<PAGE>
Filed Pursuant to Rule 424(b)5
Registration No. 333-79489
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 4, 1999)
$2,267,533,000
America Online, Inc.
[AMERICA ONLINE LOGO]
Convertible Subordinated Notes due 2019
-----------
We are offering a series of convertible subordinated Notes. The terms of the
Notes are summarized below. For more detail, you should read "Description of
Notes" in this prospectus supplement.
. Principal Amount. Each Note will be issued at a price of $551.26 and each
Note will have a principal amount at maturity of $1,000. We will not pay
interest on the Notes prior to maturity. We are offering the Notes at an
original issue discount for United States federal income tax purposes. If
a tax event occurs and we so elect, interest instead of future original
discount shall accrue and be payable semi-annually on each Note at 3.00%
per year.
. Maturity. The Notes will mature on December 6, 2019.
. Convertibility. You may convert the Notes into shares of common stock of
America Online at any time on or before the maturity date, unless the
Notes have previously been redeemed or purchased. The conversion rate is
5.8338 shares for each $1,000 principal amount of Notes, subject to
adjustment in certain circumstances. This is equivalent to a conversion
price of approximately $94.4938 per share (calculated on the basis of the
initial offering price of the Notes.) On November 30, 1999, the last
reported sale price for America Online's common stock on the New York
Stock Exchange was $72.6875 per share. Our common stock is listed under
the symbol "AOL."
. Ranking. The Notes are subordinated in right of payment to all of our
senior indebtedness and effectively subordinated in right of payment to
all indebtedness and other liabilities of our subsidiaries.
. Redemption. On or after December 6, 2002, we may redeem all, but not a
portion, of the Notes for cash if the closing price of our common stock
is equal to or greater than 150% of the conversion price for a specified
time period. On or after December 6, 2004, we may redeem for cash all or
a portion of the Notes at any time and from time to time. The redemption
price will be equal to the issue price of the Notes plus the accrued
original issue discount to the date of redemption.
. Repurchase. On December 6, 2004, you may require us to repurchase any
Note held by you, at a price of $639.76 for each $1,000 principal amount
of Notes. We may pay the repurchase price in cash, in common stock, or in
a combination of cash and common stock, at our election. You may also
require us to repurchase your Notes upon a fundamental change involving
America Online (as discussed herein) occurring on or after December 6,
1999. In the case of a repurchase upon a fundamental change, the
repurchase price will be equal to the issue price of the Notes plus
accrued original issue discount and we may pay the repurchase price in
cash, in common stock valued at 97.5% of the average market price, or in
a combination of cash and common stock, at our election.
-----------
Investing in the Notes involves certain risk. See "Risk Factors" beginning
on page S-5 of this prospectus supplement and on page 3 in the accompanying
prospectus.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus supplement and the accompanying prospectus are truthful or
complete. Any representation to the contrary is a criminal offense.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------- --------------
<S> <C> <C>
Public offering price................................... $551.260 $1,250,000,242
Underwriting discount................................... 13.782 31,251,139
-------- --------------
Proceeds to America Online (before expenses)............ $537.478 $1,218,749,103
======== ==============
</TABLE>
We have granted the underwriters a 30-day option to purchase from us up to
an aggregate of $340,129,950 principal amount at maturity of additional Notes
to cover over-allotments, if any.
The underwriters are offering the Notes subject to various conditions. The
underwriters expect to deliver the Notes to purchasers on or about December 6,
1999.
-----------
Joint Lead Manager & Sole Book Runner Joint Lead Manager
Salomon Smith Barney Morgan Stanley Dean Witter
Bear, Stearns & Co. Inc.
Goldman, Sachs & Co.
Lehman Brothers
December 1, 1999
<PAGE>
You should rely only on the information or representations provided in this
prospectus supplement or the accompanying prospectus. We have not authorized
anyone to provide you with different information. You should not assume that
the information in this prospectus supplement or the accompanying prospectus is
accurate as of any date other than the date on the front of the applicable
document.
----------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
About this Prospectus Supplement......................................... S-3
Risk Factors............................................................. S-5
Capitalization........................................................... S-6
Price Range of Common Stock and Dividends................................ S-7
Use of Proceeds.......................................................... S-7
Description of Notes..................................................... S-8
Book-Entry Issuance...................................................... S-22
Federal Income Tax Considerations........................................ S-25
Underwriting............................................................. S-28
Legal Matters............................................................ S-29
Prospectus
The Company.............................................................. 2
Ratio of Earnings to Fixed Charges....................................... 3
Risk Factors............................................................. 3
Where You Can Find More Information...................................... 7
Forward Looking Statements............................................... 8
Use of Proceeds.......................................................... 8
The Securities We May Offer.............................................. 8
Description of Debt Securities........................................... 9
Description of Common Stock.............................................. 19
Description of Preferred Stock........................................... 21
Description of Depositary Shares......................................... 23
Description of Warrants.................................................. 27
Description of Stock Purchase Contracts to Purchase Common Stock or
Preferred Stock......................................................... 28
Plan of Distribution..................................................... 28
Legal Matters............................................................ 29
Experts.................................................................. 30
</TABLE>
This prospectus supplement and the accompanying prospectus may only be
issued or passed on in the United Kingdom to a person who is of the kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom
this prospectus supplement and the accompanying prospectus may otherwise
lawfully be issued or passed on. We have not authorized any offer to the public
of the Notes in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "UK Regulations"). The Notes may not lawfully
be offered or sold to persons in the United Kingdom except in circumstances
which do not constitute an offer to the public in the United Kingdom within the
meaning of the UK Regulations or otherwise in compliance with all applicable
provisions of the UK Regulations.
IN CONNECTION WITH THIS ISSUE, SALOMON SMITH BARNEY INC., OR ITS AFFILIATES,
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE NOTES AND/OR THE COMMON STOCK AT LEVELS WHICH MIGHT NOT OTHERWISE
PREVAIL. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
In this prospectus supplement, "America Online," "we," "us" and "our" refer
to America Online, Inc. and its subsidiaries. References to "you" and "your"
refer to prospective investors in the Notes prior to the sale of the Notes and
to holders of the Notes after the sale of the Notes.
The following information supplements, and should be read together with, the
information contained or incorporated by reference in other parts of this
prospectus supplement and in the accompanying prospectus. This summary
highlights selected information from this prospectus supplement and the
accompanying prospectus to help you understand the Notes. You should carefully
read the entire prospectus supplement and the accompanying prospectus to
understand fully the terms of the Notes, as well as the tax and other
considerations that may be important to you in making a decision about whether
to invest in the Notes. You should pay special attention to the "Risk Factors"
sections beginning on page S-5 of this prospectus supplement and page 3 of the
accompanying prospectus to determine whether an investment in the Notes is
appropriate for you.
Summary of the Offering
<TABLE>
<C> <S>
Notes............................... $2,267,533,000 aggregate principal amount
at maturity of Notes due December 6, 2019
($2,607,662,950 aggregate principal
amount at maturity if the underwriters
exercise the over-allotment option in
full). Except as described under
"Description of Notes -- Optional
Conversion to Semi-annual Coupon Note
Upon Tax Event," we will not pay interest
on the Notes prior to maturity. Each Note
will be issued at a price of $551.26.
Each Note has a principal amount at
maturity of $1,000.
Over-allotment Option............... We have granted the underwriters a 30-day
option to purchase up to an aggregate of
$340,129,950 principal amount at maturity
of additional Notes, solely to cover
over-allotments, if any. Unless we
indicate otherwise, all information in
this prospectus supplement assumes the
underwriters have not exercised their
over-allotment option.
Maturity............................ December 6, 2019.
Yield to Maturity of Notes.......... 3.00% per year calculated from
December 6, 1999.
Conversion Rights................... Holders may convert Notes at any time on
or before the maturity date, unless the
Notes have previously been redeemed or
purchased. For each $1,000 principal
amount at maturity of Notes converted, we
will deliver 5.8338 shares of our common
stock. The conversion rate may be
adjusted for certain reasons, but will
not be adjusted for accrued original
issue discount. Upon conversion, you will
not receive any cash payment representing
accrued original issue discount. See
"Description of Notes -- Conversion
Right."
Subordination....................... The Notes will be subordinated to all of
our existing and future senior
indebtedness. They will also be
effectively subordinated to all of our
subsidiaries' indebtedness and
liabilities. As of September 30, 1999, we
had approximately $362 million of senior
indebtedness outstanding, and our
subsidiaries had approximately $558
million of indebtedness and existing
liabilities outstanding. See "Description
of Notes -- Subordination of Notes."
</TABLE>
S-3
<PAGE>
<TABLE>
<C> <S>
Original Issue Discount............. We are offering each Note at an original
issue discount for United States federal
income tax purposes. Original issue
discount is equal to the principal amount
at maturity of each Note less the issue
price to investors. You should be aware
that, although we will not pay interest
on the Notes, U.S. investors must include
accrued original issue discount in their
gross income for United States federal
income tax purposes prior to the
conversion, redemption, sale or maturity
of the Notes. See "Federal Income Tax
Considerations -- Original Issue
Discount."
Sinking Fund........................ None.
Optional Redemption................. We are not permitted to redeem the Notes
prior to December 6, 2002. On or after
December 6, 2002 and prior to December 6,
2004, we may redeem for cash all, but not
a portion, of the Notes if the closing
price for our common stock on the New
York Stock Exchange is equal to or
greater than 150% of the conversion price
(as defined herein) for at least 20
trading days in any period of 30
consecutive trading days preceding such
redemption. We may redeem for cash all or
a portion of the Notes on or after
December 6, 2004. The redemption price
will be equal to the issue price of the
Notes plus accrued original issue
discount to the date of redemption.
Purchase of the Notes at the Option
of the Holder...................... Holders may require us to purchase their
Notes on December 6, 2004, at a price of
$639.76 per each $1,000 principal amount
of Notes. We may choose to pay the
purchase price in cash or common stock or
a combination of cash and common stock.
See "Description of Notes -- Purchase of
Notes at the Option of the Holder."
Fundamental Change.................. Upon a fundamental change involving
America Online occurring on or after
December 6, 1999, each holder may require
us to repurchase all or a portion of such
holder's Notes. This repurchase price
will be equal to the issue price of the
Notes plus accrued original issue
discount to the date of repurchase.
Alternatively, we may choose to pay the
repurchase price in common stock valued
at 97.5% of the average market price (as
defined herein). The term "fundamental
change" is defined in the section of this
prospectus supplement entitled
"Description of Notes -- Fundamental
Change Permits Holder to Require Us to
Purchase Notes."
Optional Conversion to Semi-annual
Coupon Note upon Tax Event......... If a Tax Event (as defined herein) occurs
and we so elect, interest instead of
future original issue discount shall
accrue and be payable semi-annually on
each Note from the option exercise date
at 3.00% per year on the restated
principal amount. In such event, the
redemption price, purchase price and
fundamental change purchase price shall
be adjusted as described in this
prospectus supplement. However, there
will be no changes in the holder's
conversion rights. See "Description of
Notes -- Optional Conversion to Semi-
annual Coupon Note upon Tax Event."
Use of Proceeds..................... We will use the proceeds from the sale of
the Notes for general corporate purposes.
Trading............................. Our common stock is traded on the New
York Stock Exchange under the symbol
"AOL."
</TABLE>
S-4
<PAGE>
RISK FACTORS
There is No Public Market for the Notes.
We do not intend to apply for the listing of the Notes on any national
exchange or for quotation of the Notes on any public market. We cannot assure
you that any market for the Notes will develop, or if one does develop, that it
will be maintained. If an active market for the Notes fails to develop or be
sustained, the price and liquidity of the Notes could be adversely affected.
Your Right to Receive Payments on the Notes is Subordinated to All of Our
Existing and Future Senior Indebtedness; The Notes are Effectively Subordinated
to Indebtedness of Our Subsidiaries.
The Notes will be unsecured obligations and will be subordinated in right of
payment, as provided in the indenture, to the prior payment in full of all our
existing and future senior indebtedness (as defined herein). At September 30,
1999 our senior indebtedness was approximately $362 million, and our
subsidiaries had approximately $558 million of indebtedness and outstanding
liabilities. The terms of the Notes do not limit the amount of additional
indebtedness, including senior indebtedness, which we can create, incur, assume
or guarantee. We anticipate that from time to time we and our subsidiaries will
incur additional indebtedness, including senior indebtedness. Upon any
distribution of our assets pursuant to any insolvency, bankruptcy, dissolution,
winding up, liquidation or reorganization, the payment of our obligations on
the Notes will be subordinated to the extent provided in the indenture to the
prior payment in full of all of our senior indebtedness, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding.
The Notes are effectively subordinated to all existing and future
liabilities of our subsidiaries. Any right of ours to receive assets of any of
our subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of the Notes to participate in those assets) will be
subject to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that we ourselves are recognized as a creditor
of that subsidiary, in which case our claims would still be subordinate to any
security interests in the assets of that subsidiary and any indebtedness of
that subsidiary senior to that held by us.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of America Online as of
September 30, 1999 and as adjusted to give effect to the issuance of the Notes
offered hereby. The following table retroactively reflects the increase in
authorized shares of common stock to 6,000,000,000 that was approved by our
stockholders on October 28, 1999 and the 2-for-1 stock split effected on
November 22, 1999.
<TABLE>
<CAPTION>
As of September 30,
1999
----------------------
Actual As Adjusted (1)
------ ---------------
(In Millions)
<S> <C> <C>
Long-term debt, net of current maturities:
Notes payable and capital lease obligations, less
current portion.................................. $ 346 $ 346
Convertible subordinated notes offered hereby..... -- 1,250
------ ------
$ 346 $1,596
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding...... -- --
Common stock, $.01 par value; 6,000,000,000 shares
authorized; 2,233,719,584 shares issued and
outstanding (2).................................. 22 22
Additional paid-in capital........................ 3,068 3,068
Accumulated other comprehensive income --
unrealized gain on available-for-sale securities,
net.............................................. 424 424
Retained earnings................................. 335 335
------ ------
Total stockholders' equity...................... 3,849 3,849
------ ------
Total capitalization............................ $4,195 $5,445
====== ======
</TABLE>
- --------
(1) Does not include Notes issuable upon the exercise of the Underwriters'
over-allotment option. If the over-allotment option is exercised in full,
"Convertible subordinated notes offered hereby" and "Total capitalization"
would be $1,438 million and $5,633 million, respectively.
(2) Does not include 383,876,104 shares of common stock issuable upon exercise
of stock options granted and outstanding at September 30, 1999 at a
weighted-average price of $8.82 per share.
S-6
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed and traded on the New York Stock Exchange under
the symbol "AOL." The following table sets forth for the quarters indicated,
the high and low sale prices of the common stock and retroactively reflects all
stock splits effected by America Online, including the 2-for-1 stock split
effected on November 22, 1999.
<TABLE>
<CAPTION>
PERIOD ENDED HIGH LOW
------------ ------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1998
Quarter Ended September 30, 1997........................... $ 5.03 $ 3.53
Quarter Ended December 31, 1997............................ $ 5.71 $ 4.00
Quarter Ended March 31, 1998............................... $ 8.74 $ 5.16
Quarter Ended June 30, 1998................................ $13.71 $ 8.66
Fiscal Year Ended June 30, 1999
Quarter Ended September 30, 1998........................... $17.57 $ 8.75
Quarter Ended December 31, 1998............................ $40.00 $10.33
Quarter Ended March 31, 1999............................... $76.88 $33.50
Quarter Ended June 30, 1999................................ $87.50 $44.75
Fiscal Year Ended June 30, 2000
Quarter Ended September 30, 1999........................... $64.60 $38.50
Quarter Ended December 31, 1999 (through November 30,
1999)..................................................... $85.50 $54.00
</TABLE>
On November 30, 1999, the last sale price reported for the common stock on
the New York Stock Exchange was $72.6875 per share.
We do not currently pay dividends on the common stock, and do not anticipate
paying dividends on the common stock in the foreseeable future.
USE OF PROCEEDS
We estimate that the net proceeds from the offering after deducting expenses
payable by us will be $1,218,199,103 (or $1,401,011,467, if the underwriters'
over-allotment option is exercised in full). We intend to use the proceeds from
the sale of the Notes for general corporate purposes.
S-7
<PAGE>
DESCRIPTION OF NOTES
We will issue the Notes under an indenture, dated as of December 6, 1999, as
supplemented by a supplemental indenture to be dated as of December 6, 1999,
between us and State Street Bank and Trust Company, as trustee. For purposes of
this description of the Notes, we refer to the indenture and the supplemental
indenture collectively as the "indenture." The following is a summary of the
most important provisions and definitions of the indenture. For additional
information, you should look at the indenture and the form of Note, which we
will file with the Securities and Exchange Commission as an exhibit to the
current report on Form 8-K we expect to file on December 2, 1999.
General
The Notes will be our unsecured subordinated obligations, limited to
$2,607,662,950 aggregate principal amount at maturity. The Notes will mature on
December 6, 2019. The principal amount at maturity of each Note is $1,000. The
Notes will be payable at the office of the paying agent, which initially will
be the corporate trust office of the trustee in Boston, Massachusetts, and the
office of State Street Bank and Trust Company, N.A., an affiliate of the
trustee, in the Borough of Manhattan, the City of New York.
The Notes are being offered at a substantial discount from their principal
amount at maturity. See "Federal Income Tax Considerations -- Original Issue
Discount." Except as described under "-- Optional Conversion to Semi-annual
Coupon Note upon Tax Events," we will not make periodic payments of interest on
the Notes. However, the Notes will accrue original issue discount from their
date of issuance while they remain outstanding. Original issue discount is the
difference between the issue price and the principal amount at maturity of a
Note. The calculation of the accrual of original issue discount will be on a
semi-annual bond equivalent basis using a 360-day year composed of twelve 30-
day months.
Maturity, conversion, purchase by us at the option of a holder or redemption
of a Note will cause original issue discount (or interest, if the Note has been
converted after a Tax Event) to cease to accrue on such Note under the
indenture.
Notes may be presented for conversion at the office of the conversion agent,
and for exchange or registration of transfer at the office of the registrar,
each such agent initially being the trustee.
The Notes will be subordinated to our senior indebtedness (as defined
below). The defeasance provisions described in the accompanying prospectus will
not apply to the Notes.
Transfer or Exchange
The registered holders of the Notes will not have to pay a service charge
for any registration of transfer or exchange of Notes. However, we may require
the holder to pay any tax, assessment or other governmental charge payable as a
result of such transfer or exchange.
Subordination of Notes
Indebtedness evidenced by the Notes will be subordinated in right of payment
as described in the indenture, to the prior payment in full of all our existing
and future senior indebtedness. Upon any payment or distribution of our assets
to creditors following our dissolution, winding up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other similar proceedings, the holders of all our senior
indebtedness will first be entitled to receive payment in full of all amounts
due or to become due to them or payment of such amounts must have been provided
for, before the holders of the Notes are entitled to receive any payment or
distribution with respect to any Notes.
Notwithstanding anything herein to the contrary, we may not make any payment
on the Notes or repurchase or redeem any Notes (including any repurchase in the
event of a fundamental change) if any senior
S-8
<PAGE>
indebtedness is not paid when due or any event of default on any senior
indebtedness occurs permitting the holders of that senior indebtedness to
accelerate that indebtedness in accordance with its terms, unless such senior
indebtedness has been paid in full in a manner satisfactory to its holders or
the default has been cured or waived and any acceleration, if declared, has
been rescinded.
Because of the subordination of the Notes, in the event of our insolvency,
bankruptcy, dissolution, winding up or liquidation or upon any distribution of
our assets:
. the holders of the Notes are required to pay over their share of such
distribution to the trustee in bankruptcy, receiver or other person
distributing our assets, so that they may be applied to the payment of
all remaining senior indebtedness, to the extent necessary to pay all
holders of senior indebtedness in full; and
. holders of unsecured indebtedness that is not senior indebtedness may
nonetheless recover more than the holders of Notes.
The term "senior indebtedness" means the principal, premium, if any, and
unpaid interest on all of our present and future:
. indebtedness for money borrowed or evidenced by bonds, debentures, notes
or similar instruments;
. reimbursement obligations with respect to letters of credit, bankers'
acceptances and similar facilities issued for our account;
. obligations issued or assumed as the deferred purchase price of property
or services purchased by us, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of business;
. obligations as lessees under leases required to be capitalized on the
balance sheet of the lessee under United States generally accepted
accounting principles;
. obligations as lessee under certain operating leases that provide for or
permit our acquisition of the leased property, under the circumstances
described in the indenture;
. obligations under interest rate and currency swaps, caps, floors, collars
or similar arrangements; and
. indebtedness of others of the kinds described above that we have assumed,
guaranteed or otherwise assured the payment thereof, directly or
indirectly;
as well as deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness or obligation described
above, whether or not there is any notice to or consent of the holders of the
Notes.
At September 30, 1999, we had approximately $362 million of senior
indebtedness outstanding. The indenture does not prevent us from incurring
additional indebtedness, including senior indebtedness. As well as being
subordinated in right of payment to all of our senior indebtedness, the Notes
are effectively subordinated to all existing and future indebtedness and
liabilities of our subsidiaries. Any right that we have to participate in any
distribution of the assets of any of our subsidiaries upon the liquidation,
reorganization or insolvency of such subsidiary, and the consequent right of
holders of the Notes to participate in those assets, will be subject to the
claims of the subsidiary's creditors (including trade creditors) except to the
extent that our claims as a creditor of the subsidiary may be recognized, in
which case our claims would still be subordinate to any security interest in
the subsidiary's assets and any indebtedness of the subsidiary that is senior
to that held by us. At September 30, 1999, our subsidiaries had approximately
$558 million of indebtedness and existing liabilities outstanding.
Conversion Right
General
A holder may convert a Note, in multiples of $1,000 in principal amount at
maturity into our common stock at any time before the close of business on
December 6, 2019. However, a holder may convert a Note only until the close of
business on its redemption date if we call a Note for redemption.
S-9
<PAGE>
A Note for which a holder has delivered a purchase notice or a fundamental
change purchase notice requiring us to purchase the Note may be converted only
if such notice is withdrawn in accordance with the indenture.
The conversion rate is 5.8338 shares of common stock per $1,000 principal
amount at maturity of Notes converted, subject to adjustment upon the
occurrence of certain events described below. We will pay cash equal to the
then current market value of a fractional share.
On conversion of a Note, a holder will not receive any cash payment
representing accrued original issue discount. Our delivery to the holder of the
fixed number of shares of common stock into which the Note is convertible,
together with any cash payment for fractional shares, will be deemed:
. to satisfy our obligation to pay the principal amount at maturity of the
Note; and
. to satisfy our obligation to pay accrued original issue discount
attributable to the period from the issue date through the conversion
date.
As a result, accrued original issue discount is deemed to be paid in full
rather than cancelled, extinguished or forfeited.
The conversion rate will not be adjusted for accrued original issue discount
on the Notes. A certificate for the number of full shares of common stock into
which any Note is converted, together with any cash payment for fractional
shares, will be delivered through the conversion agent as soon as practicable
following the conversion date.
For a discussion of the tax treatment of a holder receiving common stock
upon conversion, see "Federal Income Tax Considerations -- Disposition or
Conversion."
Conversion Procedures
To convert a Note into shares of common stock, a holder must:
. complete and deliver to DTC the appropriate instruction form for
conversion;
. surrender the Note to the conversion agent by book entry delivery;
. if required, furnish appropriate endorsements and transfer documents; and
. if applicable, pay all required transfer or similar taxes for which the
holder is responsible.
Pursuant to the indenture, the date on which all of the foregoing requirements
have been satisfied is the conversion date.
Adjustment of the Conversion Rate
The conversion rate will be adjusted for:
. dividends or distributions on common stock payable in common stock or
other capital stock;
. distributions to all holders of common stock of certain rights, warrants
or options to purchase, during a period expiring within 60 days after
such distribution, common stock or securities that are convertible into
common stock, at a price per share of common stock that is less than the
current sale price (as defined below) of the common stock at that time;
. subdivisions, combinations or certain reclassifications of common stock;
and
. distributions to all holders of our common stock of our assets or debt
securities or certain rights to purchase our securities (excluding cash
dividends or other cash distributions, unless dividends distributed over
the course of any one-year period exceed 12.5% of the sale price of our
common stock on the day before the last ex-dividend date in such period
multiplied by the number of shares outstanding on such date).
S-10
<PAGE>
The indenture permits us to increase the conversion rate from time to time.
Holders of the Notes may, in certain circumstances, be deemed to have received
a distribution subject to Federal income tax as a dividend in the amount of:
. a taxable distribution to holders of common stock which results in an
adjustment of the conversion rate; or
. an increase in conversion rate at our discretion.
See "Federal Income Tax Considerations -- Constructive Dividend."
If we exercise our option to have interest instead of original issue
discount accrue on a Note following a Tax Event, the holder will be entitled on
conversion to receive the same number of shares of common stock that the holder
would have received if we had not exercised such option. If we exercise this
option, Notes surrendered for conversion by a holder during the period from the
close of business on any regular record date to the opening of business of the
next interest payment date, except for Notes to be redeemed on a date within
this period, must be accompanied by payment of an amount equal to the interest
that the registered holder is to receive on the Note. Except where Notes
surrendered for conversion must be accompanied by payment as described above,
we will not pay interest on converted Notes on any interest payment date
subsequent to the date of conversion. See "-- Optional Conversion to Semi-
annual Coupon Note upon Tax Event."
Cases Not Requiring an Adjustment
Events not specified under "-- Adjustment of the Conversion Rate" will not
result in an adjustment to the conversion rate even if they may have a dilutive
effect on holders of the Notes.
In addition, no adjustment to the conversion rate will be made if holders
may participate in the transaction that would otherwise give rise to such an
adjustment. For example, a distribution of assets by America Online that would
otherwise result in an adjustment to the conversion rate will not result in
such an adjustment if we provide for distribution to each holder of a Note, at
the Note's conversion, of the kind and amount of securities, cash or other
assets that such holder would have received immediately after such distribution
of assets if such holder had converted the Note immediately before the
effective date of the distribution. The provisions above regarding adjustment
of the conversion rate will also be used to adjust the amount of such assets to
be distributed if certain dilutive events occur in respect of such assets.
No adjustment will be made for any rights to purchase our common stock
pursuant to a plan for the reinvestment of dividends or interest.
If the shareholders rights plan under which any rights are issued provides
that each share of common stock issued upon conversion of Notes at any time
prior to the distribution of separate certificates representing such rights
will be entitled to receive such rights, there shall not be any adjustment to
the conversion rate as a result of:
. the issuance of the rights;
. the distribution of separate certificates representing the rights;
. the exercise or redemption of such rights in accordance with any rights
agreement; or
. the termination or invalidation of the rights.
If we are party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a Note
into common stock may be changed into a right to convert it into the kind and
amount of securities, cash or other assets which the holder would have received
if the holder had converted the holder's Notes immediately prior to the
transaction.
In cases where the fair market value of assets, debt securities or certain
rights, warrants or options to purchase our securities distributed to
shareholders:
. equals or exceeds the average sale price of the common stock, or
. such average sale price exceeds the fair market value of such assets,
debt securities or rights, warrants or options so distributed by less
than $1.00,
rather than being entitled to an adjustment in the conversion rate, the holder
of a Note upon conversion will be entitled to receive, in addition to the
shares of common stock, the kind and amount of assets, debt securities or
S-11
<PAGE>
rights, warrants or options that such holder would have received if such holder
had converted such Note immediately prior to the record date for determining
the shareholders entitled to receive the distribution. The provisions above
regarding adjustment of the conversion rate will also be used to adjust the
amount of such assets to be distributed if certain dilutive events occur in
respect of such assets.
"Average sale price" means the average of the sale prices of the common
stock for 30 consecutive trading days ending on the last trading day prior to
the date of the transaction or event that would result in an adjustment of the
conversion rate. The period over which the average sale price is calculated may
be adjusted under the indenture to take into account the occurrence during such
30 trading days of certain events that would affect the sale price of the
common stock.
"Sale price" of the common stock on any date means the last reported per
share sale price (or if no sale price is reported, the average of the bid and
ask prices or, if more than one in either case, the average of the average bid
and the average ask prices) on such date as reported in composite transactions
for the New York Stock Exchange.
Redemption of Notes at Our Option
Prior to December 6, 2002, the Notes will not be redeemable at our option.
On or after December 6, 2002 and prior to December 6, 2004, we can only
redeem the Notes for cash, in whole but not in part, if the closing sale price
for our common stock on the New York Stock Exchange is equal to or greater than
150% of the conversion price then in effect for at least 20 trading days in any
consecutive 30-trading day period, where the "conversion price" means the then
applicable redemption price divided by the conversion rate then in effect. We
must provide notice of redemption of the Notes within five trading days
following the last day of the 30 days' trading period.
Beginning on December 6, 2004, we may redeem the Notes for cash as a whole
at any time, or from time to time in part.
For any redemption of Notes, we will give not less than 20 business days nor
more than 60 days' notice of redemption by first class mail to the registered
holders and by publication in The Wall Street Journal and notice on our Web
site.
The table below shows redemption prices of a Note on December 6, 2002 and at
each December 6 thereafter prior to maturity and at maturity on December 6,
2019. These prices reflect the accrued original issue discount calculated to
each such date. The redemption price of a Note redeemed between such dates
would
S-12
<PAGE>
include an additional amount reflecting the additional original issue discount
accrued since the next preceding date in the table.
<TABLE>
<CAPTION>
(2)
(1) Accrued (3)
Note Original Issue Redemption
Redemption Date Issue Price Discount At 3.00% Price (1)+(2)
--------------- ----------- ----------------- -------------
<S> <C> <C> <C>
December 6, 2002................. $551.26 $51.51 $602.77
December 6, 2003................. 551.26 69.73 620.99
December 6, 2004................. 551.26 88.50 639.76
December 6, 2005................. 551.26 107.84 659.10
December 6, 2006................. 551.26 127.76 679.02
December 6, 2007................. 551.26 148.28 699.54
December 6, 2008................. 551.26 169.42 720.68
December 6, 2009................. 551.26 191.21 742.47
December 6, 2010................. 551.26 213.65 764.91
December 6, 2011................. 551.26 236.77 788.03
December 6, 2012................. 551.26 260.59 811.85
December 6, 2013................. 551.26 285.12 836.38
December 6, 2014................. 551.26 310.40 861.66
December 6, 2015................. 551.26 336.45 887.71
December 6, 2016................. 551.26 363.28 914.54
December 6, 2017................. 551.26 390.92 942.18
December 6, 2018................. 551.26 419.40 970.66
December 6, 2019................. 551.26 448.74 1000.00
</TABLE>
If the Notes are redeemed after a conversion to semi-annual payments
following the occurrence of a Tax Event, such redemption will be made at the
restated principal amount plus accrued and unpaid interest from the date of the
conversion through the redemption date. See "-- Optional Conversion to Semi-
annual Coupon Note upon Tax Event."
If less than all of the outstanding Notes are to be redeemed, the trustee
shall select the Notes to be redeemed in principal amounts at maturity of
$1,000 or integral multiples of $1,000. In this case, the trustee may select
the Notes by lot, pro rata or by any other method the trustee considers fair
and appropriate. If a portion of a holder's Notes is selected for partial
redemption and the holder converts a portion of the Notes, the converted
portion shall be deemed to comprise or be included in the portion selected for
redemption.
No sinking fund is provided for the Notes.
Purchase of Notes at the Option of the Holder
On December 6, 2004, we will, at the option of the holder, be required to
purchase any outstanding Note for which a written purchase notice has been
properly delivered by the holder and not withdrawn, subject to certain
additional conditions. Holders may submit their Notes for purchase to the
paying agent at any time from the opening of business on the date that is 20
business days prior to such purchase date until the close of business on such
purchase date.
The purchase price of a Note will be $639.76 per $1,000 principal amount at
maturity, which is equal to the issue price plus accrued original issue
discount to the purchase date.
We may, at our option, elect to pay the purchase price in cash or shares of
common stock, or any combination thereof. For a discussion of the tax treatment
of a holder receiving cash, common stock or any combination thereof, see
"Federal Income Tax Considerations -- Disposition or Conversion."
If prior to the purchase date the Notes have been converted to semi-annual
coupon Notes following the occurrence of a Tax Event, the purchase price will
be equal to the restated principal amount plus accrued and unpaid interest from
the date of the conversion to the purchase date. See "-- Optional Conversion to
Semi-annual Coupon Note upon Tax Event."
S-13
<PAGE>
We will be required to give notice on a date not less than 20 business days
prior to the purchase date to all holders of Notes, stating among other things:
. whether we will pay the purchase price of Notes in cash or common stock
or any combination thereof, specifying the percentages of each;
. if we elect to pay in common stock the method of calculating the average
market price of the common stock; and
. the procedures that holders must follow to require us to purchase their
Notes.
The purchase notice given by each holder electing to require us to purchase
Notes shall state:
. the certificate numbers of the holder's Notes to be delivered for
purchase;
. the portion of the principal amount at maturity of Notes to be purchased,
which must be $1,000 or an integral multiple of $1,000;
. that the Notes are to be purchased by us pursuant to the applicable
provisions of the Notes; and
. in the event we elect, in the notice that we are required to give, to pay
the purchase price in common stock, in whole or in part, but the purchase
price is ultimately to be paid to the holder entirely in cash because any
of the conditions to payment of the purchase price or portion of the
purchase price in common stock is not satisfied prior to the close of
business on the purchase date, as described below, whether the holder
elects:
(1) to withdraw the purchase notice as to some or all of the Notes to
which it relates, or
(2) to receive cash in respect of the entire purchase price for all
Notes or portions of Notes subject to such purchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
Notes subject to the purchase notice in these circumstances. For a discussion
of the tax treatment of a holder receiving cash instead of common stock, see
"Federal Income Tax Considerations -- Disposition or Conversion."
Any purchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
purchase date. The notice of withdrawal shall state:
. the principal amount at maturity being withdrawn;
. the certificate numbers of the Notes being withdrawn; and
. the principal amount at maturity, if any, of the Notes that remains
subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares of
common stock, the number of shares of common stock to be delivered by us shall
be equal to the amount of the purchase price to be paid in common stock divided
by the average market price of a share of common stock.
We will pay cash based on the average market price for all fractional shares
of common stock in the event we elect to deliver common stock in payment, in
whole or in part, of the purchase price. See "Federal Income Tax
Considerations -- Disposition or Conversion."
"Average market price" means the average of the last reported sale prices of
the common stock for the five trading day period ending on the third business
day prior to the applicable purchase date (or if the third business day is not
a trading day, then the last trading day before that day), appropriately
adjusted to take into account the occurrence, during the period commencing on
the first of such trading days during such five trading day period and ending
on such purchase date, of certain events that would result in an adjustment of
the conversion rate with respect to the common stock.
S-14
<PAGE>
Because the average market price of the common stock is determined prior to
the applicable purchase date, holders of Notes bear the market risk with
respect to the value of the common stock to be received from the date such
average market price is determined to such purchase date. We may pay the
purchase price or any portion of the purchase price in common stock only if
the information necessary to calculate the average market price is published
in a daily newspaper of national circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will publish such information in
The Wall Street Journal and on our Web site.
Our right to purchase Notes, in whole or in part, with common stock is
subject to our satisfying various conditions, including the registration of
the common stock under the Securities Act and the Exchange Act, if required.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the purchase date, we will pay the purchase price of the
Notes of the holder entirely in cash. See "Federal Income Tax
Considerations -- Disposition or Conversion." We may not change the form or
components or percentages of components of consideration to be paid for the
Notes once we have given the notice that we are required to give to holders of
Notes, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
. file Schedule 13E-4 or any other required schedule under the Exchange
Act.
Payment of the purchase price for a Note for which a purchase notice has
been delivered and not validly withdrawn is conditioned upon surrender of the
Note by means of book entry delivery in accordance with the provisions set
forth in the indenture and the regulations of DTC. Payment of the purchase
price for the Note will be made promptly following the later of the purchase
date or the time of surrender of the Note.
If the paying agent holds money or securities sufficient to pay the
purchase price of the Note on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the
purchase date, the Note will cease to be outstanding and original issue
discount on such Note will cease to accrue, whether or not the Note is
delivered to the paying agent. Thereafter, all other rights of the holder
shall terminate, other than the right to receive the purchase price upon
delivery of the Note.
Our ability to purchase Notes with cash may be limited by the terms of our
then existing borrowing agreements.
No Notes may be purchased for cash at the option of holders if there has
occurred and is continuing an Event of Default with respect to the Notes
described under "-- Events of Default; Notice and Waiver," other than a
default in the payment of the purchase price with respect to such Notes.
Fundamental Change Permits Holder to Require Us to Purchase Notes
In the event of any fundamental change occurring on or after December 6,
1999, each holder will have the right, at the holder's option, subject to the
terms and conditions of the indenture, to require us to purchase all or any
portion of the holder's Notes. However, the principal amount at maturity of
Notes submitted for purchase by a holder must be $1,000 or an integral
multiple of $1,000. We will be required to purchase the Notes as of the date
that is 40 business days after the occurrence of such fundamental change (a
"fundamental change purchase date") at a cash price equal to the issue price
plus accrued original issue discount to the fundamental change purchase date.
If prior to a fundamental change purchase date the Notes have been converted
to semi-annual coupon Notes following the occurrence of a Tax Event, we will
be required to purchase the Notes at a cash price equal to the restated
principal amount plus accrued and unpaid interest from the date of the
conversion to the fundamental change purchase date.
S-15
<PAGE>
We may, at our option, instead of paying the fundamental change purchase
price in cash, pay all or a portion of the fundamental change purchase price in
common stock, as long as our common stock is then listed on a national
securities exchange or traded on the Nasdaq National Market. The fair market
value of the common stock for such purpose shall be 97.5% of the average market
price of our common stock.
Within 15 business days after the occurrence of a fundamental change, we are
obligated to mail to the trustee and to all holders of Notes a notice regarding
the fundamental change, which notice shall state, among other things:
. the events causing a fundamental change;
. the date of such fundamental change;
. the fundamental change purchase price;
. the fundamental change purchase date and the last date on which the
purchase right may be exercised;
. the name and address of the paying agent and the conversion agent;
. the conversion rate and any adjustments to the conversion rate;
. that Notes with respect to which a fundamental change purchase notice is
given by the holder may be converted into common stock only if the
fundamental change purchase notice has been withdrawn in accordance with
the terms of the indenture; and
. the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the fundamental change purchase
date. The required purchase notice upon a fundamental change shall state:
. the portion of the principal amount at maturity of Notes to be purchased,
which portion must be $1,000 or an integral multiple of $1,000; and
. that we are to purchase such Notes pursuant to the applicable provisions
of the Notes.
Any fundamental change purchase notice may be withdrawn by the holder by a
written notice of withdrawal delivered to the paying agent prior to the close
of business on the fundamental change purchase date. The notice of withdrawal
shall state:
. the principal amount at maturity being withdrawn;
. the principal amount at maturity, if any, of the Notes that remain
subject to a fundamental change purchase notice.
Payment of the fundamental change purchase price for a Note for which a
fundamental change purchase notice has been delivered and not validly withdrawn
is conditioned upon surrender of the Note by means of book entry delivery in
accordance with the provisions set forth in the Indenture and the regulations
of DTC at any time after the delivery of such fundamental change purchase
notice. Payment of the fundamental change purchase price for such Note will be
made promptly following the later of the fundamental change purchase date or
the time of surrender of such Note.
If the paying agent holds money sufficient to pay the fundamental change
purchase price of the Note on the business day following the fundamental change
purchase date in accordance with the terms of the indenture, then, immediately
after the fundamental change purchase date, original issue discount on such
Note will cease to accrue, whether or not the Note is delivered to the paying
agent. Thereafter, all other rights of the holder shall terminate, other than
the right to receive the fundamental change purchase price upon delivery of the
Note.
S-16
<PAGE>
Holders may surrender a Note for purchase by us by means of book entry
delivery in accordance with the provisions set forth in the indenture and the
regulations of DTC.
The indenture does not permit our board of directors to waive our obligation
to purchase Notes at the option of holders in the event of a fundamental
change.
Under the indenture, "fundamental change" means the occurrence of any
transaction or event in connection with which all or substantially all common
stock shall be exchanged for, converted into, acquired for or constitute solely
the right to receive (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) consideration which is not all or substantially
all common stock listed on a United States national securities exchange or
approved for quotation on the Nasdaq National Market or any similar United
States system for automated dissemination of quotations of securities prices
(or which will be so listed or approved for quotation upon consummation of or
immediately following such transaction or event).
In connection with any purchase offer in the event of a fundamental change,
we will:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
. file Schedule 13E-4 or any other required schedule under the Exchange
Act.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a fundamental change with respect
to the fundamental change purchase feature of the Notes but that would increase
the amount of our outstanding indebtedness.
If a fundamental change were to occur, we may not have funds sufficient to
pay the fundamental change purchase price for all of the Notes that might be
delivered by holders seeking to exercise this right, since we may be required
to prepay certain senior indebtedness having financial covenants with change of
control or fundamental change provisions in favor of the holders thereof. In
addition, our senior indebtedness may have cross-default provisions that could
be triggered by a default under the change of control or fundamental change
provisions in such senior indebtedness, thereby possibly accelerating the
maturity of such senior indebtedness. In such case, the holders of the Notes
would be subordinated to the prior claims of the holders of such senior
indebtedness.
No Notes may be purchased at the option of holders upon a fundamental change
if there has occurred and is continuing an Event of Default with respect to the
Notes, other than a default in the payment of the fundamental change purchase
price with respect to the Notes.
Optional Conversion to Semi-annual Coupon Note upon Tax Event
From and after the date of the occurrence of a Tax Event, we shall have the
option to elect to have interest in lieu of future original issue discount
accrue at 3.00% per year on a principal amount per Note (the "restated
principal amount") equal to the issue price plus original issue discount
accrued to the date of the Tax Event or the date on which we exercise the
option described below, whichever is later (the "option exercise date").
Such interest shall accrue from the option exercise date and shall be
payable semi-annually on the interest payment dates of June 6 and December 6 of
each year to holders of record at the close of business on May 22 or November
21 immediately preceding the interest payment date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Interest will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the option exercise date.
"Tax Event" means that we shall have received an opinion from independent
tax counsel experienced in such matters to the effect that, on or after
December 6, 1999, as a result of (a) any amendment to, or change, including any
announced prospective change, in, the laws, or any regulations thereunder, of
the United States or
S-17
<PAGE>
any political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority, in each case which amendment or change is enacted, promulgated,
issued or announced or which interpretation is issued or announced or which
action is taken, on or after December 6, 1999, there is more than an
insubstantial risk that interest, including original issue discount, payable on
the Notes either:
. would not be deductible by us on a current accrual basis, or
. would not be deductible by us under any other method,
in either case in whole or in part, by reason of deferral, disallowance, or
otherwise, for United States federal income tax purposes.
From time to time, tax law changes have been proposed that would have, if
enacted and made applicable to the Notes, prevented us from deducting interest,
including original issue discount, payable on the Notes on a current accrual
basis for United States federal income tax purposes. In addition, such proposed
tax law changes could have caused some or all of the interest, including
original issue discount, payable on the Notes to fail to be deductible by us
under any other method for United States federal income tax purposes. Similar
proposals were included in President Clinton's fiscal year 1999 and 2000 budget
proposals introduced in February 1998 and February 1999, respectively, but were
not adopted by Congress and were not part of the Internal Revenue Services
Restructuring and Reform Bill of 1998 or the Tax and Trade Relief Extension Act
of 1998.
If a similar proposal were ever enacted and made applicable to the Notes in
a manner that would limit our ability to either:
. deduct the interest, including original issue discount, payable on the
Notes on a current accrual basis, or
. deduct the interest, including original issue discount, payable on the
Notes under any other method for United States federal income tax
purposes,
such enactment would result in a Tax Event and the terms of the Notes would
be subject to modification at our option as described above.
The modification of the terms of the Notes by us upon a Tax Event as
described above could possibly alter the timing of income recognition by
holders of the Notes with respect to the semi-annual payments of interest due
on the Notes after the option exercise date. See "Federal Income Tax
Considerations."
Merger and Sales of Assets
The indenture provides that we may not consolidate with or merge into any
other person or convey, transfer or lease our properties and assets
substantially as an entirety to another person, unless among other items:
. the resulting, surviving or transferee person, if other than us, is
organized and existing under the laws of the United States, any state
thereof or the District of Columbia and such person assumes all of our
obligations under the Notes and the indenture; and
. we or such successor person shall not immediately thereafter be in
default under the indenture.
Certain of the foregoing transactions occurring on or after December 6, 1999
could constitute a fundamental change permitting each holder to require us to
purchase the holder's Notes as described above.
Events of Default; Notice and Waiver
The indenture provides that, if an Event of Default specified therein shall
have happened and be continuing, either the trustee or the holders of not less
than 25% in aggregate principal amount at maturity of the Notes then
outstanding may declare the issue price of the Notes plus the original issue
discount on the
S-18
<PAGE>
Notes accrued, or if the Notes have been converted to semi-annual coupon notes
following a Tax Event, the restated principal amount, plus accrued and unpaid
interest through the date of such declaration to be immediately due and
payable.
In the case of certain events of bankruptcy or insolvency, the issue price
of the Notes plus the original issue discount accrued on the Notes, or if the
Notes have been converted to semi-annual coupon notes following a Tax Event,
the restated principal amount, plus accrued and unpaid interest, through the
occurrence of such event shall automatically become and be immediately due and
payable. The Notes would, however, remain unsecured obligations subordinated in
right of payment, as provided in the indenture, to the prior payment in full of
all our senior indebtedness.
Under certain circumstances, the holders of a majority in aggregate
principal amount at maturity of the outstanding Notes may rescind any
acceleration with respect to the Notes and its consequences.
Interest shall, to the extent permitted by law, accrue and be payable on
demand with respect to any Note upon a default in the payment of any amount due
and payable with respect to the Notes. This interest shall be compounded semi-
annually. The accrual of interest on overdue amounts shall be instead of, and
not in addition to, the continued accrual of original issue discount.
Under the indenture, an Event of Default includes any of the following:
. default in payment of the principal amount at maturity (or if the Notes
have been converted to semi-annual coupon notes following a Tax Event,
the restated principal amount when due), redemption price, purchase price
or fundamental change purchase price with respect to any Note when such
becomes due and payable;
. if the Notes have been converted to semi-annual coupon notes following a
Tax Event, our failure to pay interest within 30 days of the due date;
. our failure to comply with any of our other agreements in the Notes or
the indenture upon receipt by us of notice of such default by the trustee
or by holders of not less than 25% in aggregate principal amount at
maturity of the Notes then outstanding and our failure to cure or obtain
a waiver of such default within 90 days after receipt by us of such
notice; and
. certain events of bankruptcy or insolvency.
The holders of a majority in aggregate principal amount at maturity of the
outstanding Notes may 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. However, this direction shall not be in
conflict with any law or the indenture and subject to certain other
limitations. Before proceeding to exercise any right or power under the
indenture at the direction of such holders, the trustee shall be entitled to
receive from such holders reasonable security or indemnity satisfactory to it
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
No holder of any Note will have any right to pursue any remedy with respect
to the indenture or the Notes, unless:
. such holder shall have previously given the trustee written notice of a
continuing Event of Default;
. the holders of at least 25% in aggregate principal amount at maturity of
the outstanding Notes shall have made a written request to the trustee to
pursue such remedy;
. such holder or holders have offered to the trustee reasonable indemnity
satisfactory to the trustee;
. the holders of a majority in aggregate principal amount at maturity of
the outstanding Notes have not given the trustee a direction inconsistent
with such request within 60 days after receipt of such request; and
. the trustee shall have failed to comply with the request within such 60-
day period.
S-19
<PAGE>
Notwithstanding the above provisions, the following rights of any holder
shall not be impaired or adversely affected without the holder's consent:
. to receive payment of the principal amount at maturity (or if the Notes
have been converted to semi-annual coupon notes following a Tax Event,
the restated principal amount or interest when due), redemption price,
purchase price or fundamental change purchase price with respect to any
Note and any interest in respect of a default in the payment of any such
amounts on such Note on or after the due date expressed in the Note;
. to convert Notes; or
. to institute suit for the enforcement of any such payments or conversion.
The holders of at least a majority in aggregate principal amount at maturity
of the outstanding Notes may waive an existing default and its consequences,
other than:
. any default in any payment on the Notes;
. any default which constitutes a failure to convert any Note in accordance
with its terms; or
. any default in respect of certain covenants or provisions in the
indenture which may not be modified without the consent of the holder of
each Note as described in "Modification" below.
When a default is waived, it is deemed cured and shall cease to exist, but
no such waiver shall extend to any subsequent or other default or impair any
consequent right.
We will be required to furnish to the trustee annually a statement as to any
default by us in the performance and observance of its obligations under the
indenture. The trustee will be required to give notice to holders of the Notes
of any continuing default known to the trustee within 90 days after the
occurrence thereof, unless such default shall have been cured or waived before
the giving of such notice. However, the trustee may withhold such notice, as to
any default other than a payment default, if it determines in good faith that
withholding the notice is in the interests of the holders.
Modification
Without the consent of any holder of Notes, we may, together with the
trustee, amend the indenture to:
. cure any ambiguity, defect or inconsistency;
. provide for the assumption by a successor corporation of our obligations
under the indenture;
. provide for uncertificated Notes in addition to certificated Notes, so
long as any uncertificated Notes are in registered form for purposes of
the Internal Revenue Code;
. make any change that does not adversely affect the rights of any holder
of Notes; or
. add to our covenants or obligations under the indenture or surrender any
right, power or option conferred by the indenture on us; or
. make any change to comply with the Trust Indenture Act of 1939, or to
comply with any requirement of the Securities and Exchange Commission in
connection with the qualification of the indenture under the Trust
Indenture Act of 1939.
Modification and amendment of the indenture or the Notes may be effected by
us and the trustee with the consent of the holders of not less than a majority
in aggregate principal amount at maturity of the Notes then outstanding.
However, without the consent of each holder affected thereby, no amendment may,
among other things:
. reduce the principal amount at maturity, restated principal amount, issue
price, purchase price, fundamental change purchase price or redemption
price with respect to any Note;
. extend the stated maturity of any Note;
S-20
<PAGE>
. alter the manner or rate of accrual of original issue discount or
interest on any Note;
. make any Note payable in money or securities other than that stated in
the Note;
. make any reduction in the principal amount at maturity of Notes whose
holders must consent to an amendment or any waiver under the indenture or
modify the indenture provisions relating to such amendments or waivers;
. make any change that adversely affects the right to convert any Note;
. make any change that adversely affects the right to require us to
purchase a Note;
. modify the provisions of the indenture relating to the subordination of
the Notes in a manner adverse to the holders of the Notes; or
. impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the Notes.
Discharge of the Indenture
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding Notes or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the Notes have become due and payable (whether at stated
maturity, or any redemption date, or any purchase date, or a fundamental change
purchase date, or upon conversion or otherwise) cash or common stock, as
applicable under the indenture, sufficient to pay all of the outstanding Notes
and paying all other sums payable by us under the indenture.
Limitations of Claims in Bankruptcy
If a bankruptcy proceeding is commenced with respect to us, the claim of the
holder of a Note is, under Title 11 of the United States Code, limited to the
issue price of the Note plus that portion of the original issue discount that
has accrued from the date of issue to the commencement of the proceeding.
Information Concerning the Trustee
State Street Bank and Trust Company is the trustee, registrar, paying agent
and conversion agent under the indenture. We may maintain deposit accounts and
conduct other banking transactions with the trustee in the normal course of
business.
S-21
<PAGE>
BOOK-ENTRY ISSUANCE
Global Securities
What is a Global Security?
The Notes will be issued only in book-entry form, which means that they will
be represented by one or more permanent global securities registered in the
name of The Depository Trust Company, New York, New York ("DTC"). Since the
Notes will be issued in the form of global securities, the ultimate beneficial
owners can only be indirect "street name" holders. We do this by requiring that
the global securities be registered in the name of DTC or its nominee and by
requiring that the Notes included in the global securities not be transferred
in the name of any other direct holder unless the special circumstances
described below occur. Any person wishing to own Notes must do so indirectly by
virtue of an account with a broker, bank or other financial institution that in
turn has an account with DTC. DTC will keep a computerized record of its direct
participants whose clients have purchased the Notes. Direct participants may
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC's book-entry system is also
used by other organizations, such as securities brokers and dealers, banks and
trust companies, that work through a direct participant. Each participant will
in turn keep a record of its clients who have purchased the Notes.
Special Investor Considerations for Global Securities
As an indirect holder, an investor's rights relating to the global
securities will be governed by the account rules of the investor's financial
institution and of DTC, as the well as general laws relating to securities
transfers. We do not recognize this type of investor as a holder of Notes and
instead deal only with DTC or its nominee. See "-- The DTC System" below.
An investor should be aware that because the Notes are issued only in the form
of global securities:
. the investor cannot get Notes registered in his or her own name;
. the investor cannot receive physical certificates for his or her interest
in the Notes;
. the investor will be a "street name" holder and must look to his or her
own bank or broker for payments on the Notes and protection of his or her
legal rights relating to the Notes;
. the investor may not be able to sell interests in the Notes to some
insurance companies and other institutions that are required by law to
own their securities in the form of physical certificates;
. DTC's policies will govern payments, transfers, exchange and other
matters relating to the investor's interest in the global securities (see
"-- The DTC System" below); America Online and the trustee have no
responsibility for any aspect of DTC's actions or for its records of
ownership interests in the global securities, nor do they supervise DTC
in any way; and
. payment for purchases and sales in the market for corporate bonds and
Notes is generally made in next-day funds. In contrast, DTC will usually
require that interests in global securities be purchased or sold within
its system using same-day funds. This difference could have some effect
on how global securities interests trade, but neither we nor the trustee
know what that effect will be.
Unless they are exchanged in whole or in part for Notes in definitive
certificate form, the global securities may not be transferred, except that
DTC, its nominees, and their successors may transfer the global securities as a
whole to one another. Beneficial interests in the global securities will be
shown on, and transfers of Notes will be made only through, records maintained
by DTC and its participants. You will not receive an individual certificate
representing the Notes you purchase.
If you desire to convert your beneficial interest in the Notes into common
stock or to cause us to repurchase your interest in the Notes at your option as
provided herein or upon a fundamental change, you should contact your broker,
participant or indirect participant through which you hold your beneficial
interest and obtain information on procedures, proper forms and cut-off times
for submitting requests.
S-22
<PAGE>
Special Situations When Global Securities Will Be Terminated
Notes represented by the global securities may be exchanged for note
certificates with the same terms in authorized denominations only if:
. DTC notifies us that it is unwilling or unable to continue as depositary
or if DTC ceases to be a clearing agency registered under applicable law
and a successor depositary is not appointed by us within 90 days; or
. We determine not to require all of the Notes to be represented by the
global securities and notify the trustee of our decision.
The DTC System
DTC has advised us that it is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the United States Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered under the provisions of Section 17A of
the Securities Exchange Act of 1934. DTC is owned by some of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. The
rules that apply to DTC and its participants are on file with the Securities
and Exchange Commission.
DTC holds securities that its direct participants deposit with it. DTC also
records the settlement among direct participants of securities transactions,
such as transfers and pledges, in deposited securities through computerized
records for direct participants' accounts. This eliminates the need to exchange
certificates.
When you purchase Notes through the DTC system, the purchases must be made
by or through a participant, who will receive credit for the Notes on DTC's
records. Since you actually own the Notes, you are a beneficial owner and your
ownership interest will only be recorded on the participants' or indirect
participants' records. DTC has no knowledge of your individual ownership of the
Notes. DTC's records only show the identity of the participants and the amount
of the Notes held by or through them. You will not receive a written
confirmation of your purchase or sale or any periodic statement directly from
DTC. You will receive these from your participant or indirect participant. Thus
the participants or indirect participants are responsible for keeping accurate
account of the holdings of their customers such as you.
We will wire any payments on the Notes to DTC's nominee. We and the trustee
will treat DTC's nominee as the owner of the global securities for all
purposes. Accordingly, we, the trustee, any paying agent or third parties
employed by America Online or the trustee will have no direct responsibility or
liability to pay amounts due on the Notes to owners of beneficial interests in
the global securities.
It is DTC's current practice, upon receipt by its nominee of any payment of
principal or interest, to credit direct participants' accounts on the payment
date according to their respective holdings of beneficial interests in the
global securities as shown on DTC's records. In addition, it is DTC's current
practice to assign any consenting or voting rights to direct participants whose
accounts are credited with Notes on a record date, by using an omnibus proxy.
Payments by participants to owners of beneficial interests in the global
securities, and voting by participants, will be governed by the customary
practices between the participants and owners of beneficial interests, as is
the case with securities held for the account of customers registered in
"street name." However, payments will be the responsibility of the participants
and not of DTC, the trustee or us.
The following Year 2000 disclosure has also been provided by DTC:
DTC management is aware that some computer applications, systems,
and the like for processing data that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed its participants and
other members of the financial community that it has developed and is
implementing a program
S-23
<PAGE>
so that its systems, as the same relate to the timely payment of
distributions (including principal and income payments) to security
holders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including, but not limited to issuers
and their agents, as well as third party vendors from whom DTC
licenses software and hardware, and third party vendors on whom DTC
relies for information or for the provision of services, including
telecommunication and electrical utility service providers, among
others. DTC has informed its participants and other members of the
financial community that it is contacting (and will continue to
contact) third party vendors from whom DTC acquires services to: (1)
impress upon them the importance of those services being Year 2000
compliant; and (2) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans
as it deems appropriate.
We have obtained the information concerning DTC and DTC's book-entry system
from sources that we believe to be accurate, but are not responsible for the
accuracy of this information. In addition, we are not responsible for the
performance by DTC, its participants or any indirect participants of any of
their obligations.
S-24
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
This is a summary of certain United States federal income tax considerations
relevant to holders of Notes. This summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue
Service rulings and judicial decisions now in effect, all of which are subject
to change or different interpretations, possibly with retroactive effect. There
can be no assurance that the Internal Revenue Service will not challenge one or
more of the conclusions described herein, and we have not obtained, nor do we
intend to obtain, a ruling from the Internal Revenue Service with respect to
the United States federal income tax consequences of acquiring or holding
Notes.
This summary does not purport to deal with all aspects of United States
federal income taxation that may be relevant to a holder, for example, persons
subject to the alternative minimum tax provisions of the Code. Also, it is not
intended to be wholly applicable to all categories of investors, such as
foreign corporations and individuals who are not citizens or residents of the
United States, some of which may be subject to special rules.
This summary also does not discuss the tax consequences arising under the
laws of any state, local or foreign jurisdiction. In addition, this summary is
limited to original purchasers of Notes who acquire Notes at their original
issue price within the meaning of Section 1273 of the Code and who will hold
the Notes and common stock into which the Notes may be converted as "capital
assets" within the meaning of Section 1221 of the Code.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, CONVERSION OR OTHER DISPOSITION
OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES AND THE CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION.
We have been advised by our counsel, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., that in such counsel's opinion the Notes will be treated as
indebtedness for United States federal income tax purposes. Counsel has further
advised us that it is counsel's opinion that, while the following does not
purport to discuss all tax matters relating to the Notes, based upon the Notes
being treated as indebtedness, the following are the material federal income
tax consequences of the ownership and conversion or disposition of the Notes,
subject to the qualifications set forth above.
Original Issue Discount
The Notes are being issued at a substantial discount from their principal
amount at maturity. For United States federal income tax purposes, the
difference between the issue price (the initial price at which a substantial
number of the Notes are sold for money) and the stated principal amount at
maturity of each Note constitutes original issue discount. Holders of the Notes
will be required to include original issue discount in income periodically over
the term of the Notes before receipt of the cash or other payment attributable
to such income.
A holder of a Note must include in gross income for federal income tax
purposes, such holder's "accrued original issue discount," which is the sum of
the daily portions of original issue discount with respect to the Note for each
day during the taxable year or portion of a taxable year on which such holder
holds the Note. The daily portion is determined by allocating to each day of an
accrual period a pro rata portion of an amount equal to the adjusted issue
price of the Note at the beginning of the accrual period multiplied by the
yield to maturity of the Note. The accrual period of a Note may be of any
length and may vary in length over the term of the Note, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs at the end of an accrual period or on the first
day of an accrual period. The adjusted issue price of the Note at the start of
any accrual period is the issue price of the Note increased by the accrued
original issue discount for each prior accrual period. Under these rules,
holders will have to include in gross income increasingly greater amounts of
original issue discount in each successive accrual period. Any amount included
in income as original issue discount will increase a holder's tax basis in the
Note.
S-25
<PAGE>
We will be required to furnish annually to the Internal Revenue Service and
to certain noncorporate holders information regarding the amount of the
original issue discount attributable to that year. For this purpose, we will
use a six-month accrual period which ends on the day in each calendar year
corresponding to the maturity day of the Note or the date six months before
such maturity date.
Disposition or Conversion
Except as described below, gain or loss upon a sale or other disposition of
a Note will generally be capital gain or loss, which will be long term if the
Note is held for more than one year. Net capital gain of individuals is, under
certain circumstances, taxed at lower rates than items of ordinary income. In
the case of individuals, long-term capital gains with respect to property held
for more than one year are taxed at a maximum 20% federal tax rate. Net capital
gain of corporations is taxed at the same rate as ordinary income, with a
maximum federal rate of 35%.
A holder's conversion of a Note into common stock is generally not a taxable
event, except with respect to cash received in lieu of a fractional share. The
holder's obligation to include in gross income the daily portions of original
issue discount with respect to a Note will terminate prospectively on the date
of conversion. The holder's basis in the common stock received on conversion of
a Note will be the same as the holder's basis in the Note at the time of
conversion, exclusive of any tax basis allocable to a fractional share. The
holding period for the common stock received on conversion will include the
holding period of the converted Note, assuming the Note is held as a capital
asset.
If a holder elects to exercise its option to tender a Note to the Company on
a purchase date and the Company issues common stock in satisfaction of all or
part of the purchase price, the exchange of the Note for common stock should
qualify as a reorganization or an otherwise nontaxable transaction for federal
income tax purposes.
If the purchase price is paid solely in common stock, other than cash
received in lieu of a fractional share, neither gain nor loss would generally
be recognized by the holder, except as described below with respect to a
fractional share.
If the purchase price is paid in a combination of shares of common stock and
cash, other than cash received in lieu of a fractional share, gain but not loss
realized by the holder would be recognized, but only to the extent such gain
does not exceed such cash.
A holder's tax basis in the common stock received in the exchange will be
the same as the holder's tax basis in the Note tendered to us in exchange for
the Note, exclusive of any tax basis allocable to a fractional share interest.
However, this tax basis will be decreased by the amount of any cash, other than
cash received in lieu of a fractional share, received in the exchange and
increased by the amount of any gain recognized by the holder on the exchange
other than gain with respect to a fractional share.
The holding period for common stock received in the exchange will include
the holding period for the Note tendered to the Company in exchange for the
Note, assuming the Note is held as a capital asset.
Cash received in lieu of a fractional share of common stock upon conversion
of a Note or upon a put of a Note to the Company on a purchase date should be
treated as a payment in exchange for the fractional share. Accordingly, if the
common stock is a capital asset in the hands of the holder, the receipt of cash
in lieu of a fractional share of common stock will generally result in capital
gain or loss measured by the difference between the cash received for the
fractional share and the holder's basis in the fractional share.
If a holder elects to exercise its option to tender a Note to us on a
purchase date or a fundamental change purchase date and we deliver cash in
satisfaction of the purchase price, the holder would recognize gain or loss,
measured by the difference between the amount of cash transferred by us to the
holder and the holder's basis in the tendered Note. Gain or loss recognized by
the holder would generally be capital gain or loss.
S-26
<PAGE>
Gain or loss upon a sale or other disposition of the common stock received
upon conversion of a Note or in satisfaction of the purchase price of a Note
put to us generally will be capital gain or loss if the common stock is held as
a capital asset, and such gain or loss will be long-term if the holding period
for such common stock is more than one year. In the case of individuals, long-
term capital gain with respect to property held for more than one year is taxed
at a maximum 20% federal tax rate. Net capital gain of corporations is taxed at
the same rate as ordinary income, with a maximum federal tax rate of 35%.
Constructive Dividend
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend and, in accordance with the
anti-dilution provisions of the Notes, the conversion rate of the Notes is
adjusted, such adjustment may be treated as a payment of a taxable dividend to
holders of the Notes.
For example, an increase in the number of shares receivable upon conversion
of the Notes in the event of distributions of evidences of indebtedness or of
assets of the Company will generally result in deemed dividend treatment to
holders of the Notes, but generally an increase in the event of stock dividends
or the distribution of rights to subscribe for common stock will not. See
"Description of Notes -- Conversion Rights."
Backup Withholding And Information Reporting
Information reporting will apply to payments of interest or dividends, if
any, made by us on, or the proceeds of the sale or other disposition of, the
Notes or shares of common stock with respect to certain noncorporate holders,
and backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules will be allowable as a credit against the holder's federal
income tax, provided that the required information is provided to the Internal
Revenue Service.
Tax Event
The modification of the terms of the Notes by us upon a Tax Event as
described in "Description of Notes -- Optional Conversion to Semi-annual Coupon
Note upon Tax Event," could possibly alter the timing of income recognition by
the holders with respect to the semi-annual payments of interest due after the
option exercise date.
S-27
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the principal amount
at maturity of Notes set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
Principal Amount at
Name Maturity of Notes
---- -------------------
<S> <C>
Salomon Smith Barney Inc.............................. $ 793,637,000
Morgan Stanley & Co. Incorporated..................... 793,637,000
Bear, Stearns & Co. Inc............................... 226,753,000
Goldman, Sachs & Co................................... 226,753,000
Lehman Brothers Inc................................... 226,753,000
--------------
Total............................................... $2,267,533,000
==============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the Notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the Notes (other than those
covered by the over-allotment option described below) if they purchase any of
the Notes.
Our common stock is listed on the New York Stock Exchange under the symbol
"AOL".
The underwriters, for whom Salomon Smith Barney Inc. and Morgan Stanley &
Co. Incorporated are acting as representatives, propose to offer the Notes
directly to the public at the public offering price set forth on the cover page
of this prospectus supplement. After the initial offering of the Notes to the
public, the public offering price may be changed by the representatives.
We have granted to each of the underwriters an option, exercisable for 30
days from the date hereof, to purchase up to an aggregate of $340,129,950
principal amount at maturity of additional Notes. Each of the underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, in connection with the offering of the Notes. To the extent that the
underwriters exercise such option, each underwriter will be obligated, subject
to certain conditions, to purchase such additional Notes proportionate to such
underwriter's initial commitment.
We and certain of our executive officers and directors have agreed that, for
a period of 30 days from the date of the execution of the underwriting
agreement, we and they will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any
shares of common stock of America Online or any securities convertible into, or
exercisable or exchangeable for, common stock (subject to limited exceptions).
Salomon Smith Barney Inc. in its sole discretion may release any of the
securities subject to these lock-up agreements at any time without notice.
The following table shows the underwriting discount and commission to be
paid to the underwriters by us in connection with this offering (expressed as a
percentage of the issue price of the Notes).
<TABLE>
<CAPTION>
Paid by America Online
----------------------
<S> <C>
Per Note.......................................... 2.50%
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell Notes in the open market. These
transactions may include over-allotment, syndicate covering
S-28
<PAGE>
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of Notes in excess of the principal amount at maturity of Notes to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Stabilizing transactions consist of certain bids or purchases of
Notes made for the purpose of preventing or retarding a decline in the market
price of the Notes while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases Notes originally sold by that syndicate
member.
Any of these activities may cause the price of the Notes to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $550,000.
The representatives have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The representatives may, from time to time, engage in
transactions with and perform services for us in the ordinary course of
business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect thereof.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and prior to the date six months after the date of issue of the Notes will
not offer or sell any Notes to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 of the United Kingdom; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 of the United Kingdom with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
Notes to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as
amended) or is a person to whom the document may otherwise lawfully be issued
or passed on.
LEGAL MATTERS
The validity of the Notes offered hereby is being passed upon for America
Online by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., and certain
legal matters will be passed upon for the underwriters by Cleary, Gottlieb,
Steen & Hamilton, New York, New York. The Vice Chairman of America Online also
serves as Of Counsel to Mintz, Levin and, as of November 29, 1999, owns an
aggregate of 2,518 shares of common stock and options to purchase 5,504,000
shares of common stock. Attorneys of Mintz, Levin and certain members of their
families and trusts for their own benefits, as of November 29, 1999, own an
aggregate of approximately 11,200 shares of America Online common stock.
S-29
<PAGE>
[This Page Intentionally Left Blank]
S-30
<PAGE>
PROSPECTUS
$5,000,000,000 [AMERICAN ONLINE LOGO]
AMERICA ONLINE, INC.
Debt Securities, Common Stock, Preferred Stock
Depositary Shares, Warrants and Stock Purchase
Contracts to Purchase Common Stock or Preferred Stock
We may sell, from time to time, in one or more offerings:
. our debt securities
. shares of our common stock
. shares of our preferred stock
. shares of our preferred stock represented by depositary shares
. warrants exercisable for our debt securities, common stock, preferred
stock or depositary shares
. stock purchase contracts to purchase common stock or preferred stock
The total offering price of these securities, in the aggregate, will not
exceed $5,000,000,000. We will provide the specific terms of any securities we
actually offer for sale in supplements to this prospectus. You should read this
prospectus and the supplements carefully before you decide to invest in any of
these securities.
Our common stock is listed on the New York Stock Exchange, under the
symbol "AOL." Any common stock sold pursuant to a prospectus supplement will be
listed on the New York Stock Exchange.
----------------
You should carefully consider the risk factors beginning on page 3 of this
prospectus before purchasing any of the securities offered by this prospectus.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
This prospectus may not be used to consummate the sale of any securities
unless accompanied by a prospectus supplement.
The date of this prospectus is November 4, 1999.
<PAGE>
THE COMPANY
Founded in 1985, America Online, Inc., based in Dulles, Virginia, is the
world's leader in interactive services, Web brands, Internet technologies, and
electronic commerce services.
America Online has two major lines of businesses organized into four
product groups:
. the Interactive Online Services business, comprised of the Interactive
Services Group, the Interactive Properties Group and the AOL
International Group, and
. the Enterprise Solutions business, comprised of the Netscape Enterprise
Group.
The product groups are described below.
The Interactive Services Group develops and operates branded interactive
services, including:
. the AOL service, a worldwide Internet online service with more than 19
million members
. the CompuServe service, a worldwide Internet online service with more
than 2 million members
. the Netscape Netcenter, an Internet portal with more than 20 million
registered users
. the AOL.COM Internet portal
. the Netscape Communicator client software, including the Netscape
Navigator browser
The Interactive Properties Group is built around branded properties that
operate across multiple services and platforms, such as:
. Digital City, Inc., the No. 1 branded local content network and
community guide on the AOL service and the Internet
. ICQ, the world's leading communications portal that provides instant
communications and chat technology
. MovieFone, Inc., the nation's No. 1 movie guide and ticketing service
provided through an interactive telephone service and on the AOL service
and the Internet
. Internet music brands Spinner.com, Winamp and SHOUTcast
The AOL International Group oversees the AOL and CompuServe services and
operations outside the United States, as well as the Netscape Online service,
which was launched in the United Kingdom.
The Netscape Enterprise Group focuses on providing businesses a range of
software products, technical support, consulting and training services. These
products and services enable businesses and users to share information, manage
networks and facilitate electronic commerce.
In November 1998, America Online entered into a strategic alliance with
Sun Microsystems, Inc. ("Sun"), a leader in network computing products and
services, to accelerate the growth of electronic commerce. The strategic
alliance provides that, over a three-year period, we will develop and market,
together with Sun, client software and network application and server software
for electronic commerce, extended communities and connectivity, including
software based in part on the Netscape Enterprise Group code base, on Sun code
and technology and on certain America Online services features, to business
enterprises.
During the last fiscal year, America Online entered into a number of
strategic mergers. In March 1999, America Online completed its merger with
Netscape Communications Corporation and in May 1999, America Online completed
its merger with MovieFone, Inc. America Online also completed mergers with
Nullsoft, Inc. and Spinner Networks Incorporated, companies that provide music
over the Internet, When Inc., a company that provides a personalized event
directory and calendar services, AtWeb, Inc., and PersonaLogic, Inc.
2
<PAGE>
America Online was incorporated in Delaware on May 24, 1985. The
principal executive offices are located at 22000 AOL Way, Dulles, Virginia
20166-9323. Our telephone number at that address is (703) 265-1000. Inquiries
may also be sent to America Online's Internet address: AOL [email protected], or to
the America Online address, AOL IR.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the three months ended September 30, 1999 and for each of the last five fiscal
years.
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended June 30,
September 30, ---------------------------
1999 1999 1998 1997 1996 1995
------------------ ----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges....................... 7.14x 7.72x 0.25x -- 5.06x --
</TABLE>
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
$420 million and $36 million, respectively.
RISK FACTORS
Before purchasing the shares offered by this prospectus, you should
carefully consider the risks described below, in addition to the other
information presented in this prospectus or incorporated by reference into
this prospectus. If any of the following risks actually occur, they could
seriously harm our business, financial condition or results of operations. In
such case, the trading price of our common stock could decline and you may
lose all or part of your investment.
We Face Competition for Subscription Revenues and the Development and Sale of
Electronic Commerce Infrastructure and Applications
We compete with a wide range of other companies in the communications,
advertising, entertainment, information, media, Web-based services, software,
technology, direct mail and electronic commerce fields for subscription,
advertising, and commerce revenues, and in the development of distribution
technologies and equipment in our Interactive Online Services business. We
also compete with a wide range of companies in the development and sale of
electronic commerce infrastructure and applications in our Enterprise
Solutions business.
. Competitors for subscription revenues include:
--online services such as the Microsoft Network, AT&T Worldnet and
Prodigy Classic
--national and local Internet service providers, such as MindSpring and
EarthLink (who have announced their intention to combine)
--long distance and regional telephone companies offering access as
part of their telephone service, such as AT&T Corp., MCI WorldCom,
Inc., Sprint Corporation and regional Bell operating companies
--cable television companies
--cable Internet access services offered by companies such as
Excite@Home and Road Runner Group
3
<PAGE>
. Competitors for advertising and commerce revenues include:
--online services such as the Microsoft Network, AT&T Worldnet and
Prodigy Classic
--Web-based navigation and search service companies such as Yahoo!
Inc., Infoseek Corporation (to be acquired by the Walt Disney
Company), Lycos, Inc. and Excite@Home.
--global media companies including newspapers, radio and television
stations and content providers, such as the National Broadcasting
Corporation, CBS Corporation, The Walt Disney Company, Time Warner
Inc., The Washington Post Company and Conde Nast Publications, Inc.
--cable Internet access services offered by companies such as
Excite@Home and Road Runner Group
--Web sites focusing on content, commerce, community and similar
features such as Amazon.com and eBay
. Competition in the development of distribution technologies and
equipment includes:
--broadband distribution technologies used in cable Internet access
services offered by companies such as Excite@Home and Road Runner
Group
--advanced telephone-based access services offered through digital
subscriber line technologies offered by local telecommunications
companies
--other advanced digital services offered by broadcast, satellite and
wireless companies
--television-based interactive computer services, such as those offered
by Microsoft's WebTV
--personal digital assistants or handheld computers, enhanced mobile
phones and other equipment offering functional equivalents to our
features
. Competitors in the development and sale of electronic commerce
infrastructure and applications include:
--providers of electronic commerce infrastructure such as server
software, including International Business Machines Corporation,
Microsoft Corporation, Oracle Corporation, Novell, Inc., Software.com,
Inc., BEA Systems, Inc. and the provider of the Apache Web Server
--providers of electronic commerce applications including International
Business Machines Corporation, Oracle Corporation, General Electric
Information Systems, Microsoft Corporation, PeopleSoft, Inc., SAP
A.G., Open Market, Inc., Ariba Technologies, CommerceOne, Sterling
Commerce, Inc. and BroadVision, Inc.
Some of our present competitors and potential future competitors may have
greater financial, technical, marketing or personnel resources than we do. In
addition, as a result of acquisitions, certain competitors are able to offer
both Internet access and other services, such as cable television or telephone
service, and such consolidation may continue. The competitive environment
could have a variety of adverse effects on us. For example, it could:
. negatively impact our ability to generate greater revenues and profits
from sources other than online service subscription revenues, such as
advertising and electronic commerce
. limit our opportunities to enter into or renew agreements with content
providers and distribution partners
. limit our ability to develop new products and services
. limit our ability to continue to grow or sustain our subscriber base
. require price reductions in the subscription fees for online services
and require increased spending on marketing, network capacity, content
procurement and product and features development
4
<PAGE>
. require price reductions in our enterprise software products
. result in a loss of our market share in the enterprise software industry
. require an increase in our sales and marketing expenditures
Any of the foregoing events could have an adverse impact on revenues or
result in an increase in costs as a percentage of revenues, either of which
could have a material adverse effect on our business, financial condition and
operating results.
We Need to Manage Integration of Our Mergers and Acquisitions
In March 1999 we completed the merger with Netscape Communications
Corporation, a leading provider of software and services for Internet users,
including Netscape Netcenter, and the Netscape Navigator and Netscape
Communicator browsers. The Netscape merger involves risks, including successful
integration and management of the acquired technology, operations and personnel
of Netscape. The integration of America Online and Netscape will be a complex,
time consuming process and may result in a disruption of the combined company
if not completed in a timely and efficient manner. The combined company must
operate as a combined organization utilizing common information and
communications systems, operating procedures, financial controls, human
resources practices and other shared infrastructure. There may be substantial
difficulties, costs and delay involved in integrating America Online and
Netscape, including potential incompatibility of business cultures, perceived
adverse changes in client service standards or business focus, potential sales
channel conflicts, the loss of key employees and diversion of attention of
management from other ongoing business concerns. There can be no assurance we
will be able to successfully manage and operate Netscape. Any of these factors
could have a material adverse effect on our business, financial condition and
operating results.
Additionally, we have acquired and merged with several smaller companies
over the last several years. The integration of these 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.
Potential Year 2000 Problems May Have an Adverse Effect on Our Operations and
Ability to Offer Products and Services Without Interruption
America Online utilizes a significant number of computer software programs
and operating systems across its entire organization, including applications
used in operating its online services and Web sites, the proprietary software
of the AOL and CompuServe services, Netscape software products, member and
customer services, network access, content providers, joint ventures and
various administrative and billing functions. To the extent that these
applications contain source codes that are unable to appropriately interpret
the upcoming calendar year 2000, some level of modification, or even possibly
replacement may be necessary.
In 1997, America Online appointed a Year 2000 Task Force to perform an
audit to assess the scope of America Online's risks and bring its applications
into compliance. This Task Force has overseen testing and is continuing its
assessment of America Online's company-wide compliance. America Online's system
hardware components, client and host software, current versions of Netscape
software products and corporate business and information systems have been
tested and continue to be reviewed. To date, America Online has experienced few
problems related to Year 2000 testing, and the problems that have been
identified either have been addressed or are in the process of being addressed.
America Online has made Year 2000 compliant certain versions of the client
software for the AOL service and the CompuServe service that are available on
the Windows and Macintosh operating systems, as well as certain versions of
Netscape software products that are currently shipped. While the majority of
AOL and CompuServe members use proprietary client software that is compliant, a
third-party internet browser utilized in most versions of the client software
may not be Year 2000 compliant. A free patch or upgrade will be required for
members using some versions of the client software or browser to achieve Year
2000 compliance. America Online is encouraging members of its online services
to upgrade their browser and/or
5
<PAGE>
their software to versions that are Year 2000 compliant, if they have not
already done so. America Online is making available to members, and is
communicating that availability, free patches or upgrades that can be
downloaded from the online services. America Online has not tested, and does
not expect to certify as Year 2000 compliant, certain older versions of the AOL
and CompuServe software. America Online has developed, and is implementing over
the remainder of the year, a communication program that informs members how to
obtain the free patch or upgrade to a Year 2000 compliant version of the client
software or browser. With respect to America Online's Netscape software
business, testing has been completed on currently shipped products and the
review and analysis of the testing results continues. America Online is making
available, at no additional cost to customers, any required patch or upgrade to
the versions of Netscape software products currently being shipped to customers
and communicate their availability. In addition, America Online is encouraging
customers to upgrade to versions of the software that are expected to be Year
2000 compliant, if they have not already done so.
In addition, America Online is continuing to gather information from 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. America Online
intends to continue its efforts to seek reassurances regarding the Year 2000
compliance of vendors, joint venture partners and content partners. In the
event any third parties cannot timely provide America Online with content,
products, services or systems that meet the Year 2000 requirements, the content
on America Online's services, access to America Online's services, the ability
to offer products and services and the ability to process sales could be
materially adversely affected.
The costs incurred through September 30, 1999 to address Year 2000
compliance were approximately $16 million. America Online currently estimates
it will incur a total of approximately $20 million in costs to support its
compliance initiatives. America Online cannot predict the outcome of its Year
2000 program, whether third party systems and component software are, or will
be Year 2000 compliant, the costs required to address the Year 2000 issue, or
whether a failure to achieve substantial Year 2000 compliance will have a
material adverse effect on America Online's business, financial condition or
results of operations. Failure to achieve Year 2000 compliance could result in
some interruptions in the work of some employees, the inability of some members
and customers to access America Online's online services and Web sites or
errors and defects in the Netscape products. This, in turn, may result in the
loss of subscription services revenue, advertising and commerce revenue or
enterprise solution revenue, the inability to deliver minimum guaranteed levels
of traffic, diversion of development resources, or increased service and
warranty costs. Occurrence of any of these may also result in additional
remedial costs and damage to reputation.
America Online has developed a contingency plan to address possible Year
2000 risks to its systems. The plan identifies a hierarchy of critical
functions, acceptable delay times, recovery strategies to return functions to
operational status and defines the core team for managing this recovery
process. America Online will continue to modify this plan to address systems of
its recent acquisitions.
The Price of Our Common Stock is Volatile
The trading price of our common stock has been and may continue to be
subject to wide fluctuations over short and long periods of time. During the
twelve months ending October 31, 1999, the closing sale prices of our common
stock on the New York Stock Exchange ranged from $33.75 to $167.50. These
prices have been adjusted to reflect 2-for-1 stock splits effected on November
17, 1998 and February 22, 1999, but do not reflect the 2-for-1 stock split
announced on October 28, 1999 and to be effected on November 22, 1999. Our
stock price may fluctuate in response to a number of events and factors, such
as:
. quarterly variations in financial results and membership growth and
usage
. the announcement of technological innovations, mergers, acquisitions,
strategic partnerships or new product offerings by America Online or its
competitors
6
<PAGE>
. the entrance of new competitors into the online services market
. changes in financial estimates and recommendations by securities
analysts and news reports relating to trends in the Internet-related
markets
. the operating and stock price performance of other companies that
investors may deem comparable
In addition, the market prices for Internet-related companies have
experienced volatility that often has not been directly related to the
operating performance of such companies. Market and industry fluctuations may
adversely affect the price of our common stock, regardless of our operating
performance.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file with the Commission at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our Commission filings are also available to the public at the
Commission's web site at http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
we will make with the Commission under Sections 13(a), 13(c ), 14 or 15(d) of
the Securities Exchange Act prior to the termination of the offerings described
in this prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended June 30, 1999
(SEC file number 001-12143 and filing date of August 13, 1999);
(b) Proxy Statement on Schedule 14A for the 1999 Annual Meeting (SEC
file number 001-12143 and filing date of September 24, 1999);
(c) Quarterly Report on Form 10-Q, for the quarterly period ended
September 30, 1999 (SEC file number 001-12143 and filing date of November
2, 1999);
(d) The descriptions of our capital stock, including preferred share
purchase rights, which are contained in registration statements on Form 8-A
under the Exchange Act, including any amendments or reports filed for the
purpose of updating such descriptions.
You may request a copy of these filings, at no cost, by writing or
telephoning as follows:
America Online, Inc.
Attention: Investor Relations
22000 AOL Way
Dulles, VA 20166
(703) 265-2741
[email protected]
This prospectus is part of a registration statement on Form S-3 we filed
with the SEC under the Securities Act. You should rely only on the information
or representations provided in this prospectus. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
7
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, management's beliefs and certain assumptions made by us. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and variations of these words or similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual results could
differ materially from those expressed or forecasted in any forward-looking
statements as a result of a variety of factors, including those set forth in
"Risk Factors" above and elsewhere in, or incorporated by reference into, this
prospectus. We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
USE OF PROCEEDS
Except as set forth in an accompanying prospectus supplement, we expect to
use the net proceeds from the sale of the securities for general corporate
purposes, which may include, among other things:
. working capital
. capital expenditures
. acquisitions
. the repayment of outstanding indebtedness
. strategic investments
When we offer a particular series of offered securities, the prospectus
supplement relating to that offering will set forth the intended use of the net
proceeds received from that offering.
THE SECURITIES WE MAY OFFER
We may sell from time to time, in one or more offerings:
. our debt securities
. shares of our common stock
. shares of our preferred stock
. shares of our preferred stock represented by depositary shares
. warrants exercisable for our debt securities, common stock, preferred
stock or depositary shares
. stock purchase contracts to purchase common stock or preferred stock
The total dollar amount of all securities that we may issue will not
exceed $5,000,000,000. If we issue debt securities at a discount from their
original stated principal amount, then, for purposes of calculating the total
dollar amount of all securities issued under this prospectus, we will treat the
aggregate initial offering price of the debt securities as the total dollar
amount of those debt securities.
This prospectus may not be used to consummate a sale of securities unless
it is accompanied by a prospectus supplement.
The particular terms of the securities offered in any prospectus
supplement will be described in the applicable prospectus supplement. If
indicated in the prospectus supplement, the terms of any such securities
8
<PAGE>
may differ from the terms summarized below. The prospectus supplement will
also contain information, where applicable, about material United States
Federal income tax considerations relating to the securities offered in that
prospectus supplement, and the securities exchange, if any, on which the
securities will be listed.
DESCRIPTION OF DEBT SECURITIES
Introduction
The debt securities we may issue will be in one or more distinct series.
The debt securities may include debentures, notes or other kinds of debt
obligations. The debt securities may be denominated in United States dollars
or in one or more foreign currencies or currency units.
The following description of the terms of the debt securities sets forth
general terms that we expect will apply to any series of the debt securities.
Most of the financial terms and other specific terms of any series of debt
securities that we offer will be described in a prospectus supplement to be
attached to this prospectus. Since the terms of specific debt securities may
differ from the general information that we have provided below, you should
rely on the information in the prospectus supplement instead of the
information in this prospectus if the information in the prospectus supplement
is different than the information below.
We will issue the debt securities under a contract called the "Indenture"
between us and a Trustee, who will be determined later. Unless we tell you
otherwise in the applicable prospectus supplement, the Indenture and the debt
securities will be governed by New York law. The terms of the debt securities
include those stated in the debt securities and the Indenture, those provided
for in any supplemental indenture with respect to the particular series of
debt securities, and those made part of the Indenture by reference to the
Trust Indenture Act of 1939. (Section 1.11 of the Indenture.) The form of the
Indenture is contained in the registration statement that we have filed with
the Commission. Supplemental indentures will also be filed with the
Commission. See "Where You Can Find More Information" on page 7 for
information on how to obtain a copy of the Indenture and any supplemental
indenture from the Commission.
Unless we say otherwise, in an applicable prospectus supplement, the debt
securities will be unsecured obligations of America Online. In an applicable
prospectus supplement, we will set forth the seniority of the debt securities
relative to any of our other existing or future indebtedness. The Indenture
does not limit the total amount of debt securities that we can issue under it,
nor does it limit us from incurring or issuing other unsecured or secured
debt. The Indenture moreover does not contain any provisions that protect you
in the event we issue a large amount of debt or are acquired by another
entity.
Because this description is a summary, it does not describe every aspect
of the debt securities or the Indenture. This summary is subject to and
qualified in its entirety by reference to all the provisions of the Indenture
and of the debt securities. For example, in this description we use
capitalized words to signify defined terms that have been given special
meaning in the Indenture. We describe the meaning for only some of the more
important terms. We also include references in parentheses to certain sections
of the Indenture. Whenever we refer to particular sections or defined terms of
the Indenture in this prospectus or in any prospectus supplement, such
sections or defined terms are incorporated by reference here or in the
prospectus supplement.
This description also is subject to and qualified by reference to the
description of the particular terms of any particular series of debt
securities described in a prospectus supplement.
Specific Terms of Debt Securities
The prospectus supplement relating to a particular series of debt
securities will describe specific terms relating to each series of debt
securities then being offered. These terms will include some or all of the
following:
. the title and type of the debt securities
9
<PAGE>
. any limit on the aggregate principal amount of the debt securities
. the date or dates on which the principal, if any, of such debt
securities will be payable, or the method of determining or extending
such date(s), and the amount or amounts or the method of determination
of such principal payments
. the date or dates from which any interest will accrue, or the method of
determining such date(s)
. any rate or rates, which may be fixed or variable, that such debt
securities will bear interest, or the method of determining or resetting
such rate or rates, and the interest payment dates, if any, for such
debt securities
. the place or places where any principal, premium or interest payments
may be made
. the terms of warrants, options or other rights to purchase or sell
securities issued by America Online in connection with or for the
purchase of debt securities
. any optional redemption provisions, including the period(s) within
which, the price(s) at which, the currency or currencies or currency
units in which, and the terms and conditions upon which, we may redeem
such debt securities, whether in whole or in part
. any provisions obligating us to repurchase or otherwise redeem such debt
securities pursuant to sinking fund provisions, upon the occurrence of a
specified event or at the Holder's option
. if other than $1,000 denominations for Registered Securities, or $5,000
denominations for Bearer Securities, the denominations in which such
debt securities are issuable
. if other than U.S. dollars, the currency or currencies or currency units
in which payment of the principal of and any premium or interest on the
debt securities will be payable, and the terms and conditions of any
elections that may be made available with respect thereto
. the terms and conditions, if any, pursuant to which the debt securities
are convertible into or exchangeable for common stock or other
securities
. any index, formula or other method to be used for determining the amount
of any payments of principal, premium of or interest on such debt
securities
. if the maturity of such debt securities is accelerated, the portion of
the principal amount that will be payable if other than the outstanding
principal amount, and the method of determining such amount
. the person to whom any interest on such debt securities will be payable
(if other than the registered Holder of such debt securities on the
applicable record date)
. the manner of determining the principal amount outstanding prior to
maturity if such amount is not otherwise determinable
. any provisions granting special rights to the Holders of such debt
securities
. any changes to or additional Events of Default or covenants
. any provisions for the payment of additional amounts on debt securities
held by non-U.S. persons in respect of taxes or similar charges withheld
or deducted, and for the optional redemption of such debt securities in
lieu of paying such additional amounts
. any provisions modifying the defeasance or covenant defeasance
provisions that apply to such debt securities
. whether the debt securities will be issued in fully registered form
without coupons or in bearer form, with or without coupons, or any
combination of these
. the terms, if any, of any guarantee of the payment of principal, premium
and interest with respect to the debt securities
10
<PAGE>
. whether such debt securities will be issued in whole or in part in the
form of one or more temporary or permanent global securities, and, if
so, the identity of the depository for such global security or
securities
. if other than the Trustee, the identity of the Registrar and Paying
Agent
. the subordination, if any, of the debt securities
. the terms of any additional security for the debt securities
. if other than the laws of New York, the law governing such debt
securities and the extent to which such other law governs
. any other specific terms of the debt securities
(Section 3.1 of the Indenture.)
Unless we tell you otherwise in the applicable prospectus supplement,
debt securities will not be listed on any securities exchange.
Unless we tell you otherwise in the applicable prospectus supplement,
debt securities will be issued in fully registered form without coupons. If
debt securities of any series are issued in bearer form, the applicable
prospectus supplement will describe special restrictions and considerations,
including special offering restrictions and special federal income tax
considerations, applicable to such debt securities and to payments on and
transfer and exchange of such debt securities. Bearer debt securities
generally will be transferable by delivery. (Section 3.5 of the Indenture.)
The Indenture refers to each Person who is the bearer of a bearer Debt
Security as the "Holder" of that Debt Security. (Section 1.1 of the
Indenture.)
If we issue debt securities at an "original issue discount", the
applicable prospectus supplement will describe special federal income tax and
other considerations applicable to such debt securities.
If the purchase price of any debt securities is payable in foreign
currencies or currency units, or if any debt securities are denominated in
foreign currencies or currency units, or if any debt securities are payable in
foreign currencies or currency units, the applicable prospectus supplement
will describe the special restrictions, elections, federal income tax
considerations and certain other important information with respect to such
debt securities and such foreign currencies or currency units.
The principal, premium, interest or other payments on debt securities may
be determined by reference to an index, formula or other method. Such an
index, formula or other method may be based, without limitation, on the price
of one or more commodities, derivatives or securities; one or more securities,
derivatives or commodities exchange indices or other indices; a foreign
currency or currencies; or any other variable or variables. If we issue debt
securities the payments on which are based on such an index, formula or other
method, the applicable prospectus supplement will describe that index, formula
or other method and special federal income tax and other considerations
applicable to such debt securities.
No debt security or coupon will be entitled to any benefits under the
Indenture or be valid or obligatory for any purpose until the debt security or
coupon is authenticated by the manual signature of one of the Trustee's
authorized signatories or an authenticating agent. No coupon will be valid
until the debt security to which it pertains has been authenticated. We may
deliver debt securities to the Trustee for authentication, together with a
company order for the authentication and delivery of the securities. The
Trustee will then, in accordance with the company order, authenticate and
deliver the securities, subject to special provisions for authentication of
debt securities offered in a periodic offering. If the form or terms of the
debt securities of a series have been established by board resolutions as
permitted by the Indenture, when authenticating the securities the Trustee
will be entitled to receive, and (subject to the Trust Indenture Act) shall be
fully protected in relying upon an opinion of counsel as to certain matters.
The Trustee has the right to decline to authenticate the securities if it
receives an opinion of counsel reasonably acceptable to us that states that
the issue of the
11
<PAGE>
debt securities will adversely affect the Trustee's own rights, duties, or
immunities under the Indenture or otherwise in a manner which is not reasonably
acceptable to the Trustee. If all of the debt securities of any series are not
to be issued at one time, the documents required to be delivered in connection
with the authentication of each debt security of the series, only need be
delivered at or prior to the authentication of the first debt security of the
series.
Registered Securities
As noted above, unless we tell you in a prospectus supplement that the
specific debt securities described in that prospectus supplement are bearer
debt securities, the debt securities will be "registered securities". We and
the Trustee may treat the Person in whose name a registered Debt Security is
registered under the Indenture as the owner of that Debt Security for all
purposes, including for the purpose of receiving payments on that Debt
Security. (Section 3.8 of the Indenture.) The Indenture refers to each Person
in whose name a registered Debt Security is registered as the "Holder" of that
Debt Security. (Section 1.1 of the Indenture.)
Except as described below under "Global Debt Securities" or in the
applicable prospectus supplement, a Holder can exchange or transfer debt
securities in registered form at the office of the Trustee. Unless we tell you
otherwise in a prospectus supplement, the Trustee will act as our agent for
registering such debt securities in the names of Holders and transferring such
debt securities. We may appoint another entity at any time to perform this role
or we may perform it ourselves. The entity performing the role of maintaining
the list of registered Holders and performing transfers is called the
"Registrar". (Sections 3.5 and 9.2 of the Indenture.)
Unless we tell you otherwise in the applicable prospectus supplement, a
Holder seeking to transfer or exchange a registered Debt Security will not be
required to pay a service charge to us, the Registrar or the Trustee, but such
Holder may be required to pay any tax or other governmental charge associated
with the transfer or exchange. (Section 3.5 of the Indenture.)
If you are not the Holder of any debt securities in registered form, your
rights relating to those debt securities will be governed in part by applicable
laws and by the account rules and policies of the broker, bank or financial
intermediary through which you invest in such debt securities and any other
financial intermediary that holds interests directly or indirectly in such debt
securities (including any Depository referred to below under "Global Debt
Securities"). Neither we nor the Trustee has any responsibility for the account
rules, policies, actions or records of any broker, bank or other financial
intermediary through which you hold, directly or indirectly, your beneficial
interest in a Debt Security in registered form.
If you are not the holder of any debt securities in registered form, you
should consult the broker, bank or other financial intermediary through which
you invest in the debt securities for information on your rights in respect of
the debt securities. In particular, you should ask how you will receive
payments, and whether you will be able to provide instructions as to how such
broker, bank or other financial intermediary should exercise the rights of a
"Holder" under the Indenture.
Global Debt Securities
Registered Global Securities. We may specify in the applicable prospectus
supplement that the debt securities of a series will be issued in the form of
fully registered global securities, which we will refer to in this prospectus
as "Registered Global Securities". Registered Global Securities will be
registered in the name of a financial institution we select. This financial
institution, which will be the sole direct Holder of the Registered Global
Securities, is called the "Depository". We will identify any Depository in the
applicable prospectus supplement. Any person wishing to own a Debt Security
represented by a Registered Global Security must do so indirectly by virtue of
an account with a broker, bank or other financial intermediary that in turn has
an account with the Depository, or with another financial intermediary that
itself has an account with the Depository. The debt securities represented by
the Registered Global Securities may not be transferred to the name of any
other Holder unless the special circumstances described below occur.
12
<PAGE>
Special Investor Considerations for Registered Global Securities. Our
obligations with respect to Registered Global Securities, as well as the
obligations of the Trustee and those of any third parties employed by us or
the Trustee, run only to Persons who are registered Holders of those debt
securities. For example, once a payment on a Registered Global Security is
made to the Depository, as sole Holder of that Registered Global Security,
neither we nor the Trustee has any further responsibility for that payment
even if it is not passed along to the correct owners of the beneficial
interests in that Registered Global Security.
As long as the debt securities are represented by Registered Global
Securities:
. You cannot have debt securities registered in your name under the
Indenture.
. You cannot receive physical certificates from us for your interest in
the debt securities.
. You must look to your own bank or broker or other financial intermediary
for payments on the debt securities.
. You will have no rights as a "Holder" under the Indenture. This means
that, among other things, you will have no right to give any direction,
approval or instruction directly to the Trustee under the Indenture.
. You may not be able to sell interests in the debt securities to some
insurance companies and other institutions that are required by law to
own their debt securities in the form of physical certificates.
. The Depository's policies will govern payments, transfers, exchanges and
other matters relating to the Registered Global Security. We and the
Trustee have no responsibility for any aspect of the Depository's
actions or for its records of ownership interests in the Registered
Global Security. We and the Trustee also do not supervise the Depository
in any way. In addition, we and the Trustee have no responsibility for
the actions or records of any broker, bank, or other financial
intermediary through which you hold, directly or indirectly, your
beneficial interest in the Registered Global Security.
. Payment for purchases and sales in the market of corporate debentures
and notes is generally made in next-day funds. In contrast, the
Depository will usually require that interests in a Registered Global
Security be purchased or sold within its system using same-day funds.
This difference could have some effect on how Registered Global Security
interests trade, but we do not know what that effect will be.
You should consult the broker, bank or other financial intermediary through
which you invest in debt securities represented by Registered Global
Securities for information on your rights in respect of the debt
securities. In particular, you should ask how you will receive payments and
whether you will be able to provide instructions as to how the Depository
should exercise the rights of a "Holder" under the Indenture.
Special Situations When Registered Global Security Will Be Terminated. In
the special situations described in the next paragraph, a Registered Global
Security will terminate and interests in it will be exchanged for physical
certificates representing debt securities. After that exchange, we believe
that you likely will be able to choose whether to hold debt securities
directly in your own name or indirectly through an account at a bank or broker
or other financial intermediary. However, when a Registered Global Security
terminates, the Depository (and not us or the Trustee) will be responsible for
determining the names of the institutions that will be the initial direct
Holders of the debt securities. You must consult your own bank or broker or
other financial intermediary at such time to find out how to have your
interests in debt securities transferred to your own name, if you wish to
become a direct Holder.
The special situations for termination of a Registered Global Security
are:
. When the Depository notifies us that it is unwilling, unable or no
longer qualified to continue as Depository (unless a replacement
Depository is named)
. We determine in our sole discretion not to have any of the debt
securities of a series represented by a Registered Global Security and
notify the Trustee of our decision
13
<PAGE>
(Section 3.5 of the Indenture.) In addition, a prospectus supplement may
list situations for terminating a Registered Global Security that would apply
only to the particular series of debt securities covered by that prospectus
supplement.
Bearer Global Securities. The debt securities of a series may also be
issued wholly or partially in the form of one or more bearer global securities
(a "Bearer Global Security") that will be deposited with a Depository, or with
a nominee for such Depository, identified in the applicable prospectus
supplement. Any such Bearer Global Securities may be issued in temporary or
permanent form. (Sections 3.4 and 3.5 of the Indenture.) The applicable
prospectus supplement will describe the specific terms and procedures,
including the depository arrangement, with respect to any portion of a series
of debt securities to be represented by Bearer Global Securities.
Payments
Unless we tell you otherwise in the applicable prospectus supplement, we
will generally deposit interest, principal and any other money due on the debt
securities, in the designated currency, with the Trustee, and the Trustee will
act as our agent for making payments on the debt securities. We may change this
appointment to another entity or perform this role ourselves. The entity
performing the role of making payments is called the "Paying Agent". We may, at
our option, make any interest payments on debt securities in registered form by
having the Trustee mail checks or make wire transfers to the registered Holders
listed in the Registrar's records. (Sections 3.7(a) and 9.2 of the Indenture.)
We may also make any payments required to be deposited with the Trustee by wire
transfer to an account designated by the Trustee on or before the date and time
such payments are due to be paid to the Holders. We may also make any payments
required to be deposited with the Trustee by wire transfer to an account
designated by the Trustee on or before the date and time such payments are due
to be paid to the Holders. If you are not the Holder of any debt securities in
registered form, you must make your own arrangements with the bank, broker or
other financial intermediary through which you invest in the debt securities to
receive payments.
Unless we tell you otherwise in the applicable prospectus supplement,
interest will be payable to each Holder listed in the Registrar's records at
the close of business on a particular day in advance of each due date for
interest, even if such Holder no longer owns the Debt Security on the interest
due date. That particular day is called the "Record Date" and will be stated in
the prospectus supplement. (Section 3.7(a) of the Indenture.) Persons buying
and selling debt securities between a Record Date and an interest payment date
must work out between them how to compensate for the fact that we will pay all
the interest for an interest period to the registered Holder on the Record
Date.
Unless we tell you otherwise in the applicable prospectus supplement,
interest payable on any Debt Security in registered form that is not punctually
paid or duly provided for on any interest payment date will cease to be payable
to the Holder in whose name such Debt Security is registered on the relevant
Record Date. Such defaulted interest will instead be payable to the person in
whose name such Debt Security is registered on the special record date or other
specified date determined in accordance with the Indenture. (Section 3.7(b) of
the Indenture.)
We will make payments on debt securities in bearer form in the currency
and in the manner designated in the applicable prospectus supplement, subject
to any relevant laws and regulations, at such paying agencies outside the
United States as we may appoint from time to time. The Paying Agents outside
the United States initially appointed by us for a series of debt securities
will be named in the applicable prospectus supplement.
We may at any time designate additional Paying Agents or rescind the
designation of any Paying Agents, except that, if debt securities of a series
are issuable as Registered Securities, we will be required to maintain at least
one Paying Agent in each Place of Payment for such series and, if debt
securities of a series are issuable as Bearer Securities, we will be required
to maintain a Paying Agent in a Place of Payment outside the United States
where debt securities of such series and any related coupons may be presented
and surrendered for payment. (Section 9.2 of the Indenture.)
14
<PAGE>
Notices
We and the Trustee will send notices regarding debt securities in
registered form only to registered Holders, using their addresses as listed in
the Registrar's records. If you are not the Holder of debt securities in
registered form, you should consult the broker, bank or other financial
intermediary through which you invest in such debt securities for information
on how you will receive such notices. Holders of Bearer debt securities will
be notified by publication as described in the prospectus supplement relating
to the debt securities. (Section 1.6 of the Indenture.)
Consolidation, Merger or Sale
The Indenture generally permits us to consolidate or merge with or into
another company or entity and to sell or otherwise dispose of all or
substantially all of our assets. However, we may not take any of these actions
unless all the following conditions are met:
. where we merge out of existence or sell or otherwise dispose of our
assets, the surviving or acquiring firm must be a corporation, limited
liability company, partnership, trust or other Person organized and
existing under the laws of the United States of America or a State
thereof, and it must agree to be legally responsible for all of our
obligations under the debt securities and the Indenture
. the transaction must not cause a default on the debt securities and we
must not already be in default, where a "default" is an event that with
notice or passage of time, or both, would become an Event of Default as
provided in the Indenture
. we must deliver certificates and documents to the Trustee
The surviving or acquiring Person after any such transaction will be
substituted for America Online under the Indenture and the debt securities,
and all obligations of America Online will terminate. (Section 7.1 of the
Indenture.)
Events of Default, Notice and Rights on Default
Unless we tell you otherwise in a prospectus supplement, the term "Event
of Default" means, with respect to debt securities of any series, any of the
following:
. We fail to pay interest on a Debt Security of that series within 30 days
of its due date
. We fail to pay principal or any premium on a Debt Security of that
series, or we fail to deposit any mandatory sinking fund payment
. We remain in breach of a covenant in the Indenture for 90 days after we
receive a notice of default stating we are in breach. The notice must be
sent by either the Trustee or the Holders of at least 25% of the
principal amount of the debt securities of the affected series
. We file for bankruptcy or other events of bankruptcy, insolvency or
reorganization occur
. With respect to any particular series of debt securities, any other
"Event of Default" described in the applicable prospectus supplement
occurs
(Section 5.1 of the Indenture.) An Event of Default for a particular
series of debt securities will not necessarily constitute an Event of Default
for any other series of debt securities issued under the Indenture.
The Indenture requires the Trustee to notify Holders of the applicable
series of debt securities of any uncured Default within 90 days after such
Default occurs. The Trustee may withhold notice, however, of any Default,
except for a default in the payment of principal or interest, if it considers
such withholding of notice to be in the Holders' best interests. (Section 6.5
of the Indenture.)
15
<PAGE>
If an Event of Default has occurred and has not been cured, the Trustee
or the Holders of at least 25% in principal amount of the debt securities of
the affected series may declare the entire principal amount (or, if the debt
securities of that series are original issue discount debt securities or debt
securities payable in accordance with an index, formula or other method, such
portion of the principal amount or other amount specified in the prospectus
supplement) of all the debt securities of that series to be due and
immediately payable. (Section 5.2 of the Indenture.) The Holders of a majority
in principal amount of the debt securities of the affected series may waive,
on behalf of the Holders of all debt securities of such series, any past Event
of Default with respect to that series and its consequences, except an Event
of Default in the payment of the principal of or any premium or interest on
any Debt Security and specified other defaults. (Section 5.7 of the
Indenture.)
The Holders of a majority in principal amount of the debt securities of
the affected series (with the debt securities of each such series voting as a
class) may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee for such series, or exercising any trust
or power conferred on such Trustee with respect to the debt securities of such
series, as long as such direction does not conflict with any law or the
Indenture and subject to other limitations. (Section 5.8 of the Indenture.)
Before a Holder can bypass the Trustee and bring its own lawsuit or other
formal legal action or take other steps to enforce its rights or protect its
interests relating to the debt securities, the following must occur:
. such Holder must give the Trustee written notice that an Event of
Default has occurred and remains uncured
. the Holders of at least 25% in principal amount of all debt securities
of the relevant series must request the Trustee in writing to take
action because of the Event of Default, and must offer an indemnity
satisfactory to the Trustee against the cost and other liabilities of
taking that action
. the Trustee must not have taken action for 60 days after receipt of the
above notice, request and offer of indemnity
. the Holders of a majority in principal amount of the debt securities of
that series must not have given the Trustee a direction inconsistent
with the above notice
(Section 5.9 of the Indenture.)
However, a Holder is entitled to bring a lawsuit at any time for the
payment of principal, premium, if any, and interest due on its debt securities
after the due date, subject to the provisions of the Indenture regarding
payment of interest and place and manner of payment on debt securities.
(Section 5.10 of the Indenture.)
If you are not the Holder of debt securities in registered form, you
should consult the broker, bank or financial intermediary through which you
invest in such debt securities for information on your rights in respect of
those debt securities following an Event of Default.
We will file annually with the Trustee a certificate as to America
Online's compliance with all conditions and covenants of the Indenture.
(Section 9.7 of the Indenture.)
Modification of the Indenture
There are three categories of changes we can make to the Indenture and
the debt securities.
Changes Requiring Approval of Each Affected Holder. First, there are
changes that cannot be made to debt securities of any series without the
approval of each Holder of debt securities of the series affected by such
change. Following is a summary of those changes:
. to change the time for payment of principal of or interest on a debt
security
. to reduce the amounts of principal of or interest on a debt security
16
<PAGE>
. to reduce the amount of any premium payable upon the redemption of a
debt security
. to reduce the amount payable upon acceleration of the maturity of an
original issue discount debt security or a debt security payable in
accordance with an index, formula or other method
. to change the place or currency of payment on a debt security on or
after the stated maturity
. to impair the right to sue for payment on a debt security
. to reduce the percentage of Holders of debt securities of such series
whose consent is needed to modify or amend the Indenture or to waive
compliance with provisions of the Indenture or to waive defaults
. to change the obligation of America Online to maintain an office or
agency in the places and for the purposes specified in the Indenture
. to modify the provisions relating to waiver of defaults or modifications
of the Indenture and debt securities with certain exceptions related to
successor or multiple trustees
. to release any guarantors, if any, from their guarantees of the debt
securities or change any such guarantee in a manner adverse to Holders
. to modify the ranking or priority of the debt securities
(Section 8.2 of the Indenture.)
Changes Requiring a Majority Vote. The second category of change to the
Indenture and the debt securities is the kind that requires a vote in favor by
Holders of debt securities owning a majority of the principal amount of each
particular series adversely affected.
Changes Not Requiring Approval. The third category of change does not
require any vote by Holders of debt securities. Following is a summary of
those changes:
. to reflect that another corporation or entity has succeeded America
Online and assumed its covenants
. to add to America Online's covenants, to surrender any right or power of
America Online, or to comply with any Commission or other requirements
in connection with the qualification of the Indenture
. to add additional Events of Default with respect to any series
. to add or change any provisions to the extent necessary to facilitate
the issuance of debt securities in bearer form or in global form
. to change or eliminate any provision affecting debt securities not yet
issued
. to add guarantees or secure the debt securities
. to add provisions to permit or facilitate defeasance and covenant
defeasance and discharge so long as there is no adverse effect on
Holders of the applicable series of debt securities
. to establish the form or terms of debt securities
. to provide for the electronic delivery of supplemental indentures or
debt securities of any series
. to evidence and provide for successor or additional Trustees
. if allowed without penalty under applicable laws and regulations, to
permit payment in respect of debt securities in bearer form in the
United States
. to correct or supplement any inconsistent provisions or to cure any
ambiguity or correct any mistake
. to make any other provisions with respect to matters or questions
arising under the Indenture, as long as such action does not adversely
affect Holders of the debt securities in any material respect
17
<PAGE>
(Section 8.1 of the Indenture.)
If you are not the Holder of debt securities in registered form, you
should consult with the broker, bank or other financial intermediary through
which you invest in such debt securities for information on how approval will
be granted or denied if we seek to change the Indenture or request a waiver of
any of its terms.
Defeasance
Unless we tell you otherwise in the applicable prospectus supplement, the
following discussion of full defeasance and covenant defeasance will apply to
each series of debt securities. (Article IV of the Indenture.)
Full Defeasance. Under certain circumstances, we can legally release
ourselves from any payment or other obligations on the debt securities of any
series (called "full defeasance") if we put in place the following
arrangements for the Holders of those debt securities to be repaid:
. we must deposit in trust for the Holders' benefit a combination of money
and Government Obligations that will generate enough money to pay when
due the principal of and any premium or interest on the debt securities
of such series and to make any mandatory sinking fund payments on such
debt securities
. we must deliver to the Trustee a legal opinion of our counsel confirming
that there has been a change in federal tax law as in effect on the date
of this prospectus or an IRS ruling that lets us make the above deposit
without causing Holders to be taxed on the debt securities of such
series any differently than if we did not make the deposit and simply
repaid such debt securities ourselves
(Sections 4.4 and 4.6 of the Indenture.)
If we were to accomplish full defeasance, as described above, Holders
would have to rely solely on the trust deposit for repayment on the debt
securities of the particular series defeased. Holders could not look to us for
repayment if a shortfall occurred.
We may exercise its full defeasance option even if it has previously
exercised our covenant defeasance option. If we exercise our full defeasance
option, payment of the particular series of debt securities defeased may not
be accelerated because of an Event of Default. (Section 4.4 of the Indenture.)
Covenant Defeasance. Under certain circumstances, we can make the same
type of deposit described above and be released from some of the restrictive
covenants in the debt securities of any series. This is called "covenant
defeasance". In that event, Holders of those debt securities would lose the
protection of those restrictive covenants but would gain the protection of
having money and Government Obligations set aside in trust to repay such debt
securities. To achieve covenant defeasance, we must do the following:
. we must deposit in trust for the Holders' benefit a combination of money
and Government Obligations that will generate enough money to pay when
due the principal of and any premium or interest on the debt securities
of such series and to make any mandatory sinking fund payments on such
debt securities
. we must deliver to the Trustee a legal opinion of our counsel confirming
that, under federal tax law as in effect at the time of such deposit, we
may make such deposit without causing Holders to be taxed on the debt
securities of such series any differently than if we did not make the
deposit and simply repaid such debt securities ourselves
(Sections 4.5 and 4.6 of the Indenture.)
If we exercise our covenant defeasance option with respect to the debt
securities of a series, certain restrictive covenants of the Indenture and
certain Events of Default would no longer apply to such series. (Section 4.5
of the Indenture.) If one of the remaining Events of Default occurred,
however, and payment of the
18
<PAGE>
debt securities of such series were accelerated, there could be a shortfall
between the amount in the trust deposit at that time and the amount then due
on such series. Holders could still look to us for payment of such debt
securities if there were such a shortfall. Depending on the event causing the
default (such as our bankruptcy), however, Holders may not be able to obtain
payment of the shortfall from us.
The Trustee
The Trustee under the Indenture will be set forth in any applicable
prospectus supplement. We will indicate in such prospectus any material
relationships we may have with the Trustee.
DESCRIPTION OF COMMON STOCK
General
Our restated certificate of incorporation provides that we have authority
to issue 6,000,000,000 shares of common stock, par value $.01 per share. As of
October 15, 1999, there were 1,117,743,377 shares of common stock outstanding.
Common stockholders are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. They 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. Common stockholders are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds that are legally available to pay dividends. However, this dividend
right is subject to any preferential dividend rights of preferred stock that
may be issued at such future time or times. If America Online is dissolved,
the holders of common stock will be entitled to share ratably the net assets
of America Online available after we pay (i) all of our debts and other
liabilities and (ii) any amounts we may owe to the persons who hold our
preferred stock, if any is issued. Common stockholders do not have preemptive,
subscription, redemption or conversion rights. The outstanding shares of
common stock are fully paid and nonassessable. The rights, preferences and
privileges of common stockholders are subject to the rights of the
shareholders of any series of preferred stock which we may designate and issue
in the future. We will describe the specific terms of any common stock we may
offer in a prospectus supplement.
Charter Provisions
Our restated certificate of incorporation and restated bylaws provide for
a classified board of directors. The board of directors currently consists of
eleven 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.
Our restated certificate of incorporation includes provisions eliminating
the personal liability of our directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by Delaware law. Our
restated certificate of incorporation and restated bylaws include provisions
indemnifying our 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.
Our restated bylaws require that nominations for the board of directors
made by the stockholders 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.
19
<PAGE>
In addition, the restated certificate of incorporation contains a "fair
price" provision providing that certain "business combinations" with any
"interested stockholder" may not be consummated without an 80% stockholder
vote. The fair price provision defines an "interested stockholder" as 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 America
Online. The business combinations to which the fair price provision applies
include:
. a merger or consolidation
. the sale or other disposition of 10% or more of America Online's assets
. the issuance of stock having a value in excess of 10% of the fair market
value of our common stock
. any reclassification or recapitalization which increases the
proportionate share holdings of an interested stockholder
. 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 America Online. The affirmative vote of the holders of
80% of the voting power of America Online is required to amend or repeal the
fair price provision or adopt any provision inconsistent with it.
Our restated certificate of incorporation and restated bylaws provide
that any action required or permitted to be taken by the stockholders 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. 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.
Under Delaware law, 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 America Online is required to amend or repeal certain provisions of
our 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 our restated bylaws.
The provisions of the restated certificate of incorporation and restated
bylaws discussed above could make it more difficult or discourage a proxy
contest or the acquisition of control by substantial block of our 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 America Online, even though
such an attempt might be beneficial to America Online and our stockholders.
Stockholder Rights Plan
We adopted a stockholder rights plan on May 12, 1998. The plan was
implemented by declaring a dividend, distributable to stockholders of record
on June 1, 1998, of one preferred share purchase right for each outstanding
share of common stock. The plan provides that each share of common stock
outstanding will have attached to it the right to purchase one one-thousandth
of a share of preferred stock. The purchase price per one one-thousandth of a
preferred share under the plan is $900, 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 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.
20
<PAGE>
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 stockholder of America Online. The
rights will expire on May 12, 2008 unless redeemed by America Online prior to
that date.
The rights agreement contains rights that have anti-takeover effects. The
rights will cause substantial dilution to a person or group that attempts to
acquire America Online on terms not approved by the 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 America
Online 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.
Change of Control
We are subject to Section 203 of the Delaware General Corporation Law
which under certain circumstances, may make it more difficult for a person who
would be an "Interested Stockholder," as defined in Section 203, to effect
various business combinations with us for a three-year period. Under Delaware
law, a corporation's certificate of incorporation or bylaws may exclude a
corporation from the restrictions imposed by Section 203. Our certificate of
incorporation and bylaws do not exclude us from the restrictions imposed under
Section 203.
DESCRIPTION OF PREFERRED STOCK
General
Our board of directors is authorized by our restated certificate of
incorporation to provide, without further stockholder action, for the issuance
of up to 5,000,000 shares of our preferred stock, $.01 par value per share, in
one or more series. Our board of directors has the power to fix various terms
with respect to each series, including, among other things, voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As a result of its broad discretion with respect to the creation
and issuance of preferred stock without stockholder approval, the board of
directors could adversely affect the voting power of the holders of common
stock. In addition, although our board has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could impede the
completion of a merger, tender offer or other takeover attempt. Our board will
issue such a series only if it determines that such an issuance is in the best
interests of America Online and its stockholders. In addition, the terms of a
series of preferred stock might discourage a potential acquirer from
attempting to acquire America Online.
As of October 15, 1999, there were no shares of preferred stock
outstanding. In May 1998, the board of directors designated 500,000 shares of
America Online's Preferred Stock as Series A-1 Junior Participating Preferred
Stock in connection with the establishment of a new stockholder rights plan.
You should refer to the prospectus supplement relating to the series of
preferred stock being offered for the specific terms of that series,
including:
. the designation, number of shares and liquidation preference per share
. initial public offering price
. the dividend rate or rates
. the index, if any, upon which the amount of dividends, if any, is
determined
. the dates on which dividends, if any, will accrue and be payable and the
designated record dates for determining the holders entitled to such
dividends
. whether dividends will be cumulative or non-cumulative
. any auctioning and remarketing procedures
21
<PAGE>
. any redemption or sinking fund provisions
. any conversion or exchange provisions
. provisions for issuance of global securities
. the securities exchange, if any, on which the preferred stock will be
listed
. the currency, which may be composite currency, in which payment of
dividends, if any, will be payable if other than U.S. dollars
. any voting rights
. any applicable discussion of federal income tax considerations
. the relative seniority with regard to any other class or series of
preferred stock
. any limitations on the issuance of any series of preferred stock ranking
senior to or on a parity with the series of preferred stock being
offered
. any additional terms, preferences, rights, limitations or restrictions
Upon receipt of the purchase price, the shares of preferred stock that we
issue will be fully paid and nonassessable. Unless otherwise specified in the
applicable prospectus supplement, the preferred stock will have no preemptive
rights to subscribe for any additional securities that we may issue.
The transfer agent, registrar, dividend disbursing agent and redemption
agent for each series of preferred stock will be specified in the applicable
prospectus supplement.
Dividends
The holders of each series of our preferred stock will be entitled to
receive, when, as and if declared by our board of directors, out of funds
legally available for that purpose, cumulative or non-cumulative cash or other
dividends. We will describe the rate or rates and payment dates applicable to
each series of preferred stock in the applicable prospectus supplement. Such
rates may be fixed or variable or both. If variable, we will describe the
formula used for determining the dividend rate for each dividend period in the
applicable prospectus supplement. We will pay dividends to the holders of
record as they appear on our stock books on the record dates set by our board
of directors and specified in the applicable prospectus supplement.
Unless otherwise indicated in the applicable prospectus supplement for a
series of preferred stock, no dividends may be declared or paid on other series
of preferred stock which have an equal or junior ranking, unless dividends are
also declared and paid on the offered series. If less than full dividends can
be declared and paid, the offered series of preferred stock will be paid
dividends ratably with other series of preferred stock that rank on a parity as
to receipt of dividends.
Redemption
The shares of any series of our preferred stock will be subject to
mandatory redemption or redemption at our option, under a sinking fund or
otherwise, in each case upon the terms, on the date or dates and at the
redemption price or prices set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe any restrictions on our
ability to repurchase or redeem shares if we have not paid any dividends on
shares of any series of preferred stock or any sinking fund installments when
due.
Liquidation Preference
Upon our liquidation, dissolution or winding up, the stockholders of each
series of our preferred stock will be entitled to receive, out of our assets
available for distribution to stockholders and before any distribution is made
to or set apart for the holders of common stock or shares of any junior series,
an amount described in
22
<PAGE>
the applicable prospectus supplement. If our assets are insufficient to pay in
full the amounts payable with respect to shares of a series of preferred stock
and any other series ranking on a parity as to the distribution, the holders of
shares of that series of preferred stock and the other parity shares will share
ratably in the distribution of our assets in proportion to the full respective
preferential amounts to which they are entitled. After payment to the
stockholders of that series of preferred stock of the full preferential amounts
to which they are entitled, those stockholders will not be entitled to any
further participation in any distribution of assets by us, unless otherwise
provided in the applicable prospectus supplement. Except as otherwise provided
in the applicable prospectus supplement, a consolidation or merger between us
and one or more entities is not, for this purpose, a liquidation, dissolution
or winding up.
Conversion
The terms and conditions, if any, on which shares of any series of
preferred stock are convertible into or exchangeable for debt securities,
common stock or cash will be set forth in the applicable prospectus supplement.
These terms may include provisions for conversion or exchange, either
mandatorily, at the option of the holder, or at our option. The terms may
include the conversion price or manner of calculating the conversion price, the
conversion date(s) or period(s), the events requiring an adjustment of the
conversion price, and provisions affecting conversion in the event of the
redemption of the series of preferred stock. Conversion terms may provide that
the number of shares of common stock or amount of cash to be received by the
holders of preferred stock would be calculated according to the market price of
common stock as of a time stated in the applicable prospectus supplement. Such
exchange or conversion rates may cap or limit the potential appreciation in
value of an investment in a series of preferred stock by reducing the amount of
cash or common stock to be received upon conversion of each share of preferred
stock in the event that the market price of the common stock exceeds a
specified price. The exchange or conversion rate may also place a floor on or
limit the depreciation in value of an investment in a series of preferred stock
by increasing the amount of cash or stock to be received upon conversion of
each share of preferred stock in the event that the market price of the common
stock falls below a specified price.
DESCRIPTION OF DEPOSITARY SHARES
General
America Online may issue depositary receipts for depositary shares, each
of which will represent a fractional interest of a share of a particular series
of preferred stock, as specified in the applicable prospectus supplement.
Shares of preferred stock of each series represented by depositary shares will
be deposited under a separate Deposit Agreement among America Online and the
"depositary" named in the Deposit Agreement. Subject to the terms of the
Deposit Agreement, each owner of a depositary receipt will be entitled, in
proportion to the fractional interest of a share of a particular series of
preferred stock represented by the depositary shares evidenced by that
depositary receipt, to all the rights and preferences of the preferred stock
represented by those depositary shares, including dividend, voting, conversion,
redemption and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the preferred stock by America Online to the
depositary, America Online will cause the depositary to issue, on behalf of
America Online, the depositary receipts. Copies of the applicable form of
Deposit Agreement and depositary receipt may be obtained from America Online
upon request, and the statements made in this summary relating to the Deposit
Agreement and the depositary receipts to be issued under the Deposit Agreement
are summaries of provisions of the Deposit Agreement and the related depositary
receipts. This summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all of the provisions of the
applicable Deposit Agreement and related depositary receipts.
23
<PAGE>
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary receipts evidencing the related depositary shares in proportion
to the number of such depositary receipts owned by such holders, subject to the
obligations of holders to file proofs, certificates and other information and
to pay some charges and expenses to the depositary.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary receipts
entitled to that property, subject to the obligations of holders to file
proofs, certificates and other information and to pay some charges and expenses
to the depositary, unless the depositary determines that it is not feasible to
make the distribution, in which case the depositary may, with the approval of
America Online, sell the property and distribute the net proceeds from the sale
to the holders.
No distribution will be made in respect of any depositary share to the
extent that it represents any preferred stock converted into other securities.
Withdrawal of Stock
Upon surrender of the depositary receipts at the corporate trust office of
the depositary, unless the related depositary shares have previously been
called for redemption or converted into other securities, the holders of those
depositary receipts will be entitled to delivery at the corporate trust office,
to or upon the holder's order, of the number of whole or fractional shares of
the preferred stock and any money or other property represented by the
depositary shares evidenced by the depositary receipts. Holders of depositary
receipts will be entitled to receive whole or fractional shares of the related
preferred stock on the basis of the proportion of preferred stock represented
by the depositary share as specified in the applicable prospectus supplement,
but holders of the shares of preferred stock will not thereafter be entitled to
receive depositary shares therefor. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of shares of preferred stock to be
withdrawn, the depositary will deliver to the holder at the same time a new
depositary receipt evidencing the excess number of depositary shares.
Redemption of Depositary Shares
Whenever America Online redeems shares of preferred stock held by the
depositary, the depositary will redeem, as of the same redemption date, the
number of depositary shares representing shares of the preferred stock so
redeemed, provided America Online shall have paid in full to the depositary the
redemption price of the preferred stock to be redeemed plus an amount equal to
any accrued and unpaid dividends thereon to the date fixed for redemption. The
redemption price per depositary share will be equal to the corresponding
proportion of the redemption price and any other amounts per share payable with
respect to the preferred stock. If fewer than all the depositary shares are to
be redeemed, the depositary shares to be redeemed will be selected pro rata, as
nearly as may be practicable without creating fractional depositary shares, or
by any other equitable method determined by America Online.
From and after the date fixed for redemption, all dividends in respect of
the shares of preferred stock so called for redemption will cease to accrue,
the depositary shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the depositary receipts evidencing
the depositary shares so called for redemption will cease, except the right to
receive any moneys payable upon the redemption and any money or other property
to which the holders of the depositary receipts were entitled the redemption
and surrender thereof to the depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the
preferred stock are entitled to vote, the depositary will mail the information
contained in the notice of meeting to the record holders of the depositary
receipts evidencing the depositary shares which represent the preferred stock.
Each record holder of
24
<PAGE>
depositary receipts evidencing depositary shares on the record date, which will
be the same date as the record date for the preferred stock, will be entitled
to instruct the depositary as to the exercise of the voting rights pertaining
to the amount of preferred stock represented by the holder's depositary shares.
The depositary will vote the amount of preferred stock represented by the
depositary shares in accordance with the instructions, and America Online will
agree to take all reasonable action which may be deemed necessary by the
depositary in order to enable the depositary to do so. The depositary will
abstain from voting the amount of preferred stock represented by the depositary
shares to the extent it does not receive specific instructions from the holders
of depositary receipts evidencing the depositary shares. The depositary shall
not be responsible for any failure to carry out any instruction to vote, or for
the manner or effect of any such vote made, as long as such action or non-
action is in good faith and does not result from negligence or willful
misconduct of the depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of America
Online, whether voluntary or involuntary, the holders of each depositary
receipt will be entitled to the fraction of the liquidation preference accorded
each share of preferred stock represented by the depositary shares evidenced by
such depositary receipt, as set forth in the applicable prospectus supplement.
Conversion of Preferred Stock
The depositary shares, as such, are not convertible into common stock or
any other securities or property of America Online. Nevertheless, if so
specified in the applicable prospectus supplement relating to an offering of
depositary shares, the depositary receipts may be surrendered by their holders
to the depositary with written instructions to the depositary to instruct
America Online to cause conversion of the preferred stock represented by the
depositary shares evidenced by the depositary receipts into whole shares of
common stock, other shares of preferred stock of America Online or other shares
of stock, and America Online has agreed that upon receipt of those instructions
and any amounts payable in respect thereof, it will cause the conversion
thereof utilizing the same procedures as those provided for delivery of
preferred stock to effect such conversion. If the depositary shares evidenced
by a depositary receipt are to be converted in part only, a new depositary
receipt or receipts will be issued for any depositary shares not to be
converted. No fractional shares of common stock will be issued upon conversion,
and if such conversion would result in a fractional share being issued, an
amount will be paid in cash by America Online equal to the value of the
fractional interest based upon the closing price of the common stock on the
last business day prior to the conversion.
Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares which
represent the preferred stock and any provision of the Deposit Agreement may at
any time be amended by agreement between America Online and the depositary.
However, any amendment that materially and adversely alters the rights of the
holders of depositary receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related preferred
stock will not be effective unless such amendment has been approved by the
existing holders of at least 66% of the depositary shares evidenced by the
depositary receipts then outstanding. No amendment shall impair the right,
subject to certain exceptions in the Deposit Agreement, of any holder of
depositary receipts to surrender any depositary receipt with instructions to
deliver to the holder the related preferred stock and all money and other
property, if any, represented thereby, except in order to comply with law.
Every holder of an outstanding depositary receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby.
The Deposit Agreement may be terminated by America Online upon not less
than 30 days prior written notice to the depositary if a majority of each
series of preferred stock affected by such termination consents to such
termination, whereupon the depositary shall deliver or make available to each
holder of Depositary Receipts, upon surrender of the depositary receipts held
by such holder, such number of whole or
25
<PAGE>
fractional shares of preferred stock as are represented by the depositary
shares evidenced by such depositary receipts together with any other property
held by the depositary with respect to such depositary receipt. In addition,
the Deposit Agreement will automatically terminate if:
. all outstanding depositary shares shall have been redeemed
. there shall have been a final distribution in respect of the related
preferred stock in connection with any liquidation, dissolution or
winding up of America Online and such distribution shall have been
distributed to the holders of depositary receipts evidencing the
depositary shares representing such preferred stock or
. each share of the related preferred stock shall have been converted into
securities of America Online not so represented by depositary shares.
Charges of Preferred Stock Depositary
America Online will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit Agreement. In
addition, America Online will pay the fees and expenses of the depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of depositary receipts will pay the fees and expenses of the
depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the Deposit Agreement.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to America Online
notice of its election to do so, and America Online may at any time remove the
depositary, any such resignation or removal to take effect upon the
appointment of a successor depositary. A successor depositary must be
appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000.
Miscellaneous
The depositary will forward to holders of depositary receipts any reports
and communications from America Online which are received by the depositary
with respect to the related preferred stock.
Neither the depositary nor America Online will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of
America Online and the depositary under the Deposit Agreement will be limited
to performing their duties thereunder in good faith and without negligence, in
the case of any action or inaction in the voting of preferred stock
represented by the depositary shares, gross negligence or willful misconduct,
and America Online and the depositary will not be obligated to prosecute or
defend any legal proceeding in respect of any depositary receipts, depositary
shares or shares of preferred stock represented thereby unless satisfactory
indemnity is furnished. America Online and the depositary may rely on written
advice of counsel or accountants, or information provided by persons
presenting shares of preferred stock represented thereby for deposit, holders
of depositary receipts or other persons believed in good faith to be competent
to give such information, and on documents believed in good faith to be
genuine and signed by a proper party.
In the event the depositary shall receive conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and
America Online, on the other hand, the depositary shall be entitled to act on
such claims, requests or instructions received from America Online.
26
<PAGE>
DESCRIPTION OF WARRANTS
General
America Online may issue warrants to purchase its debt securities, common
stock, preferred stock, or depositary shares. America Online may issue
warrants independently or together with any offered securities and may be
attached to or separate from those offered securities. America Online will
issue the warrants under Warrant Agreements to be entered into between America
Online and a bank or trust company, as warrant agent, all as shall be set
forth in the applicable prospectus supplement. The warrant agent will act
solely as an agent of America Online in connection with the warrants of the
series being offered and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of warrants in respect of which this prospectus is being
delivered:
. the title of the warrants
. the designation, amount and terms of the securities for which the
warrants are exercisable
. the designation and terms of the other securities, if any, with which
the warrants are to be issued and the number of warrants issued with
each such security
. the price or prices at which the warrants will be issued
. the aggregate number of warrants
. any provisions for adjustment of the number or amount of securities
receivable upon exercise of the warrants or the exercise price of the
warrants
. the price or prices at which the securities purchasable upon exercise of
the warrants may be purchased
. if applicable, the date on and after which the warrants and the
securities purchasable upon exercise of the warrants will be separately
transferable
. if applicable, a discussion of the material United States federal income
tax considerations applicable to the exercise of the warrants
. any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants
. the date on which the right to exercise the warrants shall commence, and
the date on which the right shall expire
. the maximum or minimum number of warrants which may be exercised at any
time
. information with respect to book-entry procedures, if any
Exercise of Warrants
Each warrant will entitle the holder of warrants to purchase for cash the
amount of debt securities, shares of preferred stock, shares of common stock
or depositary shares at the exercise price as shall in each case be set forth
in, or be determinable as set forth in, the prospectus supplement relating to
the warrants offered thereby. Warrants may be exercised at any time up to the
close of business on the expiration date set forth in the prospectus
supplement relating to the warrants offered thereby. After the close of
business on the expiration date, unexercised warrants will become void.
Warrants may be exercised as set forth in the prospectus supplement
relating to the warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate
trust office of the warrant agent or any other office indicated in the
prospectus supplement, America
27
<PAGE>
Online will, as soon as practicable, forward the debt securities, shares of
preferred stock, shares of common stock or depositary shares purchasable upon
such exercise. If less than all of the warrants represented by the warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS TO PURCHASE COMMON STOCK OR PREFERRED
STOCK
Unless otherwise specified in the applicable prospectus supplement,
America Online may issue stock purchase contracts, including contracts
obligating holders to purchase from America Online, and America Online to sell
to the holders, a specified number of shares of common stock or preferred stock
at a future date or dates. The consideration per share of common stock or
preferred stock may be fixed at the time the stock purchase contracts are
issued or may be determined by a specific reference to a formula set forth in
the stock purchase contracts. The stock purchase contracts may require holders
to secure their obligations thereunder in a specified manner.
The securities related to the stock purchase contracts will be pledged to
a collateral agent, for the benefit of America Online, pursuant to a pledge
agreement. The pledged securities will secure the obligations of holders of
stock purchase contracts to purchase common stock or preferred stock under the
related stock purchase contracts. The rights of holders of stock purchase
contracts to the related pledged securities will be subject to America Online's
security interest in those pledged securities. That security interest will be
created by the pledge agreement. No holder of stock purchase contracts will be
permitted to withdraw the pledged securities related to such stock purchase
contracts from the pledge arrangement except upon the termination or early
settlement of the related stock purchase contracts. Subject to that security
interest and the terms of the purchase contract agreement and the pledge
agreement, each holder of a stock purchase contract will retain full beneficial
ownership of the related pledged securities.
Except as described in the applicable prospectus supplement, the
collateral agent will, upon receipt of distributions on the pledged securities,
distribute such payments to America Online or a purchase contract agent, as
provided in the pledge agreement. The purchase contract agent will in turn
distribute payments it receives as provided in the stock purchase contract. The
applicable prospectus supplement will describe the terms of any stock purchase
contracts. The description in the prospectus supplement will not necessarily be
complete and will be qualified in its entirety by reference to the stock
purchase contracts, and, if applicable, collateral arrangements and depositary
arrangements, relating to such stock purchase contracts.
PLAN OF DISTRIBUTION
We may sell the securities:
. through underwriters or dealers
. directly to a limited number of purchasers or to a single purchaser
. through agents
The prospectus supplement with respect to the securities being offered
will set forth the terms of the offering of the offered securities, including
the name or names of any underwriters or agents, the purchase price of the
offered securities and net proceeds to America Online from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The offered
28
<PAGE>
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
underwriters. The underwriter or underwriters with respect to a particular
underwritten offering of securities, or, if an underwriting syndicate is used,
the managing underwriter or underwriters, will be set forth on the cover of the
applicable prospectus supplement. Unless otherwise set forth in the prospectus
supplement relating thereto, the obligations of the underwriters to purchase
the offered securities will be subject to conditions precedent and the
underwriters will be obligated to purchase all of the offered securities if any
are purchased.
If dealers are utilized in the sale of offered securities in respect of
which this prospectus is delivered, and if so specified in the applicable
prospectus supplement, we will sell such offered securities to the dealers as
principals. The dealers may then resell the offered securities to the public at
varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
applicable prospectus supplement.
The offered securities may be sold directly by America Online or through
agents designated by us from time to time. Any agent involved in the offer or
sale of the Offered Securities in respect to which this prospectus is delivered
will be named, and any commissions payable by America Online to such agent will
be set forth, in the prospectus supplement.
Underwriters, dealers and agents may be entitled under agreements entered
into with America Online to indemnification by America Online against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof. Underwriters, dealers and agents
may be customers of, may engage in transactions with, or perform services for,
America Online in the ordinary course of business.
Unless otherwise specified in the applicable prospectus supplement, each
class or series of offered securities will be a new issue with no established
trading market, other than the common stock, which is listed on the New York
Stock Exchange. We may elect to list any other class or series of offered
securities on any exchange, but we are not obligated to do so. It is possible
that one or more underwriters may make a market in a class or series of offered
securities, but the underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We cannot give any
assurance as to the liquidity of the trading market for any of the offered
securities.
Any underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves sales in excess of the offering
size, which create a short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Short covering transactions involve purchases of the
offered securities in the open market after the distribution is completed to
cover short positions. Penalty bids permit the underwriters to reclaim a
selling concession from a dealer when the offered securities originally sold by
the dealer are purchased in a covering transaction to cover short positions.
Those activities may cause the price of the offered securities to be higher
than it would otherwise be. If commenced, the underwriters may discontinue any
of the activities at any time.
LEGAL MATTERS
The validity of the Securities offered hereby is being passed upon by
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. The Vice Chairman of
America Online also serves as Of Counsel to Mintz, Levin and, as of November 2,
1999, owns an aggregate of 1,259 shares of common stock and options to purchase
2,683,000 shares of common stock. Attorneys of Mintz Levin and certain members
of their families and trusts for their own benefit, as of November 2, 1999, own
an aggregate of approximately 5,600 shares of America Online common stock.
29
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended June 30, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$2,267,533,000
America Online, Inc.
Convertible Subordinated Notes due 2019
[AMERICA ONLINE LOGO]
--------
PROSPECTUS SUPPLEMENT
December 1, 1999
--------
Salomon Smith Barney
Morgan Stanley Dean Witter
Bear, Stearns & Co. Inc.
Goldman, Sachs & Co.
Lehman Brothers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
