common Stock on
shares of capital stock of the Company, (b) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for or
purchase Common Stock at less than the then current market price (determined as
provided in the Indenture) of Common Stock, (c) subdivisions, combinations and
reclassifications of Common Stock, (d) distributions to all holders of Common
Stock of evidences of indebtedness of the Company, shares of capital stock, cash
or assets (including securities, but excluding those dividends, rights, options,
warrants and distributions referred to above, dividends and distributions paid
exclusively in cash and distributions upon mergers or consolidations to which
the next succeeding paragraph applies), (e) distributions consisting exclusively
of cash (excluding any cash portion of distributions referred to in (d) above,
or cash distributed upon a merger or consolidation to which the next succeeding
paragraph applies) to all holders of Common Stock in an aggregate amount that,
combined together with (i) other such all-cash distributions made within the
preceding 12 months in respect of which no adjustment has been made and (ii) any
cash and the fair market value of other consideration payable in respect of any
tender offer by the Company or any of its subsidiaries for Common Stock
concluded within the preceding 12 months in respect of which no adjustment has
been made, exceeds 12.5% of the Company's market capitalization (being the
product of the then current market price of the Common Stock and the number of
shares of Common Stock then outstanding) on the record date for such
distribution, and (f) the successful completion of a tender offer made by the
Company or any of its subsidiaries for Common Stock which involves an aggregate
consideration that, together with (i) any cash and other consideration payable
in a tender offer by the Company or any of its subsidiaries for Common Stock
expiring within the 12 months preceding the expiration of such tender offer in
respect of which no adjustment has been made and (ii) the aggregate amount of
any such all-cash distributions referred to in (e) above to all holders of
Common Stock within the 12 months preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 12.5% of the
Company's market capitalization on the expiration of such tender offer. The
Company reserves the right to make such increases in the conversion rate in
addition to those required in the foregoing provisions as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock will not be taxable to the recipients. No adjustment of
the conversion rate will be required to be made until the cumulative adjustments
amount to 1.0% or more of the conversion rate. The Company shall compute any
adjustments to the conversion price pursuant to this paragraph and will give
notice to the Holders of the Notes of any adjustments.
In case of any consolidation or merger of the Company with or into
another Person or any merger of another Person into the Company (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding will,
without the consent of the Holder of any Note or coupon, become convertible only
into the kind and amount of securities, cash and other property, if any,
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which such Note was convertible
immediately prior thereto (assuming such holder of Common Stock failed to
exercise any rights of election and that such Note was then convertible).
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distribution of evidences of indebtedness or
assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. See
"Certain U.S. Federal Income Tax Consequences."
Subordination
The payment of the principal of, premium, if any, and interest on, the
Notes and coupons will be subordinated in right of payment to the extent set
forth in the Indenture to the prior payment in full of all Senior Debt of the
Company. "Senior Debt" means the principal of (and premium, if any) and interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts (including collection expenses, attorney's fees and late charges)
owing with respect to, the following, whether direct or indirect, absolute or
contingent, secured or unsecured, due or to become due, outstanding at the date
of execution of the Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or evidence by bonds, debentures,
notes or similar instruments, (b) reimbursement obligations of the Company with
respect to letters of credit, bankers' acceptances and similar facilities issued
for the account of the Company, (c) every obligation of the Company issued or
assumed as the deferred purchase price of property or services purchased by the
Company, excluding any trade payables and other accrued current liabilities
incurred in the ordinary course of business, (d) obligations of the Company as
lessee under leases required to be capitalized on the balance sheet of the
lessee under U.S. generally accepted accounting principles, (e) obligations of
the Company under interest rate and currency swaps, caps, floors, collars or
similar arrangements intended to protect the Company against fluctuations in
interest or currency exchange rates, (f) indebtedness of others of the kinds
described in the preceding clauses (a) through (e) that the Company has assumed,
guaranteed or otherwise assured the payment thereof, directly or indirectly,
and/or (g) deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness or obligation described in the
preceding clauses (a) through (f) whether or not there is any notice to or
consent of the Holders of Notes; provided, however, that the following shall not
constitute Senior Debt: (i) any particular indebtedness or obligation that is
owed by the Company to any of its direct and indirect Subsidiaries and (ii) any
particular indebtedness, deferral, renewal, extension or refunding if it is
expressly stated in the governing terms or in the assumption thereof that the
indebtedness involved is not senior in right of payment to the Notes or that
such indebtedness is pari passu with or junior to the Notes.
No payment on account of principal, premium, if any, or interest on,
the Notes or any coupon may be made if there shall have occurred (i) a default
in the payment of principal, premium, if any, or interest (including a default
under any repurchase or redemption obligation) with respect to any Senior Debt
or (ii) any other event of default with respect to any Senior Debt, permitting
the holders thereof to accelerate the maturity thereof, and such event of
default shall not have been cured or waived or shall not have ceased to exist
after written notice of such event of default shall have been given to the
Company and the Trustee by any holder of Senior Debt. Upon any acceleration of
the principal due on the Notes or payment or distribution of assets of the
Company to creditors upon any dissolution, winding up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if any and interest
due on all Senior Debt must be paid in full before the Holders of the Notes are
entitled to receive any payment. By reason of such subordination, in the event
of insolvency, creditors of the Company who are holders of Senior Debt may
recover more, ratably, than the Holders of the Notes, and such subordination may
result in a reduction or elimination of payments to the Holders of the Notes.
As of March 31, 1998, the Company had approximately $576,001,000 of
indebtedness and other liabilities (including amounts available under a credit
facility) that would have constituted Senior Debt. As of March 31, 1998, the
Company had approximately $376,001,000 of Senior debt outstanding. As of March
31, 1998, the Company's subsidiaries had approximately $105,178,000 of
indebtedness and other liabilities (including trade payables and excluding
intercompany liabilities). The Notes are structurally subordinated to all
indebtedness and other liabilities (including trade payable and lease
obligations) of the Company's subsidiaries, as any right of the Company to
receive any assets of its subsidiaries upon their liquidation or reorganization
(and the consequent right of the Holders of the Notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors (including trade creditors), except to the extent that the Company
itself is recognized as a creditor of such subsidiary, in which case the claims
of the Company would still be subordinate to any security interest in the assets
of such subsidiary and any indebtedness of such subsidiary senior to that held
by the Company.
The Indenture does not limit the Company's ability to incur Senior Debt
or any other indebtedness or liabilities.
Optional Redemption
The Notes may not be redeemed prior to November 15, 2000. Thereafter,
the Notes may be redeemed, in whole or in part, at the option of the Company,
upon not less than 30 nor more than 60 days' prior notice as provided under
"--Notices" below, at the redemption prices set forth below.
The redemption prices (expressed as a percentage of principal amount)
are as follows for the 12-month period beginning on November 15 of the following
years:
Redemption
Year Price
2000 101.6%
2001 100.8%
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption.
Repurchase at Option of Holders Upon a Change in Control
If a Change in Control (as defined) occurs, each Holder of Notes shall
have the right, at the Holder's option, to require the Company to repurchase all
of such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date
(the "Repurchase Date") that is 45 days after the date of the Company Notice (as
defined), at a price equal to 100% of the principal amount of the Notes to be
repurchased (the "Repurchase Price"), together with interest accrued to the
Repurchase Date.
The Company may, at its option, in lieu of paying the Repurchase Price
in cash, pay the Repurchase Price in Common Stock, the fair market value of
which Common Stock shall be equal to 95% of the average of the closing prices of
the Common Stock for the five consecutive Trading Days ending on and including
the third Trading Day preceding the Repurchase Date, provided that payment may
not be made in Common Stock unless such shares are listed on a national
securities exchange or traded on the Nasdaq National Market at the time of
payment.
Within 30 days after the occurrence of a Change in Control, the Company
is obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change in Control
and of the repurchase right arising as a result thereof. The Company Notice
shall be sufficiently given to Holders of Notes if in writing and mailed, first
class postage prepaid, to each Holder of a Note affected by such event, at the
address of such Holder. The Company must also deliver a copy of the Company
Notice to the Trustee. To exercise the repurchase right, a Holder of Notes must
deliver on or before the 30th day after the date of the Company Notice
irrevocable written notice to the Trustee of the Holder's exercise of such
right, together with the Notes with respect to which the right is being
exercised. At least two business days prior to the Repurchase Date, the Company
must publish a notice in the manner described above specifying whether the
Company will pay the Repurchase Price in cash or in Common Stock.
A Change in Control shall be deemed to have occurred at such time after
the original issuance of the Notes as there shall occur:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling
such Person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in elections of
directors, other than any such acquisition by the Company, any subsidiary
of the Company or any employee benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another person into the Company, or
any sale or transfer of all or substantially all of the assets of the
Company to another Person (other than (a) any such transaction (x) which
does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock and (y) pursuant to
which holders of Common Stock immediately prior to such transaction have
the entitlement to exercise, directly or indirectly, 50% or more of the
total voting power of all shares of capital stock entitled to vote
generally in the election of directors of the continuing or surviving
person immediately after such transaction and (b) any merger which is
effected solely to change the jurisdiction of incorporation of the Company
and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock into solely shares of common stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
ending immediately before the Change in Control (in the case of a Change in
Control under clause (ii) above) shall equal or exceed 105% of the Conversion
Price of the Notes in effect on each such Trading Day, or (b) all of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of common stock
traded on a national securities exchange or quoted on the Nasdaq National Market
and as a result of such transaction or transactions the Notes become convertible
solely into such common stock. "Beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act,
as in effect on the date of original execution of the Indenture.
Any repurchase in connection with a Change in Control would, absent a
waiver from the holders of Senior Debt, be blocked by the subordination
provisions of the Notes. See "--Subordination." Failure by the Company to
repurchase the Notes when required would result in an Event of Default with
respect to the Notes whether or not such repurchase is permitted by the
subordination provisions. See "--Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the
Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders.
Mergers and Sales of Assets by the Company
The Company may not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person (other than
a wholly owned subsidiary), and the Company may not permit any Person (other
than a wholly owned subsidiary) to consolidate with or merge into the Company or
convey, transfer, sell, lease or otherwise dispose of all or substantially all
of its properties and assets to the Company, unless (a) the Person formed by
such consolidation or into which the Company is merged or the Person to which
the properties and assets of the Company are so transferred or leased is a
corporation, limited liability company, partnership or trust organized and
existing under the laws of the United States, any State thereof or the District
of Columbia and has expressly assumed the due and punctual payment of the
principal of, premium, if any, and interest on the Notes and coupons and the
performance of the other covenants of the Company under the Indenture, (b)
immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have occurred and be continuing, (c) if, as a result of any such
consolidation or merger or such conveyance, transfer or lease, properties or
assets of the Company would become subject to a mortgage, pledge, lien, security
interest or other encumbrance which would not be permitted by this Indenture,
the Company or such successor corporation or Person, as the case may be, shall
take such steps as shall be necessary effectively to secure the Securities
equally and ratably with (or prior to) all indebtedness secured thereby, and (d)
the Company has provided to the Trustee an Officers' Certificate and Opinion of
Counsel as provided in the Indenture.
Events of Default
The following will be Events of Default under the Indenture: (a)
failure to pay any interest (including Liquidated Damages) on any Note or coupon
when due, continuing for 30 days, whether or not such payment is prohibited by
the subordination provisions of the Indenture; (b) failure to pay the principal
or Redemption Price or Repurchase Price of any Note when due, whether or not
such payment is prohibited by the subordination provisions of the Indenture; (c)
default in the Company's obligation to provide notice of a Change in Control;
(d) failure to perform any other covenant or warranty of the Company in the
Indenture, continuing for 60 days after written notice to the Company by the
Trustee as provided in the Indenture; (e) default under any bond, debenture,
note or other evidence of Indebtedness of the Company or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness of the Company (including the Notes),
whether such Indebtedness now exists or shall hereafter be created, which
default shall constitute a failure to pay an aggregate principal amount
exceeding $10,000,000 of such Indebtedness when due and payable after the
expiration of any applicable grace period with respect thereto and shall have
resulted in such Indebtedness in an aggregate principal amount exceeding
$10,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such Indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after written notice (a Notice of Default) is given
to the Company by the Trustee or to the Company and the Trustee as provided in
the Indenture, unless such default shall have been remedied, cured or waived as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. Subject to the provisions of the Indenture relating to the
duties of the Trustee in case an Event of Default shall occur and be continuing,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the Outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
If an Event of Default (other than an Event of Default specified in
subsection (f) above) occurs and is continuing, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Notes may declare the
principal amount (or specified amount) of all the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal and any accrued
interest and any unpaid Liquidated Damages thereon will become immediately due
and payable. If an Event of Default specified in subsection (f) occurs and is
continuing, the principal and any accrued interest, together with any Liquidated
Damages thereon, on all of the Notes then Outstanding shall ipso facto become
due and payable immediately without any declaration or other Act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration has been made but
before a judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal and interest have been cured
or waived as provided in the Indenture.
No Holder of any Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
a Note for the enforcement of payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note or of the right to convert such Note in accordance with the Indenture.
The Company will be required to furnish to the Trustee annually a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance.
Modification and Waiver
The Indenture contains provisions permitting the Company and the
Trustee to enter into a supplemental indenture without the consent of the
Holders, (a) to evidence the succession of another Person to the Company and the
assumption by such successor of the covenants and obligations under the
Indenture and the Notes, (b) to add to the covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company under the
Indenture, (c) to secure the Notes, (d) to modify the restrictions on, and
procedures for, resale and other transfers of the notes pursuant to law,
regulation or practice relating to the resale or transfer of restricted
securities generally, (e) to make provision with respect to the conversion
rights of Holders pursuant to the Indenture, (f) to accommodate the issuance of
Notes in book-entry or definitive form and related matters not affecting
adversely the interests of the Holders, (g) to comply with the requirements of
the Commission in order to effect and maintain the qualification of the
Indenture under the Trust Indenture Act of 1939, (h) to evidence and provide for
the acceptance and appointment of a successor trustee, or (i) to cure any
ambiguity or correct or supplement any provision of the Indenture, provided that
such action shall not adversely affect the interests of the Holders in any
material respect. In addition, modifications and amendments of the Indenture may
be made, and certain past defaults by the Company may be waived, with the
written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes at the time Outstanding. However, no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, or the premium, if any, or rate of interest on, any Note,
(c) reduce the amount payable upon redemption or repurchase, (d) modify the
provisions with respect to the repurchase right of the Holders in a manner
adverse to the Holders, (e) change the coin or currency of payment of principal
of, premium, if any, or interest on, any Note or coupon, (f) impair the right to
institute suit for the enforcement of any payment on or with respect to any Note
or coupon, (g) adversely affect the right to convert Notes, (h) modify the
subordination provisions in a manner adverse to the Holders of the Notes, (i)
reduce the above-stated percentage of Outstanding Notes necessary to modify or
amend the Indenture, (j) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults, (k) reduce the percentage in
aggregate principal amount of Notes Outstanding required for the adoption of a
resolution or the quorum required at any meeting of Holders of Notes at which a
Resolution is adopted, or (l) modify the obligation of the Company to deliver
information required under Rule 144A to permit resales of Notes and Common Stock
issuable upon conversion thereof in the event the Company ceases to be subject
to certain reporting requirements under the U.S. securities laws.
The Holders of a majority in aggregate principal amount of the
Outstanding Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. The Holders of a majority in aggregate principal
amount of the Outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest.
Transfer and Exchange
The Company has initially appointed the Trustee as security registrar
and transfer agent, acting through its office or agency in the City of New York.
The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or to appoint additional or other
transfer agents or to approve any change in the office through which any
security registrar or any transfer agent acts.
Purchase and Cancellation
The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
All Securities and coupons surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee.
All Securities so delivered to the Trustee shall be canceled promptly by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities canceled except as provided in the Indenture. Unless otherwise
requested by the Company and confirmed in writing, the Trustee shall, from time
to time but not less than once annually, destroy all canceled Securities and
coupons and deliver to the Company a certificate of destruction, which
certificate shall specify the number, principal amount and, in the case of
Securities, the form of each canceled Security and coupon so destroyed.
Title
The Company and the Trustee may treat the registered owner (as
reflected in the Security Register) of any Note as the absolute owner thereof
(whether or not such Note shall be overdue) for the purpose of making payment
and for all other purposes.
Notices
Notice to Holders of the Notes will be given by mail to the addresses
of such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be.
Notice of a redemption of Notes will be given at least once not less
than 30 nor more than 60 days prior to the redemption date (which notice shall
be irrevocable) and will specify the redemption date.
Replacement of Notes
Notes that become mutilated, destroyed, stolen or lost will be replaced
by the Company at the expense of the Holder upon delivery to the Trustee or to a
transfer agent outside the United States of the mutilated Notes or evidence of
the loss, theft or destruction thereof satisfactory to the Company and the
Trustee. In the case of a lost, stolen or destroyed Note indemnity satisfactory
to the Trustee and the Company may be required at the expense of the Holder of
such Note before a replacement Note will be issued.
Payment of Stamp and Other Taxes
The Company shall pay all stamp and other duties, if any, which may be
imposed by the United States or the United Kingdom or any political subdivision
thereof or taxing authority thereof or therein with respect to the issuance of
the Notes. The Company will not be required to make any payment with respect to
any other tax, assessment or governmental charge imposed by any government or
any political subdivision thereof or taxing authority therein.
Governing Law
The Indenture, the Notes and the coupons will be governed by and
construed in accordance with the laws of the State of New York, United States of
America.
The Trustee
The Trustee for the Holders of the Notes issued under the Indenture is
State Street Bank and Trust Company.
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
DESCRIPTION OF CAPITAL STOCK
The statements set forth under this heading with respect to AOL's
Restated Certificate of Incorporation (the "AOL Charter"), AOL's Restated
By-laws (the "AOL By-laws") and the Delaware General Corporation Law (the
"DGCL"), are brief summaries thereof and do not purport to be complete. Such
statements are subject to the detailed provisions of the AOL Charter, the AOL
By-laws and the DGCL.
The authorized capital stock of AOL consists of 600,000,000 shares of
Common Stock, $.01 par value ("Common Stock"), and 5,000,000 shares of Preferred
Stock, $.01 par value ("Preferred Stock"). As of April 30, 1998, there were
216,201,994 shares of Common Stock outstanding (giving effect to a 2-for-1 stock
split paid on March 16, 1998) and 1,000 shares of Series B Convertible Preferred
Stock outstanding. In April 1993, the Board of Directors of the Company
designated 200,000 shares of the Company's Preferred Stock as Series A Junior
Participating Preferred Stock in connection with the establishment of a
shareholder rights plan, which will be eliminated in connection with the
termination of such old shareholder rights plan. In May 1998, the Board of
Directors designated 500,000 shares of the Company's Preferred Stock as Series
A-1 Junior Participating Preferred Stock in connection with the establishment of
a new shareholder rights plan. See "--New Shareholder Rights Plan."
Common Stock
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Stockholders casting a plurality of votes of the stockholders
entitled to vote in an election of directors may elect those directors standing
for election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefore, subject to any preferential dividend rights of
Preferred Stock that may be issued at such future time or times. Upon the
liquidation, dissolution or winding up of the Company the holders of Common
Stock are entitled to receive ratably, according to the number of shares of
Common Stock held by them, the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
Preferred Stock that may be issued at such time. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of the Company's authorized class of
undesignated Preferred Stock, in one or more series. Each such series of
Preferred Stock shall have such number of shares, designations, preferences,
powers, qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue Preferred Stock and to determine its rights and preferences
to eliminate delays associated with a stockholder vote on specific issuances.
The rights of the holders of Common Stock will be subject to the rights of
holders of any Preferred Stock issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
During May 1996, the Company sold 1,000 shares of Series B convertible
preferred stock ("Series B Preferred Stock") for approximately $28,000,000. The
Series B Preferred Stock had an aggregate liquidation preference of
approximately $28,000,000 and accrued dividends at a rate of 4% per annum.
During May 1998, the Preferred Stock, plus accrued but unpaid dividends,
automatically converted into shares of Common Stock based on the fair market
value of Common Stock at the time of conversion.
Warrant
In connection with an agreement with one of the Company's
communications providers, the Company has issued an outstanding warrant,
exercisable through March 31, 1999, subject to certain performance standards
specified in the agreement, to purchase 7,200,000 shares of Common Stock at a
price of approximately $1.95 per share.
Charter Provisions
The Company's Restated Certificate of Incorporation and Restated
By-Laws provide for a classified Board of Directors. The Board of Directors
currently consists of eight members, classified into three classes. At each
annual meeting of stockholders, directors are elected for a full term of three
years to succeed those directors whose terms are expiring.
The Company's Restated Certificate of Incorporation includes provisions
eliminating the personal liability of the Company's directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Delaware law. The Company's Restated Certificate of Incorporation and
Restated By-Laws include provisions indemnifying the Company's directors and
officers to the fullest extent permitted by Delaware law, including under
circumstances in which indemnification is otherwise discretionary, and
permitting the Board of Directors to grant indemnification to employees and
agents to the fullest extent permitted by Delaware law.
The Company's Restated By-Laws require that nominations for the Board
of Directors made by the stockholder and proposals by stockholders seeking to
have any business conducted at a stockholders' meeting comply with particular
notice procedures. A notice by a stockholder of a planned nomination or of
proposed business must generally be given not later than 60 days nor earlier
than 90 days prior to the date of the meeting. A stockholder's notice of
nomination must include particular information about the stockholder, the
nominee and any beneficial owner on whose behalf the nomination is made, and a
notice from a stockholder proposing business to be brought before the meeting
must describe such business and include information about the stockholder making
the proposal, any beneficial owner on whose behalf the proposal is made, and any
other stockholder known to be supporting the proposal.
In addition, the Restated Certificate of Incorporation contains a "fair
price" provision (the "Fair Price Provision") providing that certain "Business
Combinations" with any "Interested Stockholder" (as each term is defined in the
Fair Price Provision) may not be consummated without an 80% stockholder vote,
unless either approved by at least a majority of the Disinterested Directors (as
defined in the Fair Price Provision) or certain minimum price and procedural
requirements are met. An "Interested Stockholder" is defined to include any
individual or entity who is, or is an affiliate and during the prior two years
was, the beneficial owner of more than 15% of the voting stock of the Company. A
"Business Combination" includes, among other things, (i) a merger or
consolidation, (ii) the sale or other disposition of 10% or more of the
Company's assets, (iii) the issuance of stock having a value in excess of 10% of
the fair market value of the Company's Common Stock, (iv) any reclassification
or recapitalization which increase the proportionate share holdings of an
Interested Stockholder and (v) the adoption of a plan of liquidation or
dissolution proposed by or on behalf of an Interested Stockholder. A significant
purpose of the Fair Price Provision is to deter a purchaser from using
two-tiered pricing and similar unfair or discriminatory tactics in an attempt to
acquire the Company. The affirmative vote of the holders of 80% of the voting
power of the Company is required to amend or repeal the Fair Price Provision or
adopt any provision inconsistent with it.
The Company's Restated Certificate of Incorporation and Restated
By-Laws provide that any action required or permitted to be taken by the
stockholders of the Company shall be taken only at a duly called annual or
special meeting of the stockholders, or by the unanimous written consent of all
stockholders entitled to vote. Special meetings may be called only by the Board
of Directors or the Chief Executive Officer of the Company. In addition, the
Restated Certificate of Incorporation provides that the Board of Directors may,
from time to time, fix the number of directors constituting the Board of
Directors, and only the directors are permitted to fill vacancies on the Board
of Directors.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The affirmative vote of the holders of at
least 80% of the outstanding voting stock of the Company is required to amend or
repeal certain provisions of the Company's Restated Certificate of
Incorporation, and to reduce the number of authorized shares of Common Stock and
Preferred Stock. Such 80% vote is also required for stockholders to amend or
repeal the Company's Restated By-Laws.
The provisions of the Restated Certificate of Incorporation and
Restated By-Laws discussed above could make more difficult or discourage a proxy
contest or the acquisition of control by substantial block of the Company's
stock or the removal of any incumbent member of the Board of Directors. Such
provisions could also have the effect of discouraging a third party from making
a tender offer or otherwise attempting to obtain control of the Company, even
though such an attempt might be beneficial to the Company and its stockholders.
New Shareholder Rights Plan
The Company adopted a new shareholder rights plan on May 12, 1998 (the
"New Plan"). The New Plan was implemented by declaring a dividend, distributable
to shareholders of record on June 1, 1998, of one preferred share purchase right
(a "Right") for each outstanding share of Common Stock. All rights granted under
the Company's former shareholder rights plan will be redeemed in conjunction
with the implementation of the New Plan. Each Right under the New Plan will
initially entitle registered holders of the Common Stock to purchase one
one-thousandth of a share of the Company's new Series A-1 Junior Participating
Preferred Stock ("Series A-1 Preferred Stock") at a purchase price of $900 per
one one-thousandth of a share of Series A-1 Preferred Stock, subject to
adjustment. The Rights will be exercisable only if a person or group (i)
acquires 15% or more of the Common Stock or (ii) announces a tender offer that
would result in that person or group acquiring 15% or more of the Common Stock.
Once exercisable, and in some circumstances if certain additional conditions are
met, the New Plan allows shareholders (other than the acquiror) to purchase
Common Stock or securities of the acquiror having a then-current market value of
two times the exercise price of the Right. The Rights are redeemable for $.001
per Right (subject to adjustment) at the option of the Board of Directors. Until
a Right is exercised, the holder of the Right, as such, has no rights as a
shareholder of the Company. The Rights will expire on May 12, 2008 unless
redeemed by the Company prior to that date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors since the Rights may be redeemed by the Company at $.001 per Right
prior to the earlier of (i) the time prior to such time as any person has become
an Acquiring Person (as defined in the Rights Agreement), or (ii) May 12, 2008.
The New Plan and the Rights will replace the rights issued pursuant to
a shareholder rights plan adopted by the Company in fiscal 1993. The Board of
Directors has approved and the termination of such plan the redemption of the
rights under the former plan effective as of June 1, 1998, as permitted under
the terms of the former plan. The former rights plan provided the registered
holders of Common Stock the right, in certain limited circumstances involving a
potential business combination or change of control transaction of the Company,
to acquire additional shares of Common Stock at a reduced price.
Change of Control
Section 203 of the DGCL prohibits generally a public Delaware
corporation, including AOL, from engaging in a Business Combination (as defined
below) with an Interested Stockholder (as defined below) for a period of three
years after the date of the transaction in which an Interested Stockholder
became such, unless: (i) the board of directors of such corporation approved,
prior to the date such Interested Stockholder became such, either such Business
Combination or such transaction; (ii) upon consummation of such transaction,
such Interested Stockholder owns at least 85% of the voting shares of such
corporation (excluding specified shares); or (iii) such Business Combination is
approved by the board of directors of such corporation and authorized by the
affirmative vote (at an annual or special meeting and not by written consent) of
at least 66 2/3% of the outstanding voting shares of such corporation (excluding
shares held by such Interested Stockholder). A "Business Combination" includes
(i) mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an Interested Stockholder, (ii) certain
transactions resulting in the issuance or transfer to an Interested Stockholder
of any stock of such corporation or its subsidiaries and (iii) certain other
transactions resulting in a financial benefit to an Interested Stockholder. An
"Interested Stockholder" is a person who owns (or, if such person is an
affiliate or associate of the corporation, within a three-year period did own)
15% or more of a corporation's stock entitled to vote generally in the election
of directors and, the affiliates and associates of such person.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. Federal income and
estate tax consequences of the ownership and disposition to initial holders of
the Notes and the Common Stock held as capital assets. For purposes of this
summary, a "U.S. Holder" is (i) a citizen or resident of the U.S., (ii) a
corporation or other entity taxable as a corporation created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision thereof,
(iii) an estate or trust whose income is includible in gross income for U.S.
Federal income tax purposes regardless of its source, or (iv) an individual or
entity otherwise subject to U.S. Federal income tax on its worldwide income on a
net income basis; and a "Non-U.S. Holder" is any holder other than a U.S.
Holder. This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), regulations, rulings, and decisions in effect or available on the
date of this Offering Circular. All of the foregoing are subject to change,
which change may apply retroactively and could affect the continued validity of
this summary. This summary does not address all aspects of U.S. Federal income
tax law that may be relevant to holders that may be subject to special treatment
under such laws (for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, holders whose "functional" currency is
not the U.S. dollar, or holders who engage in certain "straddle" or "hedging"
transactions). Accordingly, prospective investors are urged to consult with
their tax advisors regarding the U.S. Federal, state, local, foreign and other
tax consequences of owning and disposing of the Notes and Common Stock.
Tax Treatment of U.S. Holders
Dividends and Sale or Disposition. A U.S. Holder will not recognize
gain or loss upon the conversion of the Notes solely into Common Stock of the
Company (except with respect to cash in lieu of fractional shares). The U.S.
Holder's basis in the Common Stock received on conversion will be the same as
the U.S. Holder's adjusted tax basis in the Notes at the time of the conversion,
and a U.S. Holder's holding period for the Common Stock will include the U.S.
Holder's holding period of the Notes that were converted.
A U.S. Holder will recognize gain or loss upon the sale, redemption,
repurchase or other taxable disposition (collectively, a "Disposition") of the
Notes or Common Stock in an amount equal to the difference between the U.S.
Holder's adjusted tax basis in the Notes or Common Stock and the amount received
therefor (other than amounts attributable to accrued but unpaid interest on the
Notes which will be treated as interest). Such gain applicable to non-corporate
U.S. Holders generally will be long-term capital gain if the Notes or Common
Stock were held for more than one year (and will be subject to a further reduced
tax rate if the Notes or Common Stock were held for more than eighteen months).
The conversion price of the Notes is subject to adjustment under
certain circumstances. Under Section 305 of the Code and the Treasury
regulations issued thereunder, there may be a taxable constructive distribution
to U.S. Holders of Notes, resulting in ordinary income (subject to a possible
dividends received deduction for corporate holders) to the extent of the
Company's current and accumulated earnings and profits if, and to the extent
that, certain adjustments in the Conversion Price increase such U.S. Holders'
proportionate interest in the earnings and profits and assets of the Company.
Such adjustment may occur in limited circumstances (particularly an adjustment
to reflect a taxable dividend to U.S. Holders of Common Stock of the Company)
and in such a case a constructive distribution would arise, whether or not the
U.S. Holders ever convert the Notes. Generally, a U.S. Holder's tax basis in a
Note will be increased by the amount of any such constructive dividend.
Tax Treatment of Non-U.S. Holders
Interest and Sale or Disposition of the Notes. Payments on Notes to a
Non-U.S. Holder, or gain realized on the Disposition of the Notes by a Non-U.S.
Holder, will not be subject to U.S. Federal income or withholding tax, as the
case may be, unless such income is effectively connected with a trade or
business conducted by such Non-U.S. Holder in the U.S., provided that (A) in the
case of payments of interest or principal, (i) the Non-U.S. Holder or agent
thereof satisfies certain certification requirements set forth in Section 871(h)
and Section 881(c) of the Code and the regulations thereunder, (ii) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total combined
voting power of the Company within the meaning of Section 871(h)(3) of the Code
and the regulations thereunder, (iii) the Non-U.S. Holder is not a controlled
foreign corporation that is related to the Company through equity ownership, and
(iv) the beneficial owner is not a bank whose receipt of interest on a Note is
described in Section 881(c)(3)(A) of the Code, or, (B) in the case of gain, (i)
such Non-U.S. Holder holds the Notes as a capital asset and is not present in
the U.S. for 183 days or more in the taxable year of Disposition. A Non-U.S.
Holder may also be subject to tax pursuant to the provisions of U.S. tax law
applicable to certain expatriates.
Dividends. In general, the gross amount of dividends paid to a Non-U.S.
Holder will be subject to U.S. withholding tax at a 30% rate (or any lower rate
prescribed by an applicable U.S. tax treaty) unless the dividends are
effectively connected with a U.S. trade or business conducted by the Non-U.S.
Holder within the U.S. In determining the applicability of a tax treaty that
provides for a lower rate of withholding, dividends paid to an address in a
foreign country are presumed under current Treasury regulations to be paid to a
resident of that country. However, under Treasury regulations released on
October 6, 1997, which will generally be effective for payments made on or after
January 1, 1999, a Non-U.S. Holder would be required to file certain forms in
order to claim the benefit of an applicable treaty rate. Dividends effectively
connected to a trade or business carried on by a Non-U.S. Holder within the U.S.
generally will not be subject to withholding (if the Non-U.S. Holder properly
files the applicable Internal Revenue Service ("IRS") Form with the payor of the
dividend) and generally will be subject to U.S. Federal income taxation at
ordinary U.S. Federal income tax rates. Effectively connected income may be
subject to different treatment under an applicable tax treaty depending on
whether such dividends are attributable to a permanent establishment of the
Non-U.S. Holder in the U.S. In the case of a Non-U.S. Holder that is a
corporation, effectively connected income may be subject to the branch profits
tax (which generally is imposed upon a foreign corporation at a rate of 30% of
the deemed repatriation from the U.S. of "effectively connected earnings and
profits") except to the extent that an applicable tax treaty provides otherwise.
A Non-U.S. Holder eligible for a reduced rate of U.S. withholding tax pursuant
to an income tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the IRS.
Sale or Disposition of Common Stock. Generally, a Non-U.S. Holder will
not be subject to U.S. Federal income tax on any gain realized upon the
disposition of his Common Stock unless: (i) the Company has been, or is a "U.S.
real property holding corporation" for U.S. Federal income tax purposes and
certain other requirements are met, (ii) the gain is effectively connected
with the conduct of a trade or business carried on by the Non-U.S. Holder within
the U.S., or (iii) the Common Stock is disposed of by a Non-U.S. Holder who
holds the Common Stock as a capital asset and is present in the U.S. for 183
days or more in the taxable year of Disposition. The Company believes that it
has not been, is not currently, and based upon its current business plans, is
not likely to become a U.S. real property holding corporation. A Non-U.S.
Holder may also be subject to tax pursuant to the provisions of U.S. tax law
applicable to certain expatriates. Non-U.S. Holders should consult
applicable tax treaties, which may exempt from U.S. Federal income tax gains
realized upon the Disposition of Common Stock in certain cases. Estate Tax
A Note beneficially owned by an individual who at the time of death is
a Non-U.S. Holder will not be subject to U.S. Federal estate tax provided that
(A) such individual does not actually or constructively own 10% or more of the
total combined voting power of the Company within the meaning of Section
871(h)(3) of the Code and the regulations thereunder and (B) such payments with
respect to the Note would not have been, if received at the time of such
individual's death, effectively connected with a trade or business carried on by
such individual within the U.S.
Common Stock owned or treated as owned by an individual Non-U.S. Holder
at the time of death will be includible in the individual's gross estate for
U.S. Federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to U.S. Federal estate tax.
Backup Withholding and Information Reporting
U.S. Holders. Under certain circumstances, a U.S. Holder who is an
individual may be subject to backup withholding (generally imposed at the rate
of 31%) on interest, dividends and principal payments made to, and the proceeds
of sales before maturity made by, certain U.S. Holders. This withholding
generally applies only if such individual U.S. Holder (i) fails to furnish his
or her taxpayer identification number ("TIN") to the U.S. financial institution
or any other person responsible for the payment of dividends on the Common
Stock, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or
she has failed to properly report payments of interest and dividends and the IRS
has notified the Company that he or is subject to backup withholding, or (iv)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is her or her correct number and
that he or she is not subject to backup withholding.
Non-U.S. Holders. The Company must report annually to the IRS and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld, if
any, with respect to, each Non-U.S. Holder. These information reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable tax treaty or if withholding was not required because the
dividends were effectively connected with a trade or business carried on by the
Non-U.S. Holder within the U.S. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement with the
tax authorities in the country in which the Non-U.S. Holder resides or is
established.
U.S. backup withholding (generally imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting generally
will not apply (i) to dividends paid on Common Stock to a Non-U.S. Holder at an
address outside of the U.S., absent actual knowledge by the payor that the payee
is not a Non-U.S. Holder, or (ii) to dividends paid to Non-U.S. Holders that are
either subject to the U.S. withholding tax (whether at 30% or at a reduced
treaty rate), or (iii) that are exempt from such withholding because such
dividends constitute effectively connected income.
The payment of the proceeds from the Disposition of Common Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the Disposition of Common Stock to
or through a non-U.S. office of a non-U.S. broker generally will not be subject
to backup withholding and information reporting. Unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder and
certain conditions are met or the holder otherwise establishes an exemption,
information reporting generally will apply to Dispositions through (a) a
non-U.S. office of a U.S. broker and (b) a non-U.S. office of a non-U.S. broker
that is either a "controlled foreign corporation" for U.S. Federal income tax
purposes or a person 50% or more of whose gross income from all sources for a
three year testing period was effectively connected with a U.S. trade or
business.
On October 6, 1997, the IRS released final regulations revising the
withholding tax, information reporting and backup withholding tax rules
described above, which will generally be effective for payments made on or after
January 1, 1999 (although transition rules will apply with respect to the
application of certain of the revised rules before and after that date) (the
"1999 Regulations"). In general, the 1999 Regulations require certain Non-U.S.
Holders to provide additional information in order to establish an exemption
from or reduce the rate of withholding tax or backup withholding tax. In
particular, the 1999 Regulations require that foreign partnerships and partners
of a foreign partnership provide certain information and comply with certain
certification requirements not required under prior law. In some circumstances,
a failure to comply with such requirements could subject the gross proceeds from
the sale of a Note or shares of Common Stock received by a Non-U.S.-holder to
backup withholding tax of 31%. Further, the 1999 Regulations generally apply
backup withholding and information reporting to dividends paid on Common Stock
to a Non-U.S. Holder at an address outside of the U.S. unless such Non-U.S.
Holder owner, under penalties of perjury, certifies, among other things, its
status as a Non-U.S. Holder or otherwise establishes an exemption. Each Non-U.S.
Holder should consult his or her tax advisor to review the application of the
1999 Regulations and the applicable information reporting and certification
requirements that will be imposed with respect to an investment in the Notes or
shares of Common Stock.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. Federal income tax liability, provided that the required
information is furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH
THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE
NOTES AND COMMON STOCK. SELLING SECURITYHOLDERS
Note Selling Securityholders
The Notes were originally issued by the Trustee and sold by Goldman
Sachs & Co., BT Alex. Brown Incorporated, Lehman Brothers Inc., and Cowen &
Company (the "Initial Purchasers"), in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably believed
by such Initial Purchasers to be "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act), or outside the United States to non-U.S.
persons in offshore transactions in reliance on Regulation S under the
Securities Act. The Note Selling Securityholders may from time to time offer and
sell pursuant to this Prospectus any or all of the Notes and Conversion Shares.
The term Note Selling Securityholders includes the holders listed below and the
beneficial owners of the Notes and their transferees, pledgees, donees or other
successors. The Company intends to supplement this prospectus from time to time
to add other Selling Securityholders up to a total Principal Amount of
$350,000,000 of Notes Owned.
Based upon information provided to the Company by the Note Selling
Securityholders, the table below sets forth information with respect to the Note
Selling Securityholders and the respective number of Notes and Conversion Shares
beneficially owned by each Note Selling Securityholder that may be offered
pursuant to this Prospectus.
<TABLE>
<S> <C> <C>
Common Stock
Principal Amount Issuable Upon
Selling Holder of Notes Owned Conversion
Abu Dhabi Investment Company $ 1,000,000.00 19,159.40
Aim Charter Fund 25,000,000.00 478,985.00
Aim V.I. Growth and Income 4,000,000.00 76,637.60
Alexandra Global Investment Fund, I 6,000,000.00 114,956.40
Arkansas PERS 880,000.00 16,860.27
Associated Electric & Gas Insurance Services Lmtd. 550,000.00 10,537.67
BancAmerica Robertson Stephens 3,250,000.00 62,268.05
Bank of America Pension Plan I 2,000,000.00 38,318.80
Banque Generales Du Luxembourg S.A. 'FOR CLIENTS A/C' 10,000.00 191.59
Baptist Health 211,000.00 4,042.63
Black Diamond LTD(1) 1,577,000.00 30,214.37
Black Diamond Partners, L.P.(2) 1,405,000.00 26,918.96
BT Alex. Brown 6,900,000.00 122,620.16
BZW Securities Limited 20,000,000.00 383,188.00
The Class IC Company, Ltd. 500,000.00 9,579.70
Colonial PennLife Insurance Co. 1,500,000.00 28,739.10
Commonwealth Life Insurance Co. Teamsters - Camden Non- 4,700,000.00 90,049.18
Enhanced
Commonwealth Life Insurance Co. Stock Trac (Teamsters) 3,000,000.00 57,478.20
Deeprock & Co. Inc. 1,700,000.00 32,570.98
Deutsche Bank AG 25,500,000.00 488,564.70
Deutsche Morgan Grenfell, Inc. 1,080,000.00 20,692.15
Double Black Diamond Offshore, LDC(3) 666,000.00 12,760.16
Dunham & Associates Fund I 63,000.00 1,207.04
Dunham & Associates Fund II 33,000.00 632.26
Engineers Joint Pension Fund 325,000.00 6,226.81
Falcon Seaboard Investment Company, L.P. 400,000.00 7,663.76
Glacier Water Services Inc. 600,000.00 11,495.64
The Gleneagles Fund Company 1,000,000.00 19,159.40
Goldman, Sachs & Co. 40,955,000.00 784,673.23
Goldman Sachs & Co., New York in the name of Goldman 1,550,000.00 29,697.07
Sachs & Co. Bank, Zurich
Hamilton Partners Limited 5,000,000.00 95,797.00
Highbridge Capital Corp.(4) 107,000.00 2,050.06
Highbridge International LLC 24,600,000.00 471,321.24
HSBC Securities Inc. 3,200,000.00 61,310.08
HSB Group, Inc. 1,000,000.00 19,159.40
ICI American Holdings Trust 300,000.00 5,747.82
Kapiolani Medical Center for Women & Children 100,000.00 1,915.94
Kennilworth Partners LP 10,000.00 191.59
LDG Limited 500,000.00 9,579.70
Merrill Lynch Pierce Fenner and Smith 8,125,000.00 155,670.13
Nalco Chemical Corp. Retirement 145,000.00 2,778.11
Nicholas Applegate Income & Growth 3,243,000.00 62,133.93
Nomura Securities (Bermuda) Ltd. 7,500,000.00 143,695.50
OZ Master Fund, LTD. 1,500,000.00 28,739.10
Palladin Overseas Fund Ltd. 1,000,000.00 19,159.40
Palladin Partners I, L.P. 500,000.00 9,579.70
Paloma Securities L.C.. 4,500,000.00 86,217.30
Physicians Life 114,000.00 2,184.17
PREM Global Yield 400,000.00 7,663.76
PRIM Board 1,175,000.00 22,512.30
R2 Investments, L.D.C. 2,400,000.00 45,982.56
San Diego City Employees 874,000.00 16,745.32
San Diego County 2,689,000.00 51,519.63
SBC Warburg Dillon Read Inc. 7,500,000.00 143,695.50
Smith Barney Inc. 100,000.00 1,915.94
Society Generale Securities Corp. 9,000,000.00 172,434.60
Spear, Leeds & Kellogg 700,000.00 13,411.58
Starvest Fund - Discretionary 400,000.00 7,663.76
State of Delaware PERS 700,000.00 13,411.58
State of Oregon PERS 4,000,000.00 76,637.60
Swiss Bank Corporation - London Branch 9,500,000.00 182,014.30
TCW CIC Equity Favored Convertible Fund 45,000.00 862.17
Toronto Dominion (New York), Inc. 19,000,000.00 364,028.60
TQA Arbitrage Fund, L.P. 500,000.00 9,579.70
TQA Leverage Fund, L.P. 600,000.00 11,495.64
TQA Vantage Fund, Ltd. 3,000,000.00 57,478.20
TQA Vantage PWS, Ltd. 400,000.00 7,663.76
Tribeca Investment, L.L.C. 14,500,000.00 277,811.30
Wake Forest University 659,000.00 12,626.04
Worldwide Transactions LTD 245,000.00 4,694.05
Zeneca Holdings Trust 300,000.00 5,747.82
</TABLE>
(1) Black Diamond is short 7,170 shares of Common Stock.
(2) Black Diamond Partners, L.P. is short 7,435 shares of Common Stock.
(3) Double Black Diamond Offshore, LDC is short 630 shares of Common Stock.
(4) Highbridge Capital Corp. is short 630 shares of Common Stock.
Based upon information provided to the Company by the Note Selling
Securityholders, none of the identified Note Selling Securityholders has, or
within the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates. Because
the Note Selling Securityholders may, pursuant to this Prospectus, offer all or
some portion of the Notes or Conversion Shares, no estimate can be given as to
the amount of the Notes or Conversion Shares that will be held by the Note
Selling Securityholders upon termination of such sales. In addition, the Note
Selling Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Notes since the date on which they
provided the information regarding their Notes, in transactions exempt from the
registration requirements of the Securities Act.
Stock Selling Securityholders
The table below sets forth certain information regarding the beneficial
ownership of Common Stock, as of January 31, 1998, by certain securityholders of
the Company who are offering Resale Stock pursuant to the Prospectus, both
before and after giving effect to this offering.
<TABLE>
<S> <C> <C> <C>
Shares Shares
Beneficially Shares to be Beneficially
Owned Prior to Sold in the Owned After
the Offering(1)(2) Offering the Offering
Number Percent Number Percent
Henry Adams(3) 31,554 * 31,554 -- --
Troy Bolotnick 4,000 * 4,000 -- --
Eric Carbone(4) 31,554 * 31,554 -- --
Carl P. Genberg 3,018 * 3,018 -- --
Guren Family Trust 12,182 * 5,691 6,491 *
Paul Kagan (5) 114,756 * 57,378 57,378 *
Paul & Florence Kagan (5) 114,756 * 57,378 57,378 *
Kagan Venture Fund(5) 114,756 * 57,378 57,378 *
Knight Ridder Investment Company 34,284 * 17,142 17,142 *
Matthew B. Koll 54,080 * 26,700 27,380 *
Laurie Plaksin 2,508 * 2,508 -- --
Price Communications Corp. 17,500 * 8,750 8,750 *
Richard Tackenberg 3,344 * 3,344 -- --
Scott C. Zakarin & Deborah Mostow 12,500 * 12,500 -- --
Zakarin
</TABLE>
- -----------------------
*Represents ownership of less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise noted, the persons named in the table, to the Company's
knowledge, have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to the
information contained in the footnotes to this table. Assumes that each
Stock Selling Securityholder will sell all of the shares of Common Stock
offered by him hereunder. See "Plan of Distribution."
(2) Based on 210,211,880 shares of Common Stock outstanding on January 31, 1998,
after giving effect to the Company's two-for-one stock split paid on March
16, 1998. In certain instances, numbers set forth in the table reflect sales
after January 31, 1998 pursuant to Rule 144.
(3) Mr. Adams is Vice President of Brand Development, Extreme Fans, Inc., a
wholly-owned subsidiary of AOL doing business as Real Fans ("Real Fans").
(4) Mr. Carbone is Vice President, Sports Programming, Real Fans.
(5) All such shares are owned beneficially by Paul Kagan and of record by Paul
Kagan (80,346 shares), Paul and Florence Kagan (24,846 shares), and Kagan
Venture Fund (9,564 shares), who intend to sell in the offering 40,173
shares, 12,423 shares, and 4,782 shares, respectively.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Offered Securities to or through
underwriters, broker/dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Securityholders or the purchasers of such securities for whom they may act as
agents. The Selling Securityholders and any underwriters, broker/dealers or
agents that participate in the distribution of Offered Securities may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
the sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange,
such as the NYSE, or quotation service on which the Offered Securities may be
listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii)
in transactions otherwise than on such exchanges or services or in the
over-the-counter market or (iv) through the writing of options. In connection
with sales of the Offered Securities or otherwise, the Selling Securityholders
may enter into hedging transactions with broker/dealers, which may in turn
engage in short sales of the Offered Securities in the course of hedging the
positions they assume. The Selling Securityholders may also sell Offered
Securities short and deliver Offered Securities to close out such short
positions, or loan or pledge Offered Securities to broker/dealers that in turn
may sell such securities. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers.
The Selling Securityholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Securityholders. The foregoing may affect the marketability of such
securities.
Pursuant to agreements with the Selling Securityholders, all expenses
of the registration of the Offered Securities will be paid by the Company,
including, without limitation, Commission filing fees; provided, however, that
the Selling Securityholders will pay all underwriting discounts and selling
commissions, if any. The Selling Securityholders will be indemnified by the
Company against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
The Company will be indemnified by the Selling Securityholders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
The validity of the Notes and the Common Stock offered hereby is being
passed upon for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. An attorney at Mintz Levin, who is vice chairman of the Company in an
honorary capacity, owns an aggregate of 200 shares of Common Stock and options
to purchase 344,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of America Online, Inc. appearing
in its Annual Report (Form 10-K), for the year ended June 30, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the expenses that are expected to be incurred
in connection with the offering of the Notes, Conversion Shares and Resale
Stock. All such expenses shall be borne by the Company. All amounts set forth
below are estimates, other than the registration fee.
SEC Registration Fee $107,533
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 30,000
Miscellaneous 10,000
------
TOTAL $172,533
========
The Selling Securityholders will bear the expense of their own legal
counsel and their own miscellaneous fees and expenses, if any.
Item 15. Indemnification of Officers and Directors
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director or officer of the corporation. Such indemnity may be against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, if the indemnified party acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
indemnified party did not have reasonable cause to believe his conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general,
that a corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, against any expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation law provides, in general,
that a corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation
against any liability asserted against him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of the law.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law
(the "Delaware Statute"), Article Ninth of the Registrant's Restated Certificate
of Incorporation (the "Certificate of Incorporation") (incorporated by reference
herein) provides that:
To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors and
officers and any person who is or was serving at the request of the
Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation, by action of its board of directors, may provide
indemnification or advance expenses to employees and agents of the
Corporation or other persons only on such terms and conditions and to
the extent determined by the board of directors in its sole and
absolute discretion.
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article Ninth shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity
while holding such office.
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against
such liability under this Article Ninth.
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article Ninth shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of
the heirs, executors and administrators of such officer or director.
The indemnification and advancement of expenses that may have been
provided to an employee or agent of the Corporation by action of the
board of directors, pursuant to the last sentence of Paragraph 1 of
this Article Ninth, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be an employee or
agent of the Corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person, after the time such
person has ceased to be an employee or agent of the Corporation, only
on such terms and conditions and to the extent determined by the board
of directors in its sole discretion.
In addition, Article Five of the Registrant's Restated By-Laws
(Incorporated by reference herein) provides that:
Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or
was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "Indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including attorney's fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith; provided, however,
that, except as provided in the section "Right of Indemnitees to Bring
Suit" of this Article with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a proceeding (or part thereof) initiated by such
Indemnitee only if such proceeding (or part thereof) was authorized by
the board of directors of the Corporation.
Right to Advancement of Expenses. The right to indemnification
conferred in Section 1 of this Article shall include the right to be
paid by the Corporation the expenses (including attorney's fees)
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
Indemnitee in his capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such Indemnitee,
including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking,
by or on behalf of such Indemnitee, to repay all amounts so advanced if
it shall ultimately be determined by final judicial decision from which
there is no further right to appeal that such Indemnitee is not
entitled to be indemnified for such expenses under this section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in this section and the section "Right to
Indemnification" of this Article shall be contract rights and such
rights shall continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the Indemnitee's heirs, executors and administrators. Any repeal or
modification of any of the provisions of this Article shall not
adversely affect any right or protection of an Indemnitee existing at
the time of such repeal or modification.
Right of Indemnitees to Bring Suit. If a claim under the
sections "Right to Indemnification" and "Right to Advancement of
Expenses" of this Article is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20)
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the Indemnitee shall also be entitled to be paid the
expenses of prosecuting or defending such suit. In (i) any suit brought
by the Indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the Indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any
suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of
the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is
proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard
of conduct, shall create a presumption that the Indemnitee has not met
the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to
an advancement of expenses hereunder, or brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the Indemnitee is not entitled
to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Article shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, the Corporation's Certificate of
Incorporation as amended from time to time, these By-Laws, any
agreement, any vote of stockholders or disinterested directors or
otherwise.
Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to
the fullest extent of the provisions of this Article with respect to
the indemnification and advancement of expenses of directors and
officers of the Corporation.
The directors and officers of the Registrant are covered by a policy of
liability insurance.
In addition, the Company's agreements with the Selling Securityholders
provide for indemnification by the Registrant of the Selling Securityholders
against certain liabilities under the Securities Act, the Exchange Act, state
securities laws or otherwise, and, in certain cases, provide for indemnification
by the Selling Securityholders of the Registrant and its directors, its officers
and certain control persons against certain liabilities under the Securities
Act, the 1934 Act, state securities laws, or otherwise.
Item 16. Exhibits.
<TABLE>
<S> <C> <C>
Exhibit Description
No.
2.1 -- Agreement and Plan of Reorganization dated as of May 11, 1994, as amended, among the Registrant, RCC
Acquisition Corporation and RCC Communications Corporation (Filed as Annex A to the Registrant's
Registration Statement on Form S-4, Registration No. 33-82030, and incorporated herein by reference.)
2.2 -- Agreement and Plan of Reorganization dated as of November 8, 1994, among the Registrant, BLT
Acquisition Corporation, CMG Information Services, Inc. and Booklink Technologies, Inc. (Filed as
Exhibit 1 to the Registrant's Report on Form 8-K, filed January 9, 1995 and incorporated herein by
reference.)
2.3 -- Asset Purchase Agreement by and between the Registrant and Advanced Network & Services, Inc.
dated as of November 25, 1994 (Filed as Exhibit 1 to the Registrant's Report on Form 8-K, filed
February 28, 1995 and incorporated herein by reference.)
2.4 -- Agreement and Plan of Merger dated as of December 20, 1995, among the Registrant, Santa's
Acquisition Corp. and Johnson-Grace Company and its Principal Shareholders (Filed as Exhibit
2.1 to the Registrant's Report on Form 8-K, filed February 14, 1996 and incorporated herein by
reference.)
2.5 -- Stock Purchase Agreement, dated as of August 5, 1996, among the Registrant, The ImagiNation Network,
Inc. and AT&T Corp. (Filed as Exhibit 10 to the Registrant's Report on Form 8-K, filed August 5,
1996, and incorporated herein by reference.)
2.6 -- Purchase and Sale Agreement dated as of September 7, 1997 by and among America Online, Inc., ANS
Communications, Inc. and WorldCom, Inc. (Filed as Exhibit 2 to the Company's Current Report on Form
8-K, dated September 19, 1997, and incorporated herein by reference.)
2.7 -- Agreement of Purchase and Sale dated as of June 5, 1998 by and among America Online, Inc., AOL
Acquisition Corp., R.G.A.O. Holdings Ltd., and Mirabilis Ltd and the Principal Stockholders
(Confidential treatment has been requested with respect to certain portions of the Agreement) (Filed
as Exhibit 2 to the Registrant's Report on Form 8-K, dated June 5, 1998 and incorporated herein by
reference.)
4.1 -- Amendment of Section A of Article 4 of the Restated Certificate of Incorporation of America Online,
Inc. (Previously filed)
4.2 -- Section B of Article 4, Article 6 and Article 8 of the Restated Certificate of Incorporation of the
Registrant (Filed as part of Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1997, and incorporated herein by reference.)
4.3 -- Indenture, dated as of November 17, 1997 between America Online, Inc., as issuer, and State Street
Bank and Trust Company, as trustee (Filed as Exhibit 4.1 to the Registrant's Form 8-K, dated December
2, 1997 and incorporated herein by reference.)
4.4 -- Registration Rights Agreement, dated as of November 17, 1997 between America Online, Inc. and Goldman,
Sachs & Co., BT Alex. Brown Incorporated, Lehman Brothers Inc. and Cowen & Company (Filed as Exhibit
4.2 to the Registrant's Form 8-K, dated December 2, 1997 and incorporated herein by reference.)
4.5 -- Purchase Agreement, dated November 12, 1997 between America Online, Inc. and Goldman, Sachs & Co., BT
Alex. Brown Incorporated, Lehman Brothers Inc. and Cowen & Company (Filed as Exhibit 4.3 to the
Registrant's Form 8-K, dated December 2, 1997 and incorporated herein by reference.)
4.6 -- Rights Agreement dated as of May 12, 1998, between America Online, Inc. and BankBoston, N.A.,
as Rights Agent (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 and incorporated herein by reference.)
4.7 -- Certificate of Designation, Preferences and Rights of Series A-1 Junior Participating Preferred
Stock
5.1 -- Opinion of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., with respect to the legality of the
securities being registered
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. (included in Exhibit 5.1)
24.1 -- Powers of Attorney (Previously filed)
25.1 -- Form T-1 Statement of Eligibility and Qualification of Trustee (Previously filed)
</TABLE>
Item 17. Undertakings.
A. Rule 415 Offering
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post- effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3 or Form
S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section
13 or Section 15(d) of the 1934 Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Filings Incorporating Subsequent Exchange Act Documents by Reference
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of Exchange Act, as amended (the "Exchange Act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Request for Acceleration of Effective Date or Filing of Registration
Statement on Form S-8
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Loudoun, Commonwealth of Virginia on June 11,
1998.
AMERICA ONLINE, INC.
By: /S/LENNERT J. LEADER
Lennert J. Leader
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
* Chairman of the Board and Chief Executive June 11, 1998
Stephen M. Case Officer (principal executive officer)
* President, Chief Operating Officer and Director June 11, 1998
Robert W. Pittman
Senior Vice President and Chief Financial June 11, 1998
/S/LENNERT J. LEADER Officer (principal financial and accounting
Lennert J. Leader officer)
* Director June 11, 1998
Daniel F. Akerson
Director
Frank J. Caufield
* Director June 11, 1998
Robert J. Frankenberg
* Director June 11, 1998
Alexander M. Haig, Jr.
* Director June 11, 1998
William N. Melton
* Director June 11, 1998
Thomas Middelhoff
*By: /S/LENNERT J. LEADER
Lennert J. Leader, Attorney-in-Fact
</TABLE>
EXHIBIT INDEX
Exhibit
No. Description
4.7 -- Certificate of Designation, Preferences and Rights of Series A-1
Junior Participating Preferred Stock
5.1 -- Opinion of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.,
with respect to the legality of the securities being registered
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Ernst & Young LLP
Exhibit 4.7
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
of
SERIES A-1 JUNIOR PARTICIPATING PREFERRED STOCK
of
AMERICA ONLINE, INC.
America Online, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
this Corporation (the "Board of Directors") by the Restated Certificate of
Incorporation of this Corporation, and pursuant to the provisions of Section 151
of Title 8 of the Delaware Code, the Board of Directors, at a meeting of its
members held on May 12, 1998, adopted a resolution providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of five hundred
thousand (500,000) shares of the Corporation's Preferred Stock, par value one
cent ($.01) per share, which resolution is as follows:
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of this Corporation in accordance with the
provisions of the Restated Certificate of Incorporation, the
Board of Directors hereby designates a series of Preferred
Stock, par value $.01 per share, and hereby fixes the
designation and number of shares, and the relative rights,
preferences, and limitations thereof (in addition to any
provisions set forth in the Restated Certificate of
Incorporation which are applicable to preferred stock of all
classes and series) as follows:
Series A-1 Junior Participating Preferred Stock. The preferences, privileges and
restrictions granted to or imposed on the Corporation's Series A-1 Junior
Participating Preferred Stock, par value $.01 per share, or the holders thereof,
are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A-1 Junior Participating Preferred Stock" (the "Series A-1
Preferred Stock") and the number of shares constituting the Series A-1 Preferred
Stock shall be five hundred thousand (500,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A-1 Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A-1 Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A-1 Preferred Stock with respect to dividends,
the holders of shares of Series A-1 Preferred Stock, in preference to
the holders of Common Stock, $.01 par value (the "Common Stock"), of
the Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series
A-1 Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision
for adjustment hereinafter set forth, 1000 times the aggregate per
share amount of all cash dividends, and 1000 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A-1 Preferred Stock. In
the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A-1 Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A-1 Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A-1 Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A-1 Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A-1 Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A-1 Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series A-1 Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A-1 Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A-1 Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A-1 Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designation creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A-1 Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A-1 Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A-1 Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A-1 Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A-1 Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A-1 Preferred Stock, except
dividends paid ratably on the Series A-1 Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A-1 Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A-1
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A-1 Preferred Stock, or any
shares of stock ranking on a parity with the Series A-1
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A-1 Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Restated Certificate of Incorporation, or in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A-1
Preferred Stock unless, prior thereto, the holders of shares of Series A-1
Preferred Stock shall have received $1000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A-1
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A-1 Preferred Stock, except distributions made ratably on the Series A-1
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A-1 Preferred Stock were entitled immediately prior
to such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A-1 Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation at any time declares or pays any dividend on the
Common Stock payable in shares of Common Stock, or effects a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A-1 Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A-1 Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A-1 Preferred Stock shall rank junior with
respect to the payment of dividends and the distribution of assets to all other
series of the Corporation's Preferred Stock.
Section 10. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A-1 Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series A-1 Preferred Stock,
voting together as a single class.
IN WITNESS WHEREOF, America Online, Inc. has caused this certificate to
be executed by its SVP & CFO this 29th day of May, 1998.
/s/LENNERT J. LEADER
Lennert J. Leader
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, N.W. Telephone: 617/542-6000
Washington, D.C. 20004 Fax: 617/542-2241
Telephone: 202/434-7300
Fax: 202/434-7400
June 11, 1998
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
Gentlemen:
We have acted as counsel to America Online, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") of
a Registration Statement on Form S-3 (the "Registration Statement"),
pursuant to which the Company is registering under the Securities Act of
1933, as amended, a total of (i) $350,000,000 principal amount of 4%
Convertible Subordinated Notes due November 15, 2002 (the "Notes") and
the shares of common stock, $.01 par value per share (the "Common
Stock"), issuable upon conversion thereof (the "Conversion Shares") and
(ii) 204,139 previously issued shares of Common Stock unrelated to the
Notes (the "Resale Shares," and together with the Notes and Conversion
Shares, the "Offered Securities"). The Offered Securities are to be
offered and sold by certain securityholders of the Company (the "Selling
Securityholders") pursuant to the Registration Statement. The Company
has not engaged any underwriters in connection with the proposed filing
of the Registration Statement. This opinion is being rendered in
connection with the filing of the Registration Statement.
In connection with this opinion, we have examined the Company's
Restated Certificate of Incorporation and Restated By-Laws, as amended
to date; such records of the corporate proceedings of the Company as we
deemed material; and the Registration Statement and the exhibits thereto
filed with the Commission. With respect to our opinions below regarding
the Resale Shares, we have relied entirely upon the opinion of the Vice
President, Deputy General Counsel of the Company.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies.
The opinion set forth in subsection (iii) of the following
paragraph assumes conversion of the Notes in accordance with the terms
thereof.
Based upon the foregoing, we are of the opinion that, (i) the
Notes, Conversion Shares and Resale Shares have been duly and validly
authorized by the Company, (ii) the Notes have been duly and validly
issued, are fully paid and non-assessable, and represent binding
obligations of the Company, (iii) the Conversion Shares will be duly and
validly issued, fully paid and non-assessable shares of Common Stock,
upon issuance and (iv) the Resale Shares have been duly and validly
issued, are fully paid and non-assessable shares of Common Stock.
Our opinion is limited to the General Corporation Law of the
State of Delaware, and we express no opinion with respect to the laws of
any other jurisdiction. No opinion is expressed herein with respect to
the qualification of the Offered Securities under the securities or blue
sky laws of any state or any foreign jurisdiction.
We understand that you wish to file this opinion as an exhibit
to the Registration Statement, and we hereby consent thereto. We hereby
further consent to the reference to us under the caption "Legal Matters"
in the prospectus included in the Registration Statement.
Very truly yours,
/s/Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
America Online, Inc. and Subsidiaries
Statements RE Computation of Ratios of Earnings to Fixed Charges
Nine Months Ended March 31, 1998 and Years Ended
June 30, 1997, June 30, 1996, June 30, 1995, June 30, 1994
and June 30, 1993
<TABLE>
Nine months Year Year Year Year Year
ended ended ended ended ended ended
March 31, 1997 June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993
<S> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense $ 8,981 $ 1,567 $ 1,659 $ 1,076 $ 309 $ 29
Amortization of bond
issue costs 604 - - - - -
Interest portion (1) of
rent expense 86,822 49,487 15,528 3,504 1,197 603
Total fixed charges $ 96,407 $ 51,054 $ 17,187 $ 4,580 $ 1,506 $ 632
Income (loss) before
income taxes (2) (3) (4) (5) 84,743 (499,347) 62,339 (20,582) 5,986 2,143
Earnings (6) $ 181,150 $(448,293) $ 79,526 $ (16,002) $ 7,492 $ 2,775
Ratio of earnings to fixed charges 1.88 - 4.63 - 4.98 4.39
</TABLE>
1) The interest portion of the rent expense is estimated to be equal to 28% in
year one, 18% in year two, 7% in year three and 5% in year four.
2) Net income in the nine months ended March 31, 1998 includes approximately
$33.8 million of expense related to a restructuring charge, $9.7 million of
expense related to acquired research and development and approximately $1.0
million of income related to a settlement charge.
3) Net Loss for the year ended June 30, 1997 includes charges of approximately
$385.2 million for the write-off of deferred subscriber acquisition costs,
approximately $48.6 million for a restructuring charges, approximately $24.2
million for legal settlements and approximately $24.5 million for contract
termination charges.
4) Net income for the year ended June 30, 1996 includes charges of
approximately $17.0 million for acquired research and development, $8.0
million for the settlement of a class action lawsuit, and approximately
$0.8 million for merger expenses.
5) Net loss in the year ended June 30, 1995 includes charges of approximately
$50.3 million for acquired research and development and approximately $2.2
million for merger expenses.
6) Earnings represent income from continuing operations before income taxes
plus interest expense on indebtedness, amortization of debt discount and
the portion of rent expense deemed representative of an interest factor.
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-46633) and related
Prospectus of America Online, Inc. for the registration of $350,000,000 of 4%
Convertible Subordinated Notes due November 15, 2002, the 6,705,790 underlying
shares of its common stock, and 204,139 shares of its common stock held by
certain securityholders and to the incorporation by reference therein of our
report dated September 10, 1997, with respect to the consolidated financial
statements of America Online, Inc. included in its Annual Report (Form 10-K) for
the year ended June 30, 1997, filed with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Ernst & Young LLP
Vienna, Virginia
June 10, 1998
