<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
America Online, Inc.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 7370 54-1322110
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Stephen M. Case
Chairman of the Board
and Chief Executive Officer
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------
<TABLE>
<S> <C>
Copies to:
Philip T. Ruegger III, Esq. James B. Carlson, Esq.
Simpson Thacher & Bartlett Mayer, Brown & Platt
425 Lexington Avenue 1675 Broadway
New York, New York 10017 New York, New York 10019
(212) 455-2000 (212) 506-2500
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed Maximum
Title of Each Class of Amount Maximum Maximum Amount of
Securities to be to be Offering Price Aggregate Registration
Registered Registered(1) Per Share Price(2) Fee
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share(3).... 12,948,940 -- $716,783,173.10 $189,230.76
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Based upon the maximum number of shares of Common Stock, par value $0.01
per share, of America Online ("America Online Common Stock") that may be
issued pursuant to the Merger.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"). This fee has been computed pursuant to Rules 457(f) and (c) under
the Securities Act and is based on (i) $17.4688, the average of the high
and low per share prices of Common Stock, par value $0.001 per share
("MapQuest Common Stock"), of MapQuest on the Nasdaq National Market on
February 7, 2000, and (ii) the maximum number of shares of MapQuest Common
Stock to the acquired by America Online pursuant to the Merger.
(3) The America Online Common Stock being registered hereby includes associated
preferred stock purchase rights.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[MapQuest LOGO]
To the stockholders of
MapQuest.com, Inc.
Special Meeting of MapQuest Stockholders
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
MapQuest's board of directors unanimously approved a merger agreement
between America Online, Inc. and MapQuest.com, Inc. Your vote, as a stockholder
of MapQuest, is now needed to adopt the merger agreement.
In the merger, each share of your MapQuest common stock will be exchanged
for 0.31558 of a share of America Online common stock. America Online common
stock is listed on the New York Stock Exchange under the trading symbol "AOL."
On , 2000, America Online common stock closed at $ per share. The
merger cannot be completed unless the holders of the MapQuest common stock
representing a majority of the votes entitled to be cast adopt the merger
agreement. Only stockholders who hold their shares of MapQuest common stock at
the close of business on , 2000 will be entitled to vote at the special
meeting. Each holder of a share of MapQuest common stock will be entitled to
cast one vote.
After careful consideration, your board of directors has unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. MapQuest's board of directors has approved the
merger agreement and unanimously recommends its adoption by you.
This proxy statement/prospectus provides you with detailed information
concerning America Online and the merger. Please give all of the information
contained in the proxy statement/prospectus your careful attention. In
particular, you should carefully consider the discussion in the section
entitled "Risk Factors" on page of this proxy statement/prospectus.
You can find out how to obtain additional information regarding America
Online and MapQuest in the section entitled "Where You Can Find More
Information" on page .
The date, time and place of the special meeting:
, : .m., local time
[address]
Please use this opportunity to take part in the affairs of MapQuest by
voting. Whether or not you plan to attend the meeting, please complete, sign,
date and return the accompanying proxy in the enclosed self-addressed stamped
envelope. Returning the proxy does NOT deprive you of your right to attend the
meeting and to vote your shares in person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your interest in MapQuest and consideration of this matter.
/s/ Michael J. Mulligan
MICHAEL J. MULLIGAN
Chairman and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this proxy statement/prospectus. Any representation to
the contrary is a criminal offense.
This proxy statement/prospectus is dated , 2000 and was first mailed
to stockholders on or about , 2000.
<PAGE>
[MapQuest LOGO]
MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
Notice of Special Meeting of MapQuest.com, Inc. Stockholders
, 2000
at : .M.
To the stockholders of MapQuest.com, Inc.:
Notice is hereby given that a special meeting of stockholders of
MapQuest.com, Inc. ("MapQuest") will be held on , 2000 at : .m.
local time at , for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of December 21, 1999, among
America Online, Inc. ("America Online"), MQ Acquisition, Inc., a wholly
owned subsidiary of America Online ("MQ Acquisition"), and MapQuest,
pursuant to which MQ Acquisition will merge with and into MapQuest (the
"Merger"), and MapQuest will survive the merger as a wholly owned
subsidiary of America Online. Adoption of the Merger Agreement will also
constitute approval of the merger and the other transactions contemplated
by the Merger Agreement.
2. To transact such other business as may properly come before the
special meeting or any adjournment thereof.
These items of business are described in the attached proxy
statement/prospectus. Only holders of record of MapQuest common stock at the
close of business on , 2000, the record date for the meeting, are
entitled to vote on the matters listed in this Notice of Special Meeting of
MapQuest Stockholders. You may vote in person at the MapQuest special meeting
even if you have returned a proxy.
By Order of the Board of Directors
of MapQuest.com, Inc.
/s/ James W. Thomas
JAMES W. THOMAS
Secretary
, 2000
Whether or Not You Plan to Attend the Meeting,
Please Complete, Sign, Date and Return the Accompanying Proxy
In the Enclosed Self-Addressed Stamped Envelope.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MAPQUEST/AMERICA ONLINE MERGER............. 1
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS.................................. 3
The Companies............................................................ 3
Summary of the Transaction............................................... 5
Selected Historical and Pro Forma Financial Data......................... 13
Unaudited Comparative Per Share Information.............................. 17
Comparative Per Share Market Price Data.................................. 17
RISK FACTORS............................................................... 18
The Value of the America Online Common Stock You Receive in the Merger
May Vary................................................................ 18
America Online Has Entered into a Merger Agreement with Time Warner...... 18
MapQuest Officers and Directors Have Conflicts of Interest Relating to
Their Approval and Support of the Merger................................ 18
Parties to Contracts With MapQuest May Be Competitors of America Online
Which May Impact Their Decision Whether to Renew Their Contracts with
MapQuest................................................................ 19
Failure to Complete the Merger Could Negatively Impact MapQuest's Stock
Price and Future Business and Operations................................ 19
Year 2000 Matters........................................................ 20
Anti-Takeover Provisions................................................. 20
THE SPECIAL MEETING OF MAPQUEST STOCKHOLDERS............................... 21
Proxy Statement/Prospectus............................................... 21
Date, Time and Place of the Special Meeting.............................. 21
Purpose of the Special Meeting........................................... 21
Stockholder Record Date for the Special Meeting.......................... 21
Majority Vote of MapQuest Stockholders Required for Adoption of the
Merger Agreement........................................................ 21
Proxies.................................................................. 22
Voting Electronically or by Telephone.................................... 23
THE MERGER................................................................. 24
Background of the Merger................................................. 24
America Online's Reasons for the Merger.................................. 26
MapQuest's Reasons for the Merger........................................ 27
Recommendation of MapQuest's Board of Directors.......................... 29
Opinion of MapQuest's Financial Advisor.................................. 29
Interests of Certain MapQuest Directors and Officers in the Merger....... 36
Completion and Effectiveness of the Merger............................... 37
Structure of the Merger and Conversion of MapQuest Common Stock.......... 37
Exchange of MapQuest Stock Certificates for America Online Stock
Certificates............................................................ 37
Material United States Federal Income Tax Consequences of the Merger..... 38
Accounting Treatment of the Merger....................................... 39
Regulatory Filings and Approvals Required to Complete the Merger......... 39
Restrictions on Sales of Shares by Affiliates of MapQuest and America
Online.................................................................. 40
Listing on the New York Stock Exchange of America Online Common Stock to
be Issued in the Merger................................................. 40
Dissenters' and Appraisal Rights......................................... 40
Delisting and Deregistration of MapQuest Common Stock After the Merger... 41
Operations After the Merger.............................................. 41
THE MERGER AGREEMENT AND RELATED AGREEMENTS................................ 42
The Merger Agreement..................................................... 42
The Stock Option Agreement............................................... 52
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
The Stockholders Agreement.............................................. 53
The Distribution Agreement.............................................. 54
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 55
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF MAPQUEST.................................................... 56
DESCRIPTION OF MAPQUEST'S BUSINESS........................................ 59
Overview................................................................ 59
The MapQuest.com Solution............................................... 59
MapQuest Products and Services.......................................... 59
Sales and Marketing..................................................... 61
Customers............................................................... 62
Technology and Infrastructure........................................... 62
Competition............................................................. 63
Government Regulation................................................... 64
Intellectual Property................................................... 66
Employees............................................................... 66
Facilities.............................................................. 67
Legal Proceedings....................................................... 67
MAPQUEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 68
Overview................................................................ 68
Results of Operations................................................... 70
Nine Months Ended September 30, 1999 as Compared to 1998................ 70
Year Ended December 31, 1998 as Compared to 1997........................ 71
Year Ended December 31, 1997 as Compared to 1996........................ 73
Liquidity and Capital Resources......................................... 74
New Accounting Pronouncements........................................... 75
Quantitative and Qualitative Disclosures About Market Risk.............. 75
COMPARISON OF RIGHTS OF HOLDERS OF MAPQUEST COMMON STOCK
AND AMERICA ONLINE COMMON STOCK.......................................... 76
Capitalization.......................................................... 76
Classified Board of Directors........................................... 76
Number of Directors..................................................... 77
Removal of Directors.................................................... 77
Filling Vacancies on the Board of Directors............................. 77
Limits on Stockholder Action by Written Consent......................... 78
Ability to Call Special Meetings........................................ 78
Advance Notice Provisions for Stockholder Nominations and Proposals..... 78
Amendment of Certificate of Incorporation............................... 80
Amendment of By-laws.................................................... 80
State Anti-Takeover Statutes............................................ 81
Limitation on Personal Liability of Directors and Officers.............. 81
Indemnification of Directors and Officers............................... 82
Fair Price Provision.................................................... 82
Stockholder Rights Plan................................................. 83
LEGAL OPINION............................................................. 86
EXPERTS................................................................... 86
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF MAPQUEST STOCKHOLDERS
IF THE MERGER IS NOT COMPLETED........................................... 86
WHERE YOU CAN FIND MORE INFORMATION....................................... 86
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION.......................... 89
FINANCIAL STATEMENTS OF MAPQUEST.COM, INC................................. F-1
ANNEX A--Agreement and Plan of Merger..................................... A-1
ANNEX B--Stock Option Agreement........................................... B-1
ANNEX C--Stockholders Agreement........................................... C-1
ANNEX D--Opinion of FleetBoston Robertson Stephens........................ D-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MAPQUEST/AMERICA ONLINE MERGER
Q: Why are we proposing to merge? (see page )
A: Our merger will result in MapQuest stockholders becoming stockholders of
America Online through the exchange of their MapQuest common stock for
America Online common stock on what the MapQuest board of directors
believes are favorable terms.
By combining with America Online, MapQuest can benefit from America Online's
substantial human, financial, marketing and technological resources as well
as its significant presence on the Internet and broad customer base. We
expect this combination will:
. expand the reach of MapQuest products to new customers and into new
markets, and
. provide new cross-promotion and branding opportunities for MapQuest and
America Online
Q: What will I receive in the merger? (see page )
A: If the merger is completed, you will receive 0.31558 of a share of America
Online common stock for each share of MapQuest common stock you own. This
fraction is referred to as the "exchange ratio." The number of shares of
America Online common stock to be issued for each share of MapQuest common
stock is fixed and will not be adjusted based upon changes in the value of
America Online's shares. As a result, the value of the shares you receive
in the merger will not be known at the time you vote on the merger and may
go up or down as the market price of America Online common stock goes up or
down. MapQuest is not permitted to "walk away" from the merger or resolicit
the vote of its stockholders based solely on changes in the value of
America Online common stock. In addition, instead of issuing any fractional
shares of common stock, America Online will pay you cash based on the
average closing price per share of America Online common stock on the New
York Stock Exchange for the 20 consecutive trading days ending on the third
trading day before the completion of the merger.
Q: What effect will America Online's proposed merger with Time Warner have on
me?
A: America Online and Time Warner have entered into a merger agreement
pursuant to which America Online and Time Warner would become wholly owned
subsidiaries of a new parent company called AOL Time Warner Inc. We expect
to complete our merger before this proposed merger with Time Warner is
completed. If that is the case, you would receive shares of America Online
common stock in our merger and, if the merger with Time Warner is approved
and completed, each of those shares would be converted into one share of
common stock of AOL Time Warner. If the Time Warner merger is completed
before our merger, we would still expect to complete our merger, subject to
the terms and conditions of our merger agreement, but instead of America
Online common stock, you would receive 0.31558 of a share of AOL Time
Warner common stock in our merger.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please respond by completing, signing and dating
your proxy card and returning it in the enclosed postage paid envelope, or,
if available, by submitting your proxy by telephone or through the Internet,
as soon as possible, so that your shares may be represented at the special
meeting.
Q: What if I don't vote?
A: .If you fail to respond, it will have the same effect as a vote against the
merger.
.If you respond and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger.
.If you respond and abstain from voting, your proxy will have the same
effect as a vote against the merger.
1
<PAGE>
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can revoke
your proxy. Second, you can submit a new proxy. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy to the secretary of MapQuest before the special meeting. If your
shares are held in an account at a brokerage firm or bank, you should
contact your brokerage firm or bank to change your vote. Third, if you are a
holder of record, you can attend the special meeting and vote in person. If
you submit your proxy or voting instructions electronically through the
Internet or by telephone, you can change your vote by submitting a proxy or
voting at a later date, using the same procedures, in which case your later
submitted proxy or vote will be recorded and your earlier proxy or vote
revoked.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive written instructions
from the exchange agent on how to exchange your stock certificates for
shares of America Online. Please do not send in your stock certificates with
your proxy.
Q: Who is the exchange agent for the merger?
A: is the exchange agent.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the Spring of 2000.
Q: Who can help answer my questions?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this proxy statement/prospectus or the
enclosed proxy card or voting instructions, you should contact:
MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
Telephone: (717) 285-8701
2
<PAGE>
[America Online LOGO] [MapQuest LOGO]
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information in the proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement/prospectus and the other documents we refer to for a more complete
understanding of the merger. In particular, you should read the documents
attached to this proxy statement/prospectus, including the merger agreement,
the stock option agreement and the stockholders agreement, which are attached
as Annexes A, B and C, respectively. In addition, we incorporate by reference
important business and financial information about America Online into this
proxy statement/prospectus. You may obtain the information incorporated by
reference into this proxy statement/prospectus without charge by following the
instructions in the section entitled "Where You Can Find More Information" that
begins on page of this proxy statement/prospectus.
The Companies
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
http: //www.aol.com
Founded in 1985, America Online 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 21
million members,
. the CompuServe service, a worldwide Internet online service with more
than 2.5 million members,
. the Netscape Netcenter, an Internet portal with more than 25 million
registered users,
. the AOL.com Internet portal, and
. the Netscape Communicator client software, including the Netscape
Navigator browser.
3
<PAGE>
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, and
. 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 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.
America Online also has a strategic alliance with Sun Microsystems, Inc., a
leader in network computing products and services, to accelerate the growth of
electronic commerce. Through the alliance, the two companies develop and market
to business enterprises, 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 Microsystems code and technology and on certain America Online services
features.
Recent Developments. On January 10, 2000, America Online entered into a
merger agreement with Time Warner Inc. pursuant to which each of America Online
and Time Warner would become wholly owned subsidiaries of a new parent company
named AOL Time Warner Inc. In that merger, subject to the terms and conditions
of the merger agreement with Time Warner, each share of America Online common
stock will be converted into one share of AOL Time Warner common stock and each
share of Time Warner common stock and series common stock will be converted
into 1.5 shares of AOL Time Warner common stock and series common stock,
respectively, and each share of Time Warner preferred stock will be converted
into a substantially identical share of AOL Time Warner preferred stock. If
both our merger and the merger with Time Warner occur, you will become a
stockholder of AOL Time Warner, whose business will consist of the current
businesses of America Online and Time Warner.
The merger with Time Warner is subject to a number of conditions and America
Online expects to complete its merger with MapQuest before its merger with Time
Warner. AOL Time Warner has filed a registration statement on Form S-4 relating
to the merger with Time Warner. You are encouraged to read that document and
the documents filed by America Online with the Securities and Exchange
Commission that are incorporated herein by reference. See "Where You Can Find
More Information" that begins on page .
America Online has been named as a defendant in several putative class
action lawsuits. These lawsuits contend that consumers and competing Internet
service providers have been injured because of the default selection features
in AOL 5.0. These cases are at a preliminary stage, but America Online does not
believe they have merit and intends to contest them vigorously.
4
<PAGE>
MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
(717) 285-8500
http: //www.mapquest.com
MapQuest is a leader in online destination information solutions. MapQuest
licenses its technology to more than 1,000 business partners. Through these
licensing agreements, MapQuest helps businesses integrate maps and driving
directions into their Internet, Intranet and call center applications for
improved marketing and customer service functions. In addition to web-enabled
mapping services, MapQuest also provides high-quality maps and geographic
content in digital form for a variety of industries including publishing,
travel, hotels, real estate and retailers.
MapQuest provides comprehensive online mapping solutions to businesses and
customized maps, destination information and driving directions to consumers
through its website and through third-party websites.
MapQuest's online products and services enable businesses to:
. provide customized maps, destination information and driving directions
to potential customers,
. expand the service offerings of their websites to attract and retain
users,
. use outside sources to meet their map-generating and destination
information needs, thereby avoiding a significant portion of the
expenses normally associated with establishing and maintaining map-
generating personnel and technology organization,
. provide potential customers with information regarding which of a
business's multiple locations is closest to the potential customer, and
. provide delivery of driving directions to potential customers on
wireless platforms.
MapQuest's online products and services enable consumers to:
. receive maps and destination information on a real-time basis based on
the specific location provided by the consumer,
. generate detailed door-to-door driving directions at any time, and
. create and retrieve customized maps based on the consumers' preferences.
MapQuest is also a leading U.S. provider of traditional and digital mapping
products and services to the education, reference, directory, travel and
governmental markets. MapQuest has developed map-generating software to provide
non-Internet customized mapping applications to companies that incorporate call
centers, CD-ROMs or driving direction kiosks into their information delivery
strategy.
Summary of the Transaction
Stockholder Actions Required for the Transaction To Be Completed (see page )
The merger agreement must be adopted by MapQuest's stockholders for the
merger to occur. MapQuest has called the special meeting of stockholders to
which this proxy statement/prospectus relates so MapQuest stockholders can vote
on whether to adopt the merger agreement. The stockholders meeting will be held
on , 2000 at : .m. local time, at .
You may vote in person at the meeting or by proxy by following the
instructions provided. You will be entitled to one vote for each share of
MapQuest common stock you hold. Holders of shares representing a majority of
the aggregate voting power of the shares of MapQuest common stock entitled to
vote at the special meeting must vote in favor of the proposal to adopt the
merger agreement for the merger to occur. Consequently, abstentions, failures
to vote, and broker non-votes have the same effect as a vote against adoption
of the merger agreement. If the stockholders vote to adopt the merger agreement
and the merger
5
<PAGE>
occurs, MapQuest common stock will be exchanged for shares of America Online
common stock based on the exchange ratio of 0.31558 of a share of America
Online common stock for each share of MapQuest common stock. Following the
merger, the exchange agent will send to each stockholder of record on the
closing date instructions on how to exchange the shares of MapQuest common
stock for the appropriate number of shares of America Online common stock.
Recommendation of MapQuest's Board of Directors (see page )
After careful consideration, MapQuest's board of directors unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. MapQuest's board of directors unanimously
approved the merger agreement and recommends its adoption by you.
Opinion of MapQuest's Financial Advisor (see page and Annex D)
On December 21, 1999, FleetBoston Robertson Stephens Inc. ("Robertson
Stephens"), MapQuest's financial advisor, delivered its oral opinion,
subsequently confirmed in writing as of December 21, 1999, to MapQuest's board
of directors that, as of the date of its opinion and subject to the
considerations described in its opinion, the exchange ratio in the merger
agreement was fair from a financial point of view to MapQuest stockholders. The
complete opinion of Robertson Stephens is attached as Annex D. We urge you to
read it in its entirety.
Structure of the Transaction (see page )
MapQuest will merge with MQ Acquisition, a subsidiary of America Online, and
become a wholly owned subsidiary of America Online. Based on the exchange
ratio, MapQuest common stock will be exchanged for shares of America Online
common stock. Following the merger, as a stockholder of America Online, you
will have an equity stake in MapQuest's parent company, but will no longer have
any direct interest in MapQuest alone.
Completion and Effectiveness of the Merger (see page and Annex A)
If and when a majority of MapQuest's stockholders vote in favor of the
adoption of the merger agreement and when all of the other conditions to
complete the merger are satisfied or waived, the merger will become effective
when we file a certificate of merger with the Secretary of State of the State
of Delaware. The merger agreement is attached as Annex A. We urge you to read
it in its entirety.
Conditions to Completion of the Merger (see page )
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of the conditions listed below. If either America Online
or MapQuest waives any of the conditions, MapQuest will consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from MapQuest stockholders is appropriate. The
conditions that must be satisfied or waived before the merger is completed
include the following:
. the merger agreement must be adopted by MapQuest's stockholders,
. all applicable approvals and consents required to complete the merger
must be received and all applicable waiting periods under applicable
antitrust laws must have expired or been terminated,
. no injunction or order preventing the completion of the merger may be in
effect,
. our respective representations and warranties in the merger agreement
must be true and correct, including the absence of material adverse
changes in MapQuest's business,
. we must have complied with our respective covenants and agreements in
the merger agreement,
6
<PAGE>
. MapQuest must obtain any required consents from third parties relating
to the merger, except where the failure to obtain these consents would
not reasonably be expected to have a material adverse effect on
MapQuest's business, condition (financial or otherwise), results of
operations, assets, liabilities, properties or prospects of MapQuest and
its subsidiaries, taken as a whole,
. we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free reorganization,
. America Online must be advised in writing by Ernst & Young LLP, its
independent auditors, that they concur with America Online's conclusion
that the merger can properly be accounted for as a pooling-of-interests
business combination,
. the shares of America Online common stock to be issued to MapQuest
stockholders in the merger must have been approved for listing on the
New York Stock Exchange,
. specified related agreements must be in full force and effect as of the
completion of the merger, and
. employment offer letters between specified employees of MapQuest and
America Online, or in some cases, reasonably acceptable replacement
employees, must be in full force and effect as of the completion of the
merger.
Termination of the Merger Agreement (see page )
The merger agreement may be terminated at any time before the completion of
the merger under the circumstances summarized below.
The merger agreement may be terminated by our mutual consent.
The merger agreement may also be terminated by either America Online or
MapQuest if the conditions to completion of the merger would not be satisfied
because of a material breach of any agreement or covenant or any representation
or warranty in the merger agreement by the other becomes untrue or inaccurate
and cannot be cured or is not cured within 30 days.
In addition, the merger agreement may be terminated by either of America
Online or MapQuest under any of the following circumstances:
. if the merger is not completed by June 30, 2000, although this date will
be extended to September 30, 2000 if the applicable waiting periods and
necessary approvals under the antitrust laws have not been received or
have not expired or been terminated,
. if a final court order or governmental order prohibiting the merger is
issued and is not appealable, or
. if the MapQuest stockholders do not adopt the merger agreement at the
special meeting.
Furthermore, America Online may terminate the merger agreement if MapQuest's
board of directors takes any of the following actions:
. approves or recommends, or proposes, resolves or announces an intention
to approve or recommend, an extraordinary transaction of the nature
specified in the merger agreement involving MapQuest and a party other
than America Online, such as a merger, other business combination,
issuance or acquisition of 20% or more of the outstanding voting capital
stock of MapQuest or a sale of a significant portion of MapQuest's
business or assets, including its intellectual property,
. fails to present the merger agreement to the MapQuest stockholders and
recommend that the MapQuest stockholders adopt and approve the merger
agreement, or withdraws or modifies its
7
<PAGE>
recommendation in a manner adverse to America Online, proposes, resolves
or announces its intention to do so,
. fails to mail this proxy statement/prospectus when it is available for
mailing or fails to include in it the board's recommendation of the
merger, including the recommendation that the MapQuest stockholders vote
in favor of the adoption of the merger agreement, or resolves or
announces its intention to fail to do so,
. upon a request by America Online, fails to publicly reaffirm its
approval and recommendation of the merger and the merger agreement, or
resolves or announces its intention to fail to do so,
. takes any action prohibited by the covenant, described under
"Solicitation of Other Proposals Involving MapQuest" below, or enters
into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to an extraordinary transaction of
the nature specified in the merger agreement involving MapQuest and a
party other than America Online, such as a merger, other business
combination, issuance or acquisition of 20% or more of the outstanding
voting capital stock of MapQuest or a sale of a significant portion of
MapQuest's assets, including its intellectual property, or resolves or
announces its intention to do so, or
. materially breaches the stock option agreement (described under
"MapQuest Has Entered into a Stock Option Agreement with America Online"
below and attached as Annex B).
America Online may also terminate the merger agreement if:
. a third party acquires 20% or more of the outstanding shares of capital
stock or other equity interests of MapQuest, or
. there occurs a material breach of any representation, warranty, covenant
or agreement contained in the stockholders agreement (described under
"Some MapQuest Stockholders Have Entered into a Stockholders Agreement"
below and attached as Annex C) by any of the stockholders of MapQuest
who are parties to the stockholders agreement that would reasonably be
expected to have a material adverse effect on or materially impede the
ability of the parties to consummate the merger as contemplated by the
merger agreement.
Payment of Termination Fee and Expenses (see page )
MapQuest has agreed to pay America Online a termination fee of $34.6 million
if the merger agreement is terminated by America Online because of any of the
following circumstances:
. the MapQuest stockholders do not adopt the merger agreement at the
special meeting,
. MapQuest's board of directors takes any of the actions described in the
fifth paragraph under "Termination of the Merger Agreement" above,
. a third party acquires beneficial ownership of 20% or more of the
outstanding shares of capital stock or other equity interests of
MapQuest,
. any of the stockholders of MapQuest who are parties to the stockholders
agreement materially breach any representation, warranty, covenant or
agreement contained in the stockholders agreement in a manner that would
reasonably be expected to have a material adverse effect on or
materially impede the ability of the parties to consummate the merger,
or
. MapQuest willfully and materially breaches any covenant or agreement
contained in the merger agreement.
8
<PAGE>
In addition, if the merger agreement is terminated in circumstances in which
the termination fee described above becomes payable or because MapQuest
materially breaches the merger agreement and such breach is not cured by
MapQuest within 30 days, MapQuest has agreed to pay America Online up to $2.5
million of fees and expenses actually incurred by America Online in connection
with the merger agreement and the merger.
Solicitation of Other Proposals Involving MapQuest (see page )
Until the merger is completed or the merger agreement is terminated,
MapQuest has agreed not to directly or indirectly take any of the following
actions:
. solicit, facilitate, initiate, entertain or encourage, or take any
action to solicit, facilitate, initiate, entertain or encourage, any
inquiries or communications or the making of any proposal or offer for
any extraordinary transaction involving MapQuest and a party other than
America Online of the nature specified in the merger agreement, such as
a merger, other business combination, issuance or acquisition of 20% or
more of the outstanding voting capital stock of MapQuest or a sale of
any significant portion of MapQuest's business or assets, including its
intellectual property, or
. with respect to any person, entity or group that is pursuing such an
extraordinary transaction, participate or engage in any discussions or
negotiation with, or provide any information relating to MapQuest or
take any other action with the intent to facilitate the efforts of, any
person, entity or group concerning any such proposal or offer.
However, MapQuest may participate or engage in discussions or negotiations
or furnish information with respect to MapQuest if all of the following occur:
. the third party has submitted to MapQuest's board of directors an
unsolicited, bona fide written proposal regarding an extraordinary
transaction of the nature specified in the merger agreement,
. MapQuest has not violated its covenants regarding extraordinary
transactions described above,
. MapQuest's board of directors determines in its good faith judgment,
after consultation with outside counsel, that taking such action is
required to satisfy the MapQuest board's fiduciary duties under
applicable law, and
. MapQuest enters into a confidentiality agreement with the third party in
connection with the disclosure of information relating to MapQuest and
provides America Online with prior written notice of any action it
takes.
In addition, until the merger is completed or the merger agreement is
terminated, the board of directors of MapQuest has agreed not to take any of
the following actions:
. approve or recommend, or propose to approve or recommend, any proposal
regarding an extraordinary transaction of the nature specified in the
merger agreement, other than the merger,
. withdraw or modify or propose to withdraw or modify in a manner adverse
to America Online its approval or recommendation of the merger, the
merger agreement or the transactions contemplated by the merger
agreement,
. upon a request by America Online to reaffirm its approval or
recommendation of the merger, fail to do so within two business days
after such request is made,
. approve, enter, or permit or cause MapQuest to enter, into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any proposal regarding an extraordinary transaction
of the nature specified in the merger agreement, or
. resolve or announce its intention to do any of the foregoing.
9
<PAGE>
However, if prior to the MapQuest stockholders' meeting the board of
directors of MapQuest receives a proposal to effect a merger, consolidation or
sale of all or substantially all of the assets or capital stock of MapQuest
which is on terms which the MapQuest board of directors determines in good
faith (based on the written opinion of its financial advisor that the
consideration provided in such proposal likely exceeds the value of the
consideration provided for in the merger), to be more favorable to MapQuest's
stockholders than the merger (or any revised proposal made by America Online),
the MapQuest board of directors may take any of the following actions, if after
consultation with outside counsel, the MapQuest board of directors determines
in good faith that taking such action is required to satisfy the fiduciary
duties of the MapQuest board under applicable law:
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to America Online, its approval or recommendation of the merger
or the merger agreement,
. fail to reaffirm its approval or recommendation of the merger or the
merger agreement after a request by America Online to do so, or
. resolve or announce its intention to take any of the foregoing actions.
MapQuest Has Entered into a Stock Option Agreement with America Online (see
page and Annex B)
MapQuest entered into a stock option agreement with America Online, which
grants America Online the option to buy up to 3,571,661 shares of MapQuest
common stock, which represents approximately 10.0% of the shares and
approximately 10.0% of the voting power of MapQuest common stock outstanding on
December 21, 1999 or approximately 9.1% of the shares and approximately 9.1% of
the voting power of the shares after issuance of the shares of MapQuest common
stock subject to the option. The exercise price of the option is $27.00 per
share. America Online's maximum profit under the stock option agreement is
$34.6 million, less any termination fee paid by MapQuest under the merger
agreement.
America Online requested MapQuest to grant the option as a prerequisite to
entering into the merger agreement. The option may discourage third parties who
are interested in acquiring a significant stake in MapQuest and is intended by
America Online to increase the likelihood that the merger will be completed.
The option is not currently exercisable and America Online may only exercise
the option if the merger agreement is terminated under circumstances in which
the termination fee is payable (as described under "Payment of Termination Fees
and Expenses" on page ). If the merger agreement is terminated under
circumstances in which the termination fee could not become payable, the option
will terminate and America Online may not exercise it.
You are urged to read the stock option agreement in its entirety.
Some MapQuest Stockholders Have Entered into a Stockholders Agreement (see
page and Annex C)
Certain MapQuest stockholders have entered into a stockholders agreement
with America Online. The stockholders agreement requires these MapQuest
stockholders to vote all shares of MapQuest common stock beneficially owned by
them in favor of the adoption of the merger agreement. These MapQuest
stockholders were not paid additional consideration in connection with the
stockholders agreement.
The MapQuest stockholders who entered into the stockholders agreement
collectively held approximately . % of the outstanding MapQuest common stock
on the record date.
10
<PAGE>
You are urged to read the stockholders agreement in its entirety.
America Online, Digital City, Inc., a Subsidiary of America Online, and
MapQuest Have Entered into a Distribution Agreement (see page )
America Online, Digital City and MapQuest entered into a distribution
agreement simultaneously with the merger agreement under which MapQuest will
provide America Online and Digital City the use and license of its mapping and
routing data and services for use over the AOL network and with the Digital
City service. The distribution agreement became effective on December 21, 1999.
America Online will pay MapQuest an annual fee based on the amount of revenue
generated as a result of the use of MapQuest's products and services. The
agreement has a term of five years with America Online having the right to
extend the term for up to three additional years except that, with respect to
specific services that MapQuest is to provide to Digital City, the agreement
will expire on March 31, 2001. The parties' obligations and rights under the
distribution agreement are independent of their rights and obligations under
the merger agreement or the other agreements related to the merger and will
remain in effect notwithstanding any termination or amendment of the merger
agreement or the other agreements related to the merger.
Interests of Certain Persons in the Merger (see page )
When considering the recommendation of MapQuest's board of directors, you
should be aware that certain MapQuest directors and officers have interests in
the merger that are different from, or are in addition to, yours.
In particular, the three executive officers of MapQuest have signed letters
which contain offers of employment from America Online that will become
effective upon the completion of the merger. These officers are identified
under "Interests of Certain MapQuest Directors and Officers in the Merger" on
page . In addition, all unvested stock options granted under MapQuest's 1995
Stock Option Plan, including options granted to the executive officers of
MapQuest, vested upon the announcement of the merger in accordance with
existing plan provisions.
On the record date, directors and executive officers of MapQuest and their
affiliates beneficially owned approximately . % of the outstanding shares of
MapQuest common stock, which constituted . % of the voting power of the
outstanding MapQuest common stock. Furthermore, certain MapQuest executive
officers have signed, in their capacity as stockholders, a stockholders
agreement in which they have agreed to vote their shares in favor of adopting
the merger agreement.
U.S. Federal Income Tax Consequences of the Merger (see page )
We have structured the merger so that, in general, America Online, MapQuest
and their respective stockholders will not recognize gain or loss for United
States federal income tax purposes in the merger, except with respect to cash
received by MapQuest stockholders instead of fractional shares. It is a
waivable condition to the merger that we receive legal opinions to this effect.
Accounting Treatment of the Merger (see page )
We intend to account for the merger as a pooling-of-interests business
combination. It is a condition to completion of the merger that America Online
be advised in writing by Ernst & Young LLP that they concur with America
Online's conclusion that the merger can properly be accounted for as a pooling-
of-interests business combination. Although this condition may be waived by
America Online, it is unlikely that America Online would waive this condition.
Under the pooling-of-interests method of accounting, each of our historical
recorded assets and liabilities will be carried forward to the combined company
at their recorded amounts.
11
<PAGE>
Antitrust Approval Required to Complete the Merger (see page )
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission. We are
examining whether we have any filing obligations with foreign regulatory
agencies, and we will make any required filings. We are not permitted to
complete the merger until the applicable waiting periods have expired or been
terminated. The applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act will expire on February 28, 2000, unless a request for
additional information is received from the Department of Justice or the
Federal Trade Commission. The Department of Justice or the Federal Trade
Commission and any state antitrust authority may challenge the merger at any
time before its completion.
Restrictions on the Ability to Sell America Online Stock (see page )
All shares of America Online common stock received by you in connection with
the merger will be freely transferable unless you are considered an "affiliate"
of either of us under the Securities Act of 1933, as amended. Shares of America
Online common stock held by our affiliates may only be sold pursuant to a
registration statement or exemption under the Securities Act.
You Do Not Have Appraisal Rights (see page )
Under Delaware law, you are not entitled to appraisal rights in the merger.
Where You Can Find More Information (see page )
If you have any questions about the merger, please call MapQuest Investor
Relations at (717) 285-8701. You may also call America Online Investor
Relations at (703) 265-2741.
Forward Looking Statements in this Proxy Statement/Prospectus (see page )
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to America Online's and MapQuest's financial condition,
results of operations and business and on the expected impact of the merger on
America Online's financial performance and business. Words such as
"anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
"seek," and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward looking statements.
In evaluating the merger, you should carefully consider the discussion of
risks and uncertainties in the section entitled "Risk Factors" beginning on
page .
12
<PAGE>
Selected Historical and Pro Forma Financial Data
The following tables present (1) selected historical financial data of
America Online, (2) selected unaudited pro forma consolidated financial data
giving effect to America Online's pending merger with Time Warner and (3)
selected historical financial data of MapQuest. Because the operating results
of MapQuest are not material to America Online's operating results, pro forma
consolidated financial statements for the merger are not presented.
AMERICA ONLINE
Selected Historical Financial Data
The selected historical financial data of America Online have been derived
from the audited historical consolidated financial statements and related notes
of America Online for each of the years in the five-year period ended June 30,
1999 and the unaudited consolidated financial statements for the three months
ended September 30, 1999 and 1998 and have been adjusted to reflect the two-
for-one common stock split in November 1999. The historical data are only a
summary, and you should read them in conjunction with the historical financial
statements and related notes contained in the annual and quarterly reports for
America Online, which have been incorporated by reference in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
-------------- ------------------------------------
1999 1998 1999 1998 1997 1996 1995
------- ------ ------ ------ ------ ------ ------
(millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........... $ 1,467 $ 999 $4,777 $3,091 $2,197 $1,323 $ 425
Business segment
operating income (loss)
(1)..................... 286 91 529 (63) (446) 86 (34)
Interest and other, net.. 37 5 638 30 10 5 3
Net income (loss)........ 184 76 762 (74) (485) 35 (55)
Net income (loss) per
share
Basic................... $ 0.08 $ 0.04 $ 0.37 $(0.04) $(0.29) $ 0.02 $(0.05)
Diluted................. $ 0.07 $ 0.03 $ 0.30 $(0.04) $(0.29) $ 0.02 $(0.05)
Average common shares
Basic................... 2,221 1,993 2,081 1,850 1,676 1,501 1,175
Diluted................. 2,575 2,398 2,555 1,850 1,676 1,889 1,175
</TABLE>
- --------
(1) Business segment operating income (loss) reflects income (loss) from
operations adjusted to exclude corporate related expenses.
<TABLE>
<CAPTION>
As of As of June 30,
September 30, --------------------------------
1999 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ----
(millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents............ $1,330 $ 887 $ 677 $ 191 $ 177 $ 63
Total assets.................... 6,502 5,348 2,874 1,501 1,271 459
Debt due within one year........ 18 6 2 2 3 3
Long-term debt.................. 346 358 372 52 22 21
Stockholders' equity............ 3,849 3,033 996 610 707 242
</TABLE>
Significant Events Affecting America Online's Operating Trends. The
comparability of America Online's operating results is affected by a number of
significant and nonrecurring items recognized in some periods. In fiscal 1999,
America Online incurred special charges of $95 million related to mergers and a
restructuring, $25 million in transition costs and a net gain of $567 million
related to the sale of investments in Excite, Inc. In fiscal 1998, America
Online incurred special charges of $94 million for acquired in-process research
and
13
<PAGE>
development, $17 million related to settlements and $75 million related to a
merger and restructuring. In fiscal 1997, America Online incurred special
charges of $385 million related to the write-off of previously capitalized
deferred subscriber acquisition costs, $49 million related to a restructuring,
$24 million for contract terminations, $24 million for a legal settlement and
$9 million related to acquired in-process research and development. In fiscal
1996, America Online incurred special charges of $17 million for acquired in-
process research and development, $8 million in merger related costs and $8
million for the settlement of a class action lawsuit. In fiscal 1995, America
Online incurred special charges of $2 million for merger related costs and $50
million for acquired in-process research and development.
To assess meaningfully underlying operating trends from period to period,
America Online's management believes that the results of operations for each
period should be analyzed after excluding the effects of these significant
nonrecurring items. The following summary adjusts America Online's historical
operating results to exclude the impact of these unusual items. However,
unusual items may occur in any period. Accordingly, investors and other
financial statement users should consider the types of events and transactions
for which adjustments have been made.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
------------- ------------------------
1999 1998 1999 1998 1997 1996 1995
------ ------ ---- ---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Business segment operating income...... $ 286 $ 91 $649 $123 $45 $111 $18
Earnings before interest, taxes,
depreciation and amortization (EBITDA)
(1)................................... 342 134 866 265 95 131 22
</TABLE>
- --------
(1) EBITDA is defined as net income plus: (a) provision/(benefit) for income
taxes, (b) interest, (c) depreciation and amortization and (d) special items.
For the fiscal years ended on or before June 30, 1997, EBITDA does not add back
the amortization of subscriber acquisition costs. America Online considers
EBITDA to be an important indicator of the operational strength and performance
of its business, including its ability to provide cash flows to service its
debt and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of America Online's
performance, or as an alternative to cash flows from operating activities as a
measure of liquidity, in each case determined in accordance with generally
accepted accounting principles. In addition, EBITDA, as defined in this proxy
statement/prospectus, may not be comparable to similarly titled measures
reported by other companies.
14
<PAGE>
AOL TIME WARNER
Selected Unaudited Pro Forma Consolidated Financial Data
The selected unaudited pro forma consolidated financial data of AOL Time
Warner, the resulting company from America Online's proposed merger with Time
Warner, have been derived from the unaudited pro forma consolidated financial
statements incorporated by reference in this proxy statement/prospectus.
Because America Online and Time Warner have different fiscal years, and the
combined company will adopt the calendar year-end of Time Warner, pro forma
operating results are presented on two different bases: (1) a June 30th fiscal-
year basis, which is consistent with America Online's historical fiscal year-
end and (2) a December 31st calendar-year basis, which is consistent with both
Time Warner's historical fiscal year-end and that of AOL Time Warner going
forward. We believe that it is meaningful to present pro forma financial
information based on the calendar year-end of the combined company to
facilitate an analysis of the pro forma effects of the merger between America
Online and Time Warner.
<TABLE>
<CAPTION>
Year
Three Months Ended Nine Months Year
Ended June Ended Ended
September 30, 30, September 30, December 31,
1999 1999 1998 1998
------------- ------- ------------- ------------
(millions, except per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................... $8,190 $31,259 $23,442 $30,091
Amortization of goodwill
and other intangible
assets.................... (2,115) (8,457) (6,326) (8,480)
Business segment operating
loss(1)................... (203) (2,142) (812) (3,799)
Interest and other, net.... (453) (1,479) (733) (2,081)
Loss before extraordinary
item...................... (831) (3,959) (2,320) (5,294)
Loss before extraordinary
item per basic
and diluted share......... $(0.20) $ (1.11) $ (0.58) $ (1.56)
Average common shares...... 4,154 3,928 4,057 3,744
EBITDA(1)(2) .............. 2,293 7,778 6,606 6,180
(1) EBITDA consists of business segment operating income (loss) before
depreciation and amortization. AOL Time Warner considers EBITDA to be an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt
and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of the
performance of AOL Time Warner, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
this definition of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(2) EBITDA includes a number of significant and nonrecurring items. The
aggregate effect of those items for each period, as well as the adjusted
EBITDA excluding such amounts, is as follows:
Increase (decrease) in
EBITDA..................... $ 477 $ 890 $ 1,345 $ (39)
====== ======= ======= =======
Adjusted EBITDA............. $1,816 $ 6,888 $ 5,261 $ 6,219
====== ======= ======= =======
</TABLE>
See "Selected Historical Financial Data" elsewhere herein for further
reference.
<TABLE>
<CAPTION>
September 30,
1999
-------------
(millions)
<S> <C>
Balance Sheet Data:
Cash and equivalents............................................ $ 1,975
Total assets.................................................... 230,399
Long-term debt and other obligations(3)......................... 19,963
Shareholders' equity............................................ 152,824
</TABLE>
- --------
(3) Includes $1.230 billion of borrowings against future stock option proceeds
and $575 million of mandatorily redeemable preferred securities of
subsidiaries.
15
<PAGE>
MAPQUEST.COM, INC.
Selected Historical Financial Data
The selected historical financial data of MapQuest have been derived from
the audited historical consolidated financial statements and notes thereto of
MapQuest for each of the years in the four-year period ended December 31, 1998
and the unaudited consolidated financial statements for the year ended
December 31, 1994 and the nine months ended September 30, 1999 and 1998.
MapQuest was not an independent entity until October 31, 1994, and as there was
no common stock outstanding from October 31, 1994 to December 31, 1994, basic
and diluted earnings (loss) per share amounts for MapQuest are not presented
for 1994. The historical information of MapQuest is only a summary and you
should read it in conjunction with MapQuest's financial statements and related
notes and MapQuest's Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are included in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
----------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ------- ------- ------- ------- ------- -------
(thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........ $ 23,393 $17,847 $24,717 $21,416 $19,577 $14,077 $10,469
Income (loss) from
operations........... (11,812) (2,360) (3,453) (8,002) (1,719) 15 (4,286)
Net income (loss)..... (10,588) (2,081) (3,155) (7,599) (1,276) 524 (4,190)
Net income (loss) per
share--basic......... (0.60) (8.75) (12.09) (64.43) (8.84) 0.79 --
Net income (loss) per
share--diluted....... (0.60) (8.75) (12.09) (64.43) (8.84) -- --
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31,
September 30, ---------------------------------------
1999 1998 1997 1996 1995 1994
------------- ------- ------- ------ ------ ------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets........... $66,681 $11,450 $13,221 $9,526 $9,601 $9,169
Total debt............. 5 48 100 -- -- --
Stockholders' equity
(deficit)............. 57,195 (19,768) (16,237) (1,553) 213 89
</TABLE>
16
<PAGE>
Unaudited Comparative Per Share Information
We have summarized below the per share information for America Online and
MapQuest on a historical basis and equivalent basis. The "MapQuest Per Share
Equivalents" below are calculated by multiplying the America Online per share
amounts by 0.31558, the exchange ratio to be used in the merger.
<TABLE>
<CAPTION>
As of and for
the Three
Months As of and for
Ended the Year Ended June 30,
September 30, ---------------------------
1999 1999 1998 1997
------------- -------- -------- -------
<S> <C> <C> <C> <C>
America Online--Historical:
Net income (loss) per common
share.......................... $ 0.07 $ 0.30 $ (0.04) $ (0.29)
Cash dividends declared per
common share................... -- -- -- --
Book value per common share..... 1.72 1.38 -- --
<CAPTION>
As of and for
the Nine As of and for
Months the Year Ended December
Ended 31,
September 30, ---------------------------
1999 1998 1997 1996
------------- -------- -------- -------
<S> <C> <C> <C> <C>
MapQuest--Historical:
Net loss per common share....... $(0.60) $ (12.09) $ (64.43) $ (8.84)
Cash dividends declared per
common share................... -- -- -- --
Book value per common share..... 1.70 (58.82) -- --
<CAPTION>
As of and for
the Three As of and for
Months Ended the Year Ended June 30,
September 30, ---------------------------
1999 1999 1998 1997
------------- -------- -------- -------
<S> <C> <C> <C> <C>
MapQuest Per Share Equivalents:
Net income (loss) per common
share.......................... $ 0.02 $ 0.09 $ (0.01) $ (0.09)
Cash dividends declared per
common share................... -- -- -- --
Book value per common share..... 0.54 0.44 -- --
</TABLE>
Comparative Per Share Market Price Data
America Online common stock is traded on the New York Stock Exchange under
the symbol "AOL," and MapQuest common stock is traded on the Nasdaq National
Market under the symbol "MQST."
The following table sets forth the closing prices per share of MapQuest
common stock as reported on the Nasdaq National Market and the closing prices
per share of America Online common stock as reported on the New York Stock
Exchange on (1) December 21, 1999, the last full trading day before the public
announcement that America Online and MapQuest had entered into the merger
agreement and (2) , 2000, the last full trading day for which closing
prices were available at the time of the printing of this
proxy statement/prospectus.
The following table also sets forth, in the column titled "Equivalent Per
Share Price," the value you would have received for each share of MapQuest
common stock you own, if the merger had been completed and you had exchanged
your shares of MapQuest common stock for shares of America Online common stock,
on the dates listed. The value was calculated by multiplying the exchange ratio
by the closing price of America Online common stock on the dates listed below.
<TABLE>
<CAPTION>
Equivalent
MapQuest America Online Per Share
Common Stock Common Stock Price
------------ -------------- ----------
<S> <C> <C> <C>
December 21, 1999..................... $32.500 $86.688 $27.357
, 2000..................... $ $ $
</TABLE>
Because the market price of America Online common stock may increase or
decrease before the completion of the merger, you are urged to obtain current
market quotations.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in or incorporated by
reference into this joint proxy statement-prospectus, you should carefully
consider the following risk factors in deciding whether to vote for adoption of
the merger agreement.
The Value of the America Online Common Stock You Receive in the Merger May Vary
Upon completion of the merger, each share of MapQuest common stock will be
automatically converted into 0.31558 of a share of America Online common stock.
This exchange ratio is fixed and there will be no adjustment in the event of
fluctuation in the market price of either MapQuest common stock or America
Online Common Stock, and neither party is permitted to "walk away" from the
merger because of changes in either party's stock price. As a result, the value
of the shares you receive in the merger will not be known at the time you vote
on the merger and may go up or down as the market price of America Online
common stock goes up or down. The specific dollar value of America Online
common stock to be received by you upon completion of the merger will depend on
the market value of America Online common stock at the time of completion of
the merger. As of , 2000, the last trading date for which information
was available before the printing of this proxy statement/prospectus, the
closing price of America Online common stock was $ per share. The share
prices of both MapQuest common stock and America Online common stock are by
nature subject to the general price fluctuations in the market for publicly
traded equity securities and have experienced significant volatility. No
prediction can be made as to the market prices of either MapQuest common stock
or America Online common stock at any time before the completion of the merger
or as to the market price of America Online common stock after the completion
of the merger.
America Online Has Entered into a Merger Agreement with Time Warner
America Online has entered into a merger agreement with Time Warner Inc.
pursuant to which each of America Online and Time Warner would become wholly
owned subsidiaries of a new parent company named AOL Time Warner. In that
merger, subject to the terms and conditions of the merger agreement with Time
Warner, each share of America Online common stock will be converted into one
share of AOL Time Warner common stock, and each share of Time Warner common
stock and series common stock will be converted into 1.5 shares of AOL Time
Warner common stock and series common stock, respectively, and each share of
Time Warner preferred stock will be converted into a substantially identical
share of AOL Time Warner preferred stock. If both our merger and the merger
with Time Warner occur, you will become a stockholder of AOL Time Warner, whose
business will consist of the current businesses of America Online and Time
Warner.
The merger with Time Warner is subject to a number of conditions, and
America Online expects to complete its merger with MapQuest before its merger
with Time Warner. There can be no assurance that the merger with Time Warner
will occur or, if it does occur, of what effect it will have on the stock
price, results of operations or financial condition of America Online or AOL
Time Warner. AOL Time Warner has filed a registration statement on Form S-4
relating to America Online's merger with Time Warner. You are encouraged to
read that document and the documents filed by America Online with the
Securities and Exchange Commission that are incorporated herein by reference.
See "Where You Can Find More Information" on page .
MapQuest Officers and Directors Have Conflicts of Interest Relating to Their
Approval and Support of the Merger
The directors and executive officers of MapQuest have interests in the
merger that are different from, or are in addition to, yours. In particular,
the three executive officers of MapQuest have signed letters containing offers
of employment from America Online that will become effective upon the
completion of the merger. These offer letters in the aggregate contain a
commitment to grant to these executive officers options to purchase a total of
400,000 shares of America Online common stock. These executive officers are
identified under "Interests of Certain MapQuest Directors and Officers in the
Merger" on page .
18
<PAGE>
The continuation of indemnification arrangements for current directors of
MapQuest following completion of the merger, may influence these directors in
making their recommendation that you vote in favor of the adoption of the
merger agreement.
In addition, all unvested stock options granted under MapQuest's 1995 Stock
Option Plan to all executive officers and employees of MapQuest vested upon
the announcement of the merger in accordance with the existing plan
provisions. The number of shares of MapQuest common stock subject to unvested
options held by MapQuest's executive officers that vested upon announcement of
the merger totaled 972,001 on December 21, 1999. Unvested stock options
outstanding under MapQuest's 1999 Stock Plan did not vest upon the
announcement of the merger.
Furthermore, certain MapQuest executive officers have signed, in their
capacity as stockholders, a stockholders agreement in which they have agreed
to vote their shares in favor of adopting the merger agreement.
On the record date, directors and executive officers of MapQuest and their
affiliates beneficially owned approximately . % of the outstanding shares of
MapQuest common stock, which constituted . % of the voting power of
outstanding MapQuest common stock.
Parties to Contracts With MapQuest May Be Competitors of America Online Which
May Impact Their Decision Whether to Renew Their Contracts with MapQuest
MapQuest has contracts with parties which may be competitors or companies
affiliated with competitors of America Online. These contracts provide for:
. license of MapQuest software, data and services for use by Internet
search and directory sites,
. display, marketing and distribution of MapQuest mapping and routing
content on Internet search and directory sites, and
. link from third-party networks to MapQuest's website.
The merger of MapQuest with America Online may affect the likelihood of
contract renewals or negotiation of new contracts between these parties and
MapQuest. Failure of these parties to renew or enter into new agreements with
MapQuest could impair America Online's ability to realize the expected
benefits of the merger.
Failure to Complete the Merger Could Negatively Impact MapQuest's Stock Price
and Future Business and Operations.
If the merger is not completed for any reason, MapQuest may be subject to
the following material risks:
. MapQuest may be required to pay America Online a termination fee of
$34.6 million, plus up to $2.5 million of expenses incurred by America
Online,
. the option exercisable for up to 3,571,661 shares of MapQuest common
stock granted to America Online by MapQuest may become exercisable,
. the price of MapQuest common stock may decline to the extent that the
current market price of MapQuest common stock reflects a market
assumption that the merger will be completed, and
. costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
If the merger is terminated and MapQuest's board of directors determines to
seek another merger or business combination, there can be no assurance that it
will be able to find a partner willing to pay an equivalent or more attractive
price than that which would be paid in the merger. In addition, while the
merger agreement is in effect and subject to the limited exceptions described
on page of this proxy
19
<PAGE>
statement/prospectus, MapQuest is prohibited from soliciting, initiating,
entertaining, encouraging or facilitating or entering into certain
extraordinary transactions, such as a merger, sale of assets or other business
combination with any party other than America Online. Furthermore, if the
merger agreement is terminated and America Online exercises its option to
purchase MapQuest common stock, MapQuest would not be able to account for
future transactions as a pooling-of-interests.
Year 2000 Matters
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.
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 compliance, and the problems that have been
identified either have been addressed or are in the process of being addressed.
America Online is not aware of any remaining significant problems related to
Year 2000 issues but is continuing to monitor the status of suppliers and
vendors. There can be no assurance that America Online or one of the entities
it does business with will not experience a Year 2000 problem that could have
an effect on America Online.
MapQuest has dedicated both internal and external resources to make the
required modifications and test Year 2000 compliance. To date, MapQuest has
experienced few problems related to Year 2000 compliance, and the problems that
have been identified either have been addressed or are in the process of being
addressed. MapQuest is not aware of any remaining significant problems related
to Year 2000 issues but is continuing to monitor the status of suppliers and
vendors. There can be no assurance that MapQuest or one of the entities it does
business with will not experience a Year 2000 problem that could have an effect
on MapQuest.
Anti-Takeover Provisions
America Online's restated certificate of incorporation and restated by-laws
contain provisions that could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of America Online. These provisions allow America Online to issue preferred
stock with rights senior to those of its common stock and impose various
procedural and non-procedural requirements that could make it more difficult
for America Online stockholders to effect certain corporate actions.
In addition, under America Online's stockholder rights plan, holders of
America Online common stock are entitled to one preferred share purchase right
for each outstanding share of common stock they hold, exercisable under certain
defined circumstances involving a potential change of control, as discussed
beginning on page of this proxy statement/prospectus. The preferred share
purchase rights have the anti-takeover effect of causing substantial dilution
to a person or group that attempts to acquire America Online on terms not
approved by America Online's board of directors.
In connection with America Online's merger agreement with Time Warner,
America Online granted to Time Warner an option to acquire shares of America
Online common stock in certain circumstances. If the option becomes
exercisable, it could restrict the ability of another person to acquire America
Online in a pooling-of-interests transaction.
The foregoing provisions could have a material adverse effect on the premium
that potential acquirors might be willing to pay in an acquisition or that
investors might be willing to pay in the future for shares of America Online
common stock. However, in connection with America Online's merger with Time
Warner, AOL Time Warner will not have many of these anti-takeover provisions.
20
<PAGE>
THE SPECIAL MEETING OF MAPQUEST STOCKHOLDERS
Proxy Statement/Prospectus
This proxy statement/prospectus is being furnished to you in connection with
the solicitation of proxies by MapQuest's board of directors in connection with
our proposed merger.
This proxy statement/prospectus is first being furnished to stockholders of
MapQuest on or about , 2000.
Date, Time and Place of the Special Meeting
The special meeting of stockholders of MapQuest is scheduled to be held as
follows:
, 2000
: .m., local time
[location]
Purpose of the Special Meeting
The special meeting is being held so that stockholders of MapQuest may
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of December 21, 1999, by and among America Online, MQ Acquisition,
Inc., a wholly owned subsidiary of America Online, and MapQuest, and to
transact any other business that properly comes before the special meeting or
any adjournment. Adoption of the merger agreement will also constitute approval
of the merger and the other transactions contemplated by the merger agreement.
If the stockholders of MapQuest adopt the merger agreement, MQ Acquisition
will merge with and into MapQuest, and MapQuest will survive the merger as a
wholly owned subsidiary of America Online. You will receive 0.31558 of a share
of America Online common stock for each share of MapQuest common stock you
hold.
Stockholder Record Date for the Special Meeting
MapQuest's board of directors has fixed the close of business on ,
2000 as the record date for determination of MapQuest stockholders entitled to
notice of and to vote at the special meeting. On the record date, there were
shares of MapQuest common stock outstanding, held by approximately
holders of record.
Majority Vote of MapQuest Stockholders Required for Adoption of the Merger
Agreement
A majority of the outstanding voting power of the shares of MapQuest common
stock entitled to vote at the special meeting must be represented, either in
person or by proxy, to constitute a quorum at the special meeting. The
affirmative vote of the holders of at least a majority of the aggregate voting
power of MapQuest's common stock outstanding and entitled to vote at the
special meeting is required to adopt the merger agreement. You are entitled to
one vote for each share of MapQuest common stock held by you on the record date
on each proposal to be presented to stockholders at the special meeting.
The MapQuest stockholders who are parties to the stockholders agreement,
which includes certain MapQuest executive officers, in their capacity as
stockholders, with America Online have agreed, subject to the terms and
conditions of the stockholders agreement, to vote their shares of MapQuest
common stock in favor of the adoption of the merger agreement. As of the record
date, these stockholders held approximately shares of MapQuest
common stock. These share numbers represented approximately . % of the
outstanding shares of MapQuest common stock and approximately . % of the
voting power of the outstanding shares of MapQuest Common Stock entitled to
vote as of the record date at the special meeting.
21
<PAGE>
On the record date for the special meeting, directors and executive officers
of MapQuest and their affiliates beneficially owned approximately
shares of MapQuest common stock. These share numbers represented approximately
. % of all outstanding shares of MapQuest common stock and approximately
. % of the voting power of the outstanding shares of MapQuest common stock
entitled to vote as of the record date at the special meeting.
Proxies
All shares of MapQuest common stock represented by properly executed proxies
received before or at the special meeting will, unless the proxies are revoked,
be voted in accordance with the instructions indicated thereon. If no
instructions are indicated on a properly executed proxy, the shares will be
voted FOR adoption of the merger agreement. You are urged to mark the box on
the proxy to indicate how to vote your shares.
If a properly executed proxy is returned and the stockholder has abstained
from voting on adoption of the merger agreement, the MapQuest common stock
represented by the proxy will be considered present at the special meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of adoption of the merger agreement. If your shares are held in an
account at a brokerage firm or bank, you must instruct it on how to vote your
shares. If an executed proxy card is returned by a broker holding shares in the
name of a brokerage firm or bank, which indicates that the broker or bank does
not have discretionary authority to vote on adoption of the merger agreement,
the shares will be considered present at the meeting for purposes of
determining the presence of a quorum, but will not be considered to have been
voted in favor of adoption of the merger agreement. Your broker or bank will
vote your shares only if you provide instructions on how to vote by following
the information provided to you by your broker or bank.
Because adoption of the merger agreement requires the affirmative vote of at
least a majority of the voting power of MapQuest's common stock outstanding on
the record date, abstentions, failures to vote and broker non-votes will have
the same effect as a vote against adoption of the merger agreement.
MapQuest does not expect that any matter other than adoption of the merger
agreement will be brought before the special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless authority
to do so is withheld in the proxy.
You may revoke your proxy at any time before it is voted by:
. notifying in writing the Secretary of MapQuest at 3710 Hempland Road,
Mountville, PA 17554,
. granting a subsequent proxy, or
. appearing in person and voting at the special meeting.
. if you voted electronically through the Internet or by telephone,
changing your vote by voting again at a later date, using the same
procedures.
Attendance at the special meeting will not in and of itself constitute the
revocation of a proxy.
America Online and MapQuest will equally share the expenses incurred in
connection with the printing and mailing of this proxy statement/prospectus.
MapQuest will request banks, brokers and other intermediaries
22
<PAGE>
holding shares beneficially owned by others to send this proxy
statement/prospectus to and obtain proxies from the beneficial owners and will
reimburse the holders for their reasonable expenses in so doing.
You should not send in any stock certificates with your proxies. A
transmittal form with instructions for the surrender of stock certificates for
MapQuest common stock will be mailed to you as soon as practicable after
completion of the merger.
Voting Electronically or by Telephone
Instead of submitting your vote by mail on the enclosed proxy card, many
stockholders may vote electronically by submitting their proxy through the
Internet or by telephone. Please note that there are separate arrangements for
using the Internet and telephone depending on whether your shares are
registered in MapQuest's stock records in your name or in the name of a
brokerage firm or bank. You should check your proxy card or voting instructions
forwarded by your broker, bank or other holder of record to see which options
are available.
The Internet and telephone procedures for submitting your proxy or voting
instructions are designed to authenticate stockholders' identities, to allow
stockholders to have their shares voted and to confirm that their instructions
have been properly recorded. MapQuest has been advised by counsel that the
procedures that have been put in place are consistent with the requirements of
applicable law. Stockholders submitting proxies or voting instructions via the
Internet should understand that there may be costs associated with electronic
access, such as usage charges from Internet access providers and telephone
companies, that would be borne by the stockholder.
You should not send in any stock certificates with your proxy card. A
transmittal letter with instructions for the surrender of stock certificates
will be mailed to you as soon as practicable after completion of the merger.
23
<PAGE>
THE MERGER
This section of the proxy statement/prospectus describes material aspects of
the proposed merger, including the merger agreement, the stock option agreement
and the stockholders agreement. While we believe that the description covers
the material terms of the merger, this summary may not contain all of the
information that is important to you. You should read this entire proxy
statement/prospectus and the other documents we refer to carefully for a more
complete understanding of the merger. In addition, we incorporate important
business and financial information about America Online into this proxy
statement/prospectus by reference. You may obtain the information incorporated
by reference into this proxy statement/prospectus without charge by following
the instructions in the section entitled "Where You Can Find More Information"
on page of this proxy statement/prospectus.
Background of the Merger
America Online and MapQuest have been familiar with each other's business
for several years. In November 1997, Digital City, Inc., a subsidiary of
America Online, and MapQuest entered into an agreement under which MapQuest was
paid by Digital City to provide mapping and routing information and services to
Digital City. One year later, that agreement was terminated. In April 1999,
Digital City and MapQuest entered into another agreement under which MapQuest
was paid by Digital City to provide mapping and routing information and
services to Digital City.
In early September 1999, Michael J. Mulligan, Chief Executive Officer of
MapQuest, met with Paul DeBenedictis, President of Digital City, at America
Online's offices to discuss the merits of a possible strategic relationship
between America Online and MapQuest, including among other things, a possible
combination of the two companies.
On September 10, 1999, Mr. Mulligan, James W. Thomas, Chief Financial
Officer of MapQuest, and William Muenster, Senior Vice President of Development
and Production of MapQuest, met with Mr. DeBenedictis, Fred Singer, Senior Vice
President, Interactive Properties, of America Online, and Jim Davidson, Vice
President, Technology, of Digital City, at MapQuest's Denver offices to conduct
further discussions regarding a possible business combination of America Online
and MapQuest.
On September 20, 1999, Mr. Mulligan, Mr. Thomas, Mr. Muenster and other
members of MapQuest's management met at MapQuest's offices with Mr.
DeBenedictis, Mr. Singer, Mr. Davidson, Ron Grant, Vice President, Business
Affairs, of America Online, and Steve Chien, Director, Business Development and
Strategy, of Digital City, to begin a due diligence investigation of MapQuest.
On October 5, 1999, MapQuest and America Online entered into a
Confidentiality and Non-Disclosure Agreement in which the parties agreed to
keep confidential any information received in the course of conducting their
respective due diligence investigation and negotiating the proposed
transaction. On that day and again on October 20, 1999, Mr. Mulligan met with
Mr. DeBenedictis and Donn Davis, Chief Operating Officer, Interactive
Properties, of America Online, to continue discussions regarding a possible
business combination of America Online and MapQuest.
From October 5, 1999 through the date of the execution of the merger
agreement, America Online and its financial and legal advisors conducted due
diligence on MapQuest, and MapQuest and its financial advisors periodically
conducted financial due diligence on America Online.
On October 22, 1999, the MapQuest board conducted a conference call to
obtain a status report with respect to the negotiation process with America
Online. MapQuest's management was instructed by the board to continue
discussions with all interested parties about a potential business combination
transaction and to commence price range discussions with America Online. After
the board conference call, Mr. Mulligan had discussions with representatives
from Robertson Stephens regarding that firm's possible role as MapQuest's
24
<PAGE>
investment banker in a potential business combination. Robertson Stephens had
been the co-manager of MapQuest's initial public offering in May 1999 and had
subsequently been engaged by MapQuest to seek out strategic acquisition
opportunities for MapQuest.
On October 26, 1999, Mr. Mulligan and Mr. Thomas conducted an exploratory
meeting with the chief executive officer of another company to discuss a
possible business combination with MapQuest. This meeting did not result in a
formal offer for a business combination.
On October 27, 1999, the MapQuest board met in New York to discuss a
possible business combination with America Online. This meeting was also
attended by representatives of Mayer, Brown & Platt and Robertson Stephens. The
MapQuest board received a briefing by Robertson Stephens with respect to
financial and stock market information about America Online and other potential
merger parties. The MapQuest board instructed MapQuest management to continue
to investigate and identify, through Robertson Stephens, other possible
transactions and other potential proposals. The MapQuest board asked Robertson
Stephens to conduct further inquiries and contact additional third parties. At
that board meeting, the MapQuest board also authorized MapQuest management,
pending the results of Robertson Stephens' inquiries into other possible
transactions or proposals, to enter into a non-solicitation agreement with
America Online.
On November 1, 1999, Mr. Mulligan, Daniel Nova, a director of MapQuest, and
representatives of Robertson Stephens met with David Colburn, President,
Business Affairs, Mr. Davis, Lynda Clarizio, Vice President, Business Affairs,
and Michael McGowan, Vice President and Associate General Counsel, of America
Online to discuss exchange ratios and other principal terms of a possible
business combination, and similar discussions continued telephonically through
November 5, 1999.
On November 5, 1999, at the request of America Online, MapQuest signed a
non-solicitation agreement with America Online, in which MapQuest agreed not to
solicit or engage in any discussions or negotiations with any other third party
regarding a potential business combination or acquisition involving MapQuest
prior to November 18, 1999. At that time, MapQuest was satisfied that a
transaction with America Online would be in its stockholders' best interests
and determined to pursue a transaction exclusively with America Online for a
two week period.
From November 5, 1999 through November 12, 1999, members of management of
America Online and MapQuest, along with their respective legal and financial
advisors, met in New York and telephonically to continue to conduct due
diligence and negotiate the terms of the proposed merger between MapQuest and
America Online and the related agreements. During that time, the parties
negotiated the principal terms of the agreements and other related documents,
including the exchange ratio, restrictions on MapQuest's ability to pursue
alternative transactions, representations and warranties, covenants,
termination provisions and conditions to the closing of the merger.
On November 9, 1999 and on November 22, 1999, the MapQuest board met
telephonically to obtain an update on the status of the negotiation process
with America Online.
From November 23, 1999 through December 3, 1999, America Online continued to
conduct due diligence with respect to MapQuest, including participating with
MapQuest in discussions with certain suppliers regarding their contractual
arrangements with MapQuest, and continued to negotiate the terms of the merger
agreement and related agreements.
On December 15, 1999 and December 16, 1999, the MapQuest board met
telephonically to obtain an update with respect to the status of the
negotiation process with America Online and to discuss possible transactions
with other third parties.
From December 15, 1999 through December 21, 1999, members of management of
America Online and MapQuest, along with their respective legal and financial
advisors, resumed negotiation of the terms of the
25
<PAGE>
proposed merger and the related agreements. During that time, the parties
continued to negotiate the principal terms of the agreements and other related
documents, including the exchange ratio, restrictions on MapQuest's ability to
pursue alternative transactions, representations and warranties, covenants,
termination provisions and conditions to the closing of the merger.
On the afternoon of December 21, 1999, the MapQuest board of directors held
a telephonic meeting to consider the terms of the proposed transaction with
America Online. At this meeting, members of management of MapQuest discussed
the results of the negotiations with America Online and the terms of the
proposed merger, including status and timing of the transaction, pricing and
valuation of the proposed merger, strategic and business opportunities with
America Online, pros and cons of the merger, market changes since MapQuest's
initial public offering in May of 1999 and a review of MapQuest's financial
performance and prospects; representatives of Robertson Stephens reviewed and
discussed the alternative transactions investigated by Robertson Stephens at
the direction of the board of directors, presented an analysis of the financial
terms of the proposed merger and delivered its oral opinion, subsequently
confirmed in writing as of December 21, 1999, as to the fairness of the
exchange ratio, from a financial point of view as of such date, to the holders
of MapQuest common stock; and representatives of Mayer, Brown & Platt outlined
the terms of the proposed merger agreement, including restrictions on
MapQuest's ability to pursue alternative transactions, closing conditions and
termination provisions, the stock option agreement, the stockholders agreement,
the distribution agreement and the other related documents. Following these
presentations and the related discussions by the MapQuest board, the entire
MapQuest board unanimously concluded that the merger was in the best interests
of MapQuest and MapQuest's stockholders, declared the merger advisable,
unanimously approved the proposed terms of the merger and the merger agreement
in substantially the form presented, and authorized MapQuest's officers to
complete the negotiation and execution of the merger agreement and resolved to
recommend that MapQuest stockholders vote to adopt the merger agreement.
Following the meeting of the MapQuest board of directors, the board of
directors of America Online held a meeting to review and consider the merger,
the merger agreement and the related transactions. Management of America Online
made a presentation to its board concerning the business, financial condition
and prospects of MapQuest and the terms of the merger agreement, the stock
option agreement, the stockholders agreement, the distribution agreement and
the other agreements to be executed in connection with the merger. Management
of America Online discussed with its board the course of negotiations with
MapQuest and its advisors and the due diligence investigation of MapQuest that
had been performed. Following discussion among America Online's board of
directors and America Online management concerning the transaction, the board
of directors of America Online unanimously approved the merger, the merger
agreement and all of the related agreements.
In the evening of December 21, 1999, MapQuest and America Online entered
into the merger agreement and the stock option agreement and the MapQuest
stockholders identified on page under the heading "Stockholders Agreement"
entered into the stockholders agreement with America Online. In addition, each
of the members of the board of directors, the executive officers and certain
stockholders of MapQuest entered into an affiliate agreement with America
Online. On the morning of December 22, 1999, America Online and MapQuest issued
a joint press release announcing the merger.
America Online's Reasons for the Merger
America Online's board of directors believes that following the merger
America Online will have the potential to realize enhanced long-term operating
and financial results and an improved competitive position as a result of its
acquisition of MapQuest. America Online's board of directors considered
potential benefits of the merger that they believe will result from combining
MapQuest with America Online, including the following:
. enhancing the interactive experience for users across America Online's
brands by adding maps and directions and new methods of customization to
its online services and Web properties,
. enhancing the ability to create advertising and electronic commerce
opportunities targeted at the fast-growing business of local interactive
services,
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. advancing America Online's "AOL Anywhere" strategy by providing location
information, maps and directions on a range of devices such as handheld
computers, cellular phones and other non-PC devices,
. increasing the reach of America Online's local interactive business, as
well as expanding the reach of MapQuest to new customers,
. providing new cross-promotional and branding opportunities, and
. enabling America Online to expand the provision of interactive mapping
and related functionalities both locally in the United States and
internationally.
America Online's board of directors also considered the terms of the merger
agreement, including the possible effects of the provisions regarding
termination fees, and the stock option agreement, stockholders agreement and
other related agreements. In addition, America Online's board of directors
noted that the merger is expected to be a tax-free transaction and accounted
for as a pooling-of-interests, such that no goodwill is expected to be created
on the books of America Online as a result of the merger.
The foregoing discussion is not exhaustive of all of the factors considered
by America Online's board of directors. Each member of America Online's board
may have considered different factors, and America Online's board did not
quantify or otherwise assign relative weights to factors considered.
MapQuest's Reasons for the Merger
MapQuest's board of directors considered potential benefits of the merger
that they believe may result from merging with America Online, including the
following:
. combining with America Online will allow MapQuest to expand its core
online mapping and destination information business through the combined
company's widespread brand recognition and expanded audience base,
. the merger will enhance the opportunity for the realization of
MapQuest's strategic objectives of building brand awareness through
access to America Online's expanded audience base,
. combining with America Online will increase the advertising and business
and consumer customer relationships available to grow MapQuest's
products and services,
. combining with America Online will substantially contribute to
MapQuest's strategy of international expansion,
. combining with America Online will provide MapQuest with the opportunity
to expand research and development targeted at its online and wireless
products and services, enabling MapQuest to expand and enhance the
MapQuest service,
. MapQuest's stockholders will have the opportunity to participate in the
potential for growth of the combined company after the merger, and
. the America Online common stock to be received by MapQuest stockholders
has historically enjoyed a great deal of liquidity and has been the
subject of a large volume of published investment research and analysis.
In the course of deliberations, the MapQuest board reviewed with MapQuest
management and outside advisors a number of additional factors relevant to the
merger, including:
. historical information concerning America Online's and MapQuest's
respective businesses, financial performance and conditions, operations,
technologies, managements and competitive positions, including public
reports concerning results of operations during the most recent fiscal
year and fiscal quarter for each company filed with the Securities and
Exchange Commission,
27
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. MapQuest management's view as to the financial condition, results of
operations and businesses of America Online and MapQuest, before and
after giving effect to the merger, based on management's due diligence,
including a review of publicly available earnings estimates for both
companies,
. current financial market conditions and historical market prices,
volatility and trading information with respect to America Online common
stock and MapQuest common stock,
. the consideration to be received by MapQuest stockholders in the merger
and an analysis of the market value of the America Online common stock
to be issued in exchange for each share of MapQuest common stock in
light of comparable merger transactions,
. the belief that the terms of the merger agreement, including the
parties' representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable,
. MapQuest management's review of MapQuest's financial performance and
prospects as an independent company,
. MapQuest management's view as to the potential for other third parties
to enter into strategic relationships with or to acquire MapQuest,
. Robertson Stephens' reports on its due diligence inquiries of potential
third-party acquirors,
. detailed financial analysis and other information with respect to the
companies presented by Robertson Stephens to the board and Robertson
Stephens' opinion that, as of the date of its opinion and subject to the
considerations described in its opinion, the exchange ratio pursuant to
the merger agreement was fair, from a financial point of view, to the
MapQuest stockholders, which opinion is attached as Annex D, and
. reports from management and MapQuest's advisors as to the results of
their due diligence investigation of America Online.
MapQuest's board of directors also considered the terms of the merger
agreement regarding MapQuest's rights and limits on its ability to consider and
negotiate other strategic transaction proposals, as well as the possible
effects of the provisions regarding termination fees and the stock option
agreement. In addition, MapQuest's board of directors noted that the merger is
expected to be a tax-free transaction (except as to cash paid for fractional
shares) and accounted for as a pooling-of-interests, such that no goodwill is
expected to be created on the books of the combined company as a result of the
merger. Furthermore, MapQuest's board of directors also considered various
alternatives to the merger, including combining with companies other than
America Online or remaining as an independent company.
MapQuest's board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized,
. the possibility that the merger might not be consummated and the effect
of public announcement of the merger on:
. MapQuest's sales and operating results,
. MapQuest's ability to attract and retain key management, marketing
and technical personnel, and
. the progress of MapQuest's current development and marketing
projects,
. the risk that some of MapQuest's portal customers may view America
Online as their competitor,
. the fact that unvested options granted to MapQuest officers and
employees under MapQuest's 1995 Stock Option Plan would vest upon the
announcement of the merger,
. deal protection requirements and limitations on MapQuest and its
directors and certain stockholders relating to their ability to pursue
alternative transactions,
28
<PAGE>
. the substantial costs to be incurred in connection with the merger,
including the costs of integrating the businesses and transaction
expenses arising from the merger,
. the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed,
. the terms and ramifications of the option agreement,
. the other risks described under "Risk Factors" beginning on page .
After due consideration and discussion, MapQuest's board of directors
decided that these risks were outweighed by the potential benefits of the
merger.
The foregoing discussion is not exhaustive of all of the factors considered
by MapQuest's board of directors. Each member of MapQuest's board may have
considered different factors, and MapQuest's board did not quantify or
otherwise assign relative weights to factors considered.
Recommendation of MapQuest's Board of Directors
After careful consideration, MapQuest's board of directors unanimously
determined the merger to be fair to you and in your best interest, and declared
the merger advisable. MapQuest's board of directors unanimously approved the
merger agreement and unanimously recommends your adoption of the merger
agreement.
In considering the recommendation of the MapQuest board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of MapQuest have certain interests in the merger that are different
from, or are in addition to, the interests of MapQuest stockholders generally.
Please see the section entitled "Interests of Certain MapQuest Directors and
Officers in the Merger" beginning on page of this proxy
statement/prospectus.
Opinion of MapQuest's Financial Advisor
MapQuest engaged Robertson Stephens to render an opinion as to the fairness
of the exchange ratio, from a financial point of view, to holders of shares of
MapQuest common stock (other than America Online or any of its affiliates).
On December 21, 1999, at a meeting of the MapQuest board held to evaluate
the proposed merger, Robertson Stephens delivered to the MapQuest board its
oral opinion, subsequently confirmed in writing as of December 21, 1999, that,
as of that date and based on the assumptions made, the matters considered and
the limitations on the review undertaken described in the opinion, the exchange
ratio was fair, from a financial point of view, to the holders of shares of
MapQuest common stock (other than America Online or any of its affiliates). The
exchange ratio was determined through negotiations between the respective
managements of MapQuest and America Online. Although Robertson Stephens did
assist the management of MapQuest in these negotiations, it was not asked to,
and did not, recommend to MapQuest any specific exchange ratio as the
appropriate exchange ratio for the merger. Robertson Stephens assisted
MapQuest's management in the negotiations leading to an agreement on principal
structural terms of the merger.
The full text of the Robertson Stephens opinion, which sets forth, among
other things, assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex D and is incorporated in this proxy
statement/prospectus by reference. We urge MapQuest stockholders to read the
Robertson Stephens opinion in its entirety. The Robertson Stephens opinion was
prepared for the benefit and use of the MapQuest board in connection with its
evaluation of the merger and does not constitute a recommendation to
stockholders of MapQuest as to how they should vote, or take any other action,
with respect to the merger.
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<PAGE>
The Robertson Stephens opinion does not address:
. the relative merits of the merger and the other business strategies that
the MapQuest board has considered or may be considering; or
. the underlying business decision of the MapQuest board to proceed with
the merger.
The summary of the Robertson Stephens opinion set forth in this proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Robertson Stephens opinion.
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens, among other things:
. reviewed certain publicly available financial statements and other
business and financial information of MapQuest and America Online,
respectively,
. reviewed with MapQuest certain publicly available estimates of research
analysts relating to MapQuest,
. reviewed certain publicly available estimates of research analysts
relating to America Online,
. held discussions with the respective managements of MapQuest and America
Online concerning the businesses, past and current operations and
financial condition of both MapQuest and America Online and also the
future prospects of the combined businesses, including discussions with
the managements of MapQuest and America Online concerning their views
regarding the strategic rationale for the merger,
. reviewed the financial terms and conditions set forth in the draft of
the merger agreement dated December 21, 1999,
. reviewed the stock price and trading history of MapQuest common stock
and America Online common stock,
. compared the financial performance of MapQuest and the prices and
trading activity of MapQuest common stock with that of certain other
publicly traded companies it deemed comparable with MapQuest,
. compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that it deemed
relevant,
. reviewed the pro forma impact of the merger on America Online's revenue
per share and earnings per share,
. prepared an analysis of the relative contributions of MapQuest and
America Online to the combined company,
. participated in discussions and negotiations among representatives of
MapQuest and America Online and their financial and legal advisors, and
. made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information furnished
to it orally or otherwise discussed with it by the managements of MapQuest and
America Online) or publicly available and neither attempted to verify, nor
assumed responsibility for verifying, any of such information. Robertson
Stephens relied upon the assurances of MapQuest's management that they were not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, Robertson Stephens did not obtain or make, or assume any
responsibility for obtaining or making, any independent evaluation or appraisal
of the properties, assets or liabilities (contingent or otherwise) of MapQuest
or America Online, nor was Robertson Stephens furnished with any such
evaluation or appraisal.
30
<PAGE>
Robertson Stephens reviewed publicly available financial analysts' estimates
(and the assumptions and bases therefor) concerning each of MapQuest and
America Online, and Robertson Stephens assumed that such forecasts and
projections:
. had been reasonably prepared in good faith on the basis of reasonable
assumptions, and
. reflected the best available estimates and judgments as to the future
financial condition and performance of MapQuest and America Online,
respectively.
In this regard, Robertson Stephens noted that each of MapQuest and America
Online face exposure to the Year 2000 problem. Robertson Stephens did not
undertake any independent analysis to evaluate the reliability or accuracy of
the assumptions made with respect to the potential effect that the Year 2000
problem might have on their respective forecasts.
In addition, Robertson Stephens assumed that:
. the merger will be consummated upon the terms set forth in the merger
agreement without material alteration thereof, including, among other
things, that the merger will be accounted for as a "pooling-of-
interests" business combination in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP"),
. the merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended, and
. the historical financial statements of each of MapQuest and America
Online reviewed by it had been prepared and fairly presented in
accordance with U.S. GAAP consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel.
Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. The Robertson Stephens opinion is necessarily
based upon market, economic and other conditions as in effect on, and
information made available to Robertson Stephens as of December 21, 1999. It
should be understood that subsequent developments may affect the conclusion
expressed in the Robertson Stephens opinion and that Robertson Stephens
disclaims any undertaking or obligation to advise any person of any change in
any matter affecting the opinion which may come or be brought to its attention
after the date of the opinion. The Robertson Stephens opinion is limited to the
fairness, from a financial point of view and as of the date thereof, of the
exchange ratio to holders of shares of MapQuest common stock (other than
America Online or any of its affiliates). Robertson Stephens does not express
any opinion as to:
. the value of any employee agreement or other arrangement entered into in
connection with the merger,
. any tax or other consequences that might result from the merger, or
. what the value of America Online common stock will be when issued to
MapQuest's stockholders pursuant to the merger or the price at which the
shares of America Online common stock that are issued pursuant to the
merger may be traded in the future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Robertson Stephens. Certain of the information in this section is
presented in tabular form. In order to better understand the financial analyses
performed by Robertson Stephens, these tables must be read together with the
text of each summary. The Robertson Stephens opinion is based upon the totality
of the various analyses performed by Robertson Stephens and no particular
portion of the analyses has any merit standing alone. All estimated and
projected financial information used in Robertson Stephens' analysis is
publicly available financial analyst estimates.
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<PAGE>
Exchange Ratio Analysis
Robertson Stephens compared the average of the daily ratios of the closing
price of MapQuest common stock to the closing price of America Online common
stock over various periods ending December 17, 1999. The following table sets
forth the average of the daily ratios of the closing prices of MapQuest common
stock compared to America Online common stock for the various periods ending
December 17, 1999, using closing prices provided by Factset Research:
<TABLE>
<CAPTION>
Average ratio of
closing price of
MapQuest common stock
compared to
Period ending America Online
December 17, 1999 common stock
----------------- ---------------------
<S> <C>
1 trading day...................................... 0.317x
5 trading days..................................... 0.308x
10 trading days..................................... 0.314x
20 trading days..................................... 0.309x
30 trading days..................................... 0.299x
60 trading days..................................... 0.274x
90 trading days..................................... 0.272x
</TABLE>
Comparable Companies Analysis
Using publicly available information, Robertson Stephens analyzed, among
other things, the trading multiples of MapQuest and selected publicly traded
companies in the Internet industry, including:
. HearMe
. InfoNow Corporation
. LookSmart Ltd.
. Ticketmaster Online Citysearch Inc.
Multiples compared by Robertson Stephens included total capitalization to
estimated revenues for calendar years 1999 and 2000. All multiples were based
on closing stock prices as of December 17, 1999.
Using the ranges of multiples set forth in the table below that Robertson
Stephens derived from multiples for the comparable companies, the following
MapQuest equity values and exchange ratios are implied based upon MapQuest's
1999 and 2000 estimated Internet revenues:
<TABLE>
<CAPTION>
Implied
Multiple exchange Implied MapQuest
range ratio equity value
----------- ------------- ---------------------
<S> <C> <C> <C>
1999 Internet revenues..... 30.0x-45.0x 0.181x-0.264x $621.9-$909.0 million
2000 Internet revenues..... 17.0x-25.0x 0.184x-0.263x $631.8-$906.8 million
</TABLE>
Robertson Stephens also applied a typical control premium of 25.0%--50.0% to
the values implied in the foregoing analysis, which implied the following
MapQuest equity values and exchange ratios based upon MapQuest's 1999 and 2000
estimated Internet revenues:
<TABLE>
<CAPTION>
Implied
exchange Implied MapQuest
Premium range ratio equity value
------------- ------------- -----------------------
<S> <C> <C> <C>
1999 Internet revenues.. 25.0%-50.0% 0.222x-0.389x $765.4-$1,339.7 million
2000 Internet revenues.. 25.0%-50.0% 0.226x-0.388x $777.9-$1,336.3 million
</TABLE>
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<PAGE>
Precedent Acquisition Analysis
Using publicly available information, Robertson Stephens analyzed the
consideration offered, the premiums paid and the implied transaction value
multiples paid or proposed to be paid in selected acquisition transactions in
the Internet content and service industry, including:
. Isocor/Critical Path (October 21, 1999)
. Flycast Communications/CMGI (September 30, 1999)
. Earthlink Network/MindSpring Enterprises (September 23, 1999)
. Adknowledge/Engage Technologies (September 23, 1999)
. AdForce/CMGI (September 20, 1999)
. Egghead.com /ONSALE (July 13, 1999)
. NetGravity/DoubleClick (July 13, 1999)
. iMALL/Excite@Home (July 13, 1999)
. AltaVista/CMGI, Inc. (June 29, 1999)
. Abacus/DoubleClick (June 14, 1999)
. TeleB@nc Financial/E*Trade Group (June 1, 1999)
. WebMD/Healtheon (May 20, 1999)
. Smart Technologies/I2 Technologies (May 12, 1999)
. Broadcast.com/Yahoo! (April 1, 1999)
. Shopping.com/Compaq Computer (AltaVista) (February 16, 1999)
. Zip2/Compaq Computer (AltaVista) (February 16, 1999)
. Lycos/USA Networks (February 9, 1999)
. MovieFone/America Online (February 1, 1999)
. Geocities/Yahoo! (January 28, 1999)
. Excite/AtHome (January 19, 1999)
. Starfish Software/Motorola (July 14, 1998)
In analyzing these "precedent transactions", Robertson Stephens compared,
among other things, the total consideration in such transactions as a multiple
of estimated revenues for calendar years 1999 and 2000. All multiples for the
precedent transactions were based on public information available at the time
of the announcement. Based on this information and other publicly available
information, the following table illustrates the implied MapQuest equity
valuations and exchange ratios derived from applying a range of multiples that
Robertson Stephens derived from the precedent transactions to MapQuest's 1999
and 2000 estimated Internet revenues:
<TABLE>
<CAPTION>
Implied
Multiple exchange Implied MapQuest
range ratio equity value
----------- ------------- -----------------------
<S> <C> <C> <C>
1999 Internet revenues... 40.0x-60.0x 0.236x-0.347x $813.3-$1,196.1 million
2000 Internet revenues... 10.0x-25.0x 0.114x-0.263x $391.3-$906.8 million
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to MapQuest or America
Online. Accordingly, an analysis of the results of the
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<PAGE>
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies, precedent transactions or
the business segment, company or transactions to which they are being compared.
Based upon the foregoing equity value and exchange ratio ranges implied by
the comparable companies analysis and the precedent transaction analysis,
Robertson Stephens derived an average implied equity valuation range for
MapQuest's Internet business of $687.0 million-$1,194.7 million and an average
implied exchange ratio range for MapQuest's Internet business of 0.200x-0.347x.
Digital Mapping Services Valuation
Robertson Stephens also applied multiples to the digital mapping services
revenues of MapQuest. Using the ranges of multiples set forth in the table
below, the following MapQuest equity values and exchange ratios are implied for
MapQuest's DMS business:
<TABLE>
<CAPTION>
Implied
exchange Implied MapQuest
Multiple range ratio equity value
-------------- ------------- -----------------------
<S> <C> <C> <C>
2000 DMS revenues....... 2.5x-3.5x 0.015x-0.020x $50.0-$70.0 million
Robertson Stephens added the above equity value range and exchange ratio
range implied by the digital mapping services valuation to the average equity
value range and exchange ratio range implied for MapQuest's Internet business
pursuant to the comparable companies analysis and precedent acquisition
analyses, as summarized above. The resulting average implied MapQuest equity
value range and exchange ratio range are set forth in the table below:
<CAPTION>
Implied
exchange Implied MapQuest
ratio equity value
------------- -----------------------
<S> <C> <C> <C>
0.214x-0.367x $737.0-$1,264.7 million
</TABLE>
Premiums Paid Analysis
Robertson Stephens also considered the premiums paid in the precedent
transactions over the target's closing share price the day before the
transaction was announced and 30 days prior to the announcement. Based on this
information and other publicly available information, the following table
illustrates the implied MapQuest equity values and exchange ratios derived from
applying a range of premiums that Robertson Stephens derived from the precedent
transactions:
<TABLE>
<CAPTION>
MapQuest Implied
closing Premium Implied MapQuest exchange
trading price range equity value ratio
------------- ------------ ------------------------- -------------
<S> <C> <C> <C> <C>
1 day prior to
December 17............ $27.00 0.0%-50.0% $1,092.9-$1,639.3 million 0.317x-0.476x
30 days prior to
December 17............ $21.75 15.0%-100.0% $1,012.4-$1,760.7 million 0.294x-0.511x
</TABLE>
Robertson Stephens combined the above equity value range and exchange ratio
range implied by the premiums paid analysis to the average equity value range
and exchange ratio range implied by the comparable companies analysis and
precedent acquisition analysis, as summarized above, resulting in the following
valuation and exchange ratio ranges:
<TABLE>
<CAPTION>
Implied
exchange Implied MapQuest
ratio equity value
------------- -----------------------
<S> <C> <C>
0.237x-0.399x $815.9-$1,373.5 million
</TABLE>
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Relative Contribution Analysis
Based upon financial analyst estimates for MapQuest and America Online,
Robertson Stephens analyzed the respective contributions of the Internet
revenues of MapQuest and America Online to the estimated Internet revenues of
the combined company for fiscal years 2000 and 2001. The actual revenues
achieved may vary from the estimated revenues and the variations may be
material.
<TABLE>
<CAPTION>
America Online MapQuest
contribution to contribution to
Combined Company's Combined Company's Implied
Estimated Internet Estimated Internet exchange
Revenue Revenue ratio
------------------ ------------------ --------
<S> <C> <C> <C>
Last twelve month Internet
revenues...................... 99.71% 0.29% 0.196x
Calendar year 1999 Internet
revenues...................... 99.60 0.40 0.262x
Fiscal year 2000 estimated
Internet revenues............. 99.58 0.42 0.276x
Fiscal year 2001 estimated
Internet revenues............. 99.35 0.65 0.410x
</TABLE>
Pro Forma Analysis
Robertson Stephens analyzed certain pro forma effects resulting from the
merger, including, among other things, the impact of the merger on the
projected revenues per share and earnings per share of the combined company for
fiscal years 2000 and 2001. The following table summarizes the results of such
analysis:
<TABLE>
<S> <C>
Fiscal year 2000 estimated revenue per share accretion........... 0.2%
Fiscal year 2000 estimated earnings per share
accretion/(dilution)............................................ (2.3)%
Fiscal year 2001 estimated revenue per share accretion........... 0.5%
Fiscal year 2001 estimated earnings per share
accretion/(dilution)............................................ (0.6)%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Other Factors and Comparative Analyses
In rendering its opinion, Robertson Stephens considered certain other
factors and conducted certain other comparative analyses, including, among
other things a review of:
. the history of trading prices and volume for MapQuest common stock for
the period from May 4, 1999 to December 17, 1999; and
. the history of trading prices and volume for America Online common stock
for the period from December 17, 1998 to December 17, 1999; and
. selected published analysts' reports on MapQuest and America Online.
While the foregoing summary describes certain analyses and factors that
Robertson Stephens deemed material in its presentation to the MapQuest board,
it is not a comprehensive description of all analyses and factors considered by
Robertson Stephens. The preparation of a fairness opinion is a complex process
that involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Robertson Stephens believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Robertson Stephens opinion. Several analytical methodologies
were employed and no one method of analysis should be regarded as critical to
the overall conclusion reached by Robertson Stephens. Each analytical technique
has inherent strengths and weaknesses, and the nature of the available
information may further affect the value of particular techniques. The
conclusions reached by Robertson Stephens are based on all analyses and factors
taken as a whole and also on application of Robertson Stephens' own experience
and judgment. Such conclusions may involve significant elements of subjective
judgment and qualitative analysis. Robertson
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<PAGE>
Stephens therefore gives no opinion as to the value or merit standing alone of
any one or more parts of the analysis that it performed. In performing its
analyses, Robertson Stephens considered general economic, market and financial
conditions and other matters, many of which are beyond the control of MapQuest
and America Online. The analyses performed by Robertson Stephens are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be
purchased. Furthermore, no opinion is being expressed as to the prices at which
shares of MapQuest common stock or America Online common stock may be traded at
any future time.
The engagement letter between Robertson Stephens and MapQuest provides that
Robertson Stephens is entitled to receive a fee for its services, a substantial
portion of which is contingent upon the consummation of the merger. MapQuest
has also agreed to reimburse Robertson Stephens for certain of its out-of-
pocket expenses, including legal fees, and to indemnify and hold harmless
Robertson Stephens and its affiliates and any director, employee or agent of
Robertson Stephens or any of its affiliates, or any person controlling
Robertson Stephens or its affiliates for certain losses, claims, damages,
expenses and liabilities relating to or arising out of services provided by
Robertson Stephens as financial advisor to MapQuest. The terms of the fee
arrangement with Robertson Stephens, which MapQuest and Robertson Stephens
believe are customary in transactions of this nature, were negotiated at arm's
length between MapQuest and Robertson Stephens, and the MapQuest board was
aware of such fee arrangements, including the fact that a significant portion
of the fees payable to Robertson Stephens is contingent upon completion of the
merger. In the past, Robertson Stephens has provided certain investment banking
services to MapQuest for which it has been paid fees, including acting as lead
manager of MapQuest's initial public offering. In the ordinary course of its
business, Robertson Stephens may trade in MapQuest's securities and America
Online's securities for its own account and the account of its customers and,
accordingly, may at any time hold a long or short position in MapQuest's
securities or America Online's securities.
Robertson Stephens was retained by MapQuest based on Robertson Stephens'
experience as a financial advisor in connection with mergers and acquisitions
and in securities valuations generally, as well as Robertson Stephens'
investment banking relationship and familiarity with MapQuest.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
Interests of Certain MapQuest Directors and Officers in the Merger
When considering the recommendation of MapQuest's board of directors, you
should be aware that the MapQuest directors and the executive officers
identified below have interests in the merger that are different from, or are
in addition to, yours.
In particular, the three executive officers of MapQuest, Michael Mulligan,
James Thomas and William Muenster, have signed letters containing offers of
employment from America Online that will become effective upon the completion
of the merger. Eight other members of MapQuest's management have also signed
similar letters containing offers of employment. These offer letters and the
offer letters for the three officers, in the aggregate, contain a commitment to
grant to these officers options to purchase a total of 670,000 shares of
America Online common stock.
In addition, all unvested stock options granted under MapQuest's 1995 Stock
Option Plan to all executive officers and employees of MapQuest vested upon the
announcement of the merger in accordance with the existing plan provisions. The
number of shares of MapQuest common stock subject to unvested options held by
MapQuest's executive officers that vested upon announcement of the merger
totaled 972,001 on December 21, 1999. Unvested stock options outstanding under
MapQuest's 1999 Stock Plan do not vest upon the announcement of the merger.
36
<PAGE>
In addition, Michael Mulligan and James Thomas, in their capacity as
stockholders of MapQuest, have each signed the stockholders agreement,
described under "Stockholders Agreement" on page , and have agreed to vote
their shares in favor of adopting the merger agreement.
The continuation of indemnification arrangements for current directors of
MapQuest following completion of the merger, may influence these directors in
making their recommendation that you vote in favor of the adoption of the
merger agreement.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the adoption of the merger agreement
by the stockholders of MapQuest. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware.
We are working towards completing the merger as quickly as possible. We hope
to complete the merger during the first or second quarter of calendar year
2000.
Structure of the Merger and Conversion of MapQuest Common Stock
In accordance with the merger agreement and Delaware law, MQ Acquisition,
Inc., a newly formed and wholly owned subsidiary of America Online, will be
merged with and into MapQuest. As a result of the merger, the separate
corporate existence of MQ Acquisition will cease and MapQuest will survive the
merger as a wholly owned subsidiary of America Online.
Upon completion of the merger, each outstanding share of MapQuest common
stock, other than shares held by us and our subsidiaries, will be converted
into the right to receive 0.31558 of a share of America Online common stock.
The number of shares of America Online common stock issuable in the merger
will be proportionately adjusted for any future stock split, stock dividend or
similar event with respect to America Online common stock effected between the
date of the merger agreement and the completion of the merger.
No certificate or scrip representing fractional shares of America Online
common stock will be issued in connection with the merger. Instead you will
receive cash, without interest, in lieu of a fraction of a share of America
Online common stock. Specifically, the exchange agent in the merger will sell a
number of shares of America Online common stock equal to the aggregate number
of fractional shares that would otherwise be issuable in the merger and will
remit to you an amount equal to your pro rata portion of the proceeds of these
sales.
Exchange of MapQuest Stock Certificates for America Online Stock Certificates
When the merger is completed, the exchange agent will mail to you an
executed letter of transmittal and instructions for use in surrendering your
MapQuest stock certificates in exchange for America Online stock certificates.
When you deliver your MapQuest stock certificates to the exchange agent along
with a properly executed letter of transmittal and any other required
documents, your MapQuest stock certificates will be canceled and you will
receive America Online stock certificates representing the number of full
shares of America Online common stock to which you are entitled under the
merger agreement. You will receive payment in cash, without interest, in lieu
of any fractional shares of America Online common stock which would have been
otherwise issuable to you as a result of the merger.
You should not submit your MapQuest stock certificates for exchange unless,
and until, you receive the transmittal instructions and a form of letter of
transmittal from the exchange agent.
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You are not entitled to receive any dividends or other distributions, if any
are declared on America Online common stock, until the merger is completed and
you have surrendered your MapQuest stock certificates in exchange for America
Online stock certificates.
If there is any dividend or other distribution on America Online common
stock with a record date after the merger and a payment date prior to the date
you surrender your MapQuest stock certificates in exchange for America Online
stock certificates, you will receive such dividend or distribution with respect
to the whole shares of America Online common stock issued to you promptly after
they are issued. If there is any dividend or other distribution on America
Online common stock with a record date after the merger and a payment date
after the date you surrender your MapQuest stock certificates in exchange for
America Online stock certificates, you will receive such dividend or
distribution with respect to the whole shares of America Online common stock
issued to you promptly after the payment date.
America Online will issue an America Online stock certificate or a check in
lieu of a fractional share in a name other than the name in which a surrendered
MapQuest stock certificate is registered only if you present the exchange agent
with all documents required to show and effect the unrecorded transfer of
ownership and show that you paid any applicable stock transfer taxes.
Material United States Federal Income Tax Consequences of the Merger
The following summary discusses the material United States federal income
tax consequences of the merger, assuming that you hold your shares of MapQuest
common stock as capital assets. The following discussion is based on and
subject to the Internal Revenue Code of 1986, as amended, its legislative
history, applicable Treasury regulations, administrative rulings and court
decisions currently in effect, all of which are subject to change at any time,
possibly with retroactive effect, and assumptions, limitations, representations
and covenants, including those contained in certificates of officers of America
Online, MQ Acquisition and MapQuest. This discussion does not address all
aspects of United States federal income taxation that may be important to you
in light of your particular circumstances, or if you are subject to special
rules, such as rules relating to:
. stockholders who are not citizens or residents of the United States,
. financial institutions,
. tax-exempt organizations,
. insurance companies,
. dealers in securities,
. stockholders who acquired their shares of MapQuest common stock by
exercising employee stock options or rights or otherwise as
compensation, and
. stockholders who hold their shares of MapQuest common stock as part of a
hedge, straddle or conversion transaction.
Our obligations to complete the merger are conditioned on, subject to waiver
by America Online and MapQuest, receipt of a closing tax opinion (1) by America
Online from Simpson Thacher & Bartlett and (2) by MapQuest from Mayer, Brown &
Platt, to the effect that, for federal income tax purposes, the merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. The closing tax opinions (1) will be based on facts,
representations and assumptions set forth or referred to in the closing tax
opinions that are consistent with the facts existing at the time that the
merger occurs and (2) may rely on representations and covenants including those
contained in the merger agreement and certificates of officers of America
Online, MapQuest, MQ Acquisition and others, reasonably satisfactory in form
and substance to the counsel issuing such opinions, that, if incorrect in
certain material respects could jeopardize the conclusions reached by counsel
issuing these opinions. The closing tax opinions are not binding on the IRS or
the courts,
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and we do not intend to request a ruling from the IRS with respect to the
merger. Accordingly, there can be no assurance that the IRS will not challenge
the conclusions set forth in the closing tax opinions or that a court will not
sustain such a challenge. Neither of MapQuest or America Online currently
intends to waive the condition relating to the receipt of a closing tax
opinion. Based on such closing tax opinions and the advice of our respective
counsel:
. No gain or loss will be recognized by America Online, MapQuest, and MQ
Acquisition as a result of the merger.
. No gain or loss will be recognized by you when you exchange all of your
MapQuest common stock solely for America Online common stock in the
merger, except that gain or loss may be recognized by you with respect
to cash received in lieu of a fractional share interest in America
Online common stock.
. The aggregate tax basis of the America Online common stock you receive
in the merger (treating any fractional share interest in America Online
common stock as having been issued to you in the merger and then
redeemed for cash) will be the same as your aggregate tax basis in the
MapQuest common stock you surrender in the merger.
. If you receive in the merger cash instead of a fractional share interest
in America Online common stock and, immediately after the merger, (1)
you hold a minimal interest in America Online, (2) you exercise no
control over America Online and (3) as a result of the receipt of this
cash payment and after giving effect to certain constructive ownership
rules, you experience an actual reduction in your interest in America
Online, then you will recognize gain or loss for United States federal
income tax purposes with respect to the cash received measured by the
difference between the amount of cash you receive and the portion of the
tax basis of your shares of MapQuest common stock allocable to the
fractional share interest. This gain or loss will be capital gain or
loss and will be long-term capital gain or loss if your shares of
MapQuest common stock have been held for more than one year at the time
the merger is completed. If the requirements set forth in (1) through
(3) above are not met, the cash payment will be taxable to you as a
dividend.
. The tax holding period of the America Online common stock that you
receive in the merger (including any fractional share interest for which
you receive cash as described above) will include the period during
which you held the MapQuest common stock surrendered in the merger.
The foregoing discussion is not intended to be a complete analysis or
description of all potential United States federal income tax consequences or
any other consequences of the merger. In addition, this discussion does not
address tax consequences which may vary with, or are contingent on, your
individual circumstances. Moreover, this discussion does not address any non-
income tax or any foreign, state or local tax consequences of the merger.
Accordingly, you are strongly urged to consult with your tax advisor to
determine the particular United States federal, state, local or foreign income
or other tax consequences to you of the merger.
Accounting Treatment of the Merger
We intend to account for the merger as a pooling-of-interests business
combination. It is a condition to the completion of the merger that America
Online be advised in writing by Ernst & Young LLP that they concur with America
Online's conclusion that the transactions contemplated by the merger agreement
can properly be accounted for as a pooling-of-interests business combination,
although this condition may be waived by America Online. Under the pooling-of-
interests method of accounting, each of our historical recorded assets and
liabilities will be carried forward to the combined company at their recorded
amounts. America Online currently does not intend to waive the condition
relating to the receipt of such advice from Ernst & Young LLP.
Regulatory Filings and Approvals Required to Complete the Merger
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which prevents specified transactions
from being completed until required information and
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materials are furnished to the Antitrust Division of the Department of Justice
and the Federal Trade Commission and certain waiting periods terminate or
expire. We have already filed the required information and materials with the
Department of Justice and the Federal Trade Commission and requested early
termination of the applicable waiting period. Unless earlier terminated, the
applicable waiting period will expire on February 28, 2000. The requirements of
Hart-Scott-Rodino will be satisfied if the merger is completed within one year
from the termination of the waiting period.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds, either before or
after expiration of the waiting period. Accordingly, at any time before or
after the completion of the merger, either the Antitrust Division of the
Department of Justice or the Federal Trade Commission could take action under
the antitrust laws as it deems necessary or desirable in the public interest,
or other persons could take action under the antitrust laws, including seeking
to enjoin the merger. Additionally, at any time before or after the completion
of the merger, notwithstanding that the applicable waiting period expired or
was terminated, any state could take action under the antitrust laws as it
deems necessary or desirable in the public interest. There can be no assurance
that a challenge to the merger will not be made or that, if a challenge is
made, we will prevail.
We are examining whether we have any filing obligations with foreign
regulatory agencies, and we will make any required filings.
Neither of us is aware of any other material governmental or regulatory
approval required for completion of the merger, other than compliance with the
applicable corporate law of Delaware.
Restrictions on Sales of Shares by Affiliates of MapQuest and America Online
The shares of America Online common stock to be issued in connection with
the merger will be registered under the Securities Act of 1933, as amended, and
will be freely transferable under the Securities Act, except for shares of
America Online common stock issued to any person who is deemed to be an
"affiliate" of either of us at the time of the special meeting. Persons who may
be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under the common control of either of us and may include
some of our officers and directors, as well as our principal stockholders.
Affiliates may not sell their shares of America Online common stock acquired
in connection with the merger except pursuant to:
. an effective registration statement under the Securities Act covering
the resale of those shares,
. an exemption under paragraph (d) of Rule 145 under the Securities Act,
or
. any other applicable exemption under the Securities Act.
America Online's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of
America Online common stock to be received by our affiliates in the merger.
Listing on the New York Stock Exchange of America Online Common Stock to be
Issued in the Merger
America Online will use reasonable best efforts to cause the shares of
America Online common stock to be issued in connection with the merger to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, before the completion of the merger.
Dissenters' and Appraisal Rights
You are not entitled to exercise dissenter's or appraisal rights as a result
of the merger or to demand payment for your shares under Delaware law.
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Delisting and Deregistration of MapQuest Common Stock After the Merger
If the merger is completed, MapQuest common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934, as amended.
Operations After the Merger
Following the merger, MapQuest will continue its operations as a wholly
owned subsidiary of America Online. The membership of the America Online board
of directors will remain unchanged as a result of the merger. Eleven members of
the management of MapQuest, including Michael Mulligan, James Thomas and
William Muenster, who are the three executive officers of MapQuest, have
entered into letters of offers of employment with America Online which become
effective upon the closing of the merger. The stockholders of MapQuest will
become stockholders of America Online, and their rights as stockholders will be
governed by the America Online Restated Certificate of Incorporation, the
America Online Restated By-laws and the laws of the State of Delaware. See
"Comparison of Rights of Holders of MapQuest Common Stock and America Online
Common Stock."
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The Merger Agreement
The following summary of the merger agreement is qualified in its entirety
by reference to the complete text of the merger agreement, which is
incorporated by reference and attached as Annex A to this proxy
statement/prospectus. We urge you to read the full text of the merger
agreement.
Conditions to Completion of the Merger
Our respective obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before completion of the merger:
. America Online's registration statement on Form S-4 must be effective,
. the merger agreement must be adopted by the holders of a majority (by
voting power) of the outstanding shares of MapQuest common stock,
. the shares of America Online common stock to be issued in the merger
must be approved for listing, subject to official notice of issuance, on
the New York Stock Exchange,
. all applicable approvals and consents of governmental authorities
required to complete the merger must be received and all applicable
waiting periods under applicable antitrust laws must have expired or
been terminated,
. no law, regulation, order or injunction must be enacted or issued which
has the effect of making the merger illegal or of otherwise prohibiting
completion of the merger substantially on the terms contemplated by the
merger agreement, nor shall any proceeding before a governmental
authority seeking such an order or injunction be pending, and
. both America Online's and MapQuest's respective outside counsel must
have issued written opinions, after receiving representation letters
from America Online, MQ Acquisition and MapQuest, to the effect that the
merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
America Online's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
. MapQuest's representations and warranties must be true and correct on
the date the merger is to be completed as if made at and as of such
time, except for:
. representations and warranties that address matters only as of a
particular date, which must be true and correct as of such date,
. any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (which is a defined
term described immediately below this list of conditions),
. representations and warranties that relate to MapQuest's
capitalization, which must be true and correct in all material
respects as of the date of the merger agreement and on the date the
merger is to be completed,
. MapQuest must have performed or complied in all material respects with
all of its agreements and covenants required by the merger agreement,
except for any failures to so perform or comply that would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect,
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. any third party consents or waivers shall have been obtained for those
contracts and agreements that, if such the approval or consent is not
obtained, could either individually or in the aggregate reasonably be
expected to have a Material Adverse Effect,
. America Online must have been advised in writing by Ernst & Young LLP
that they concur with America Online's conclusion that the transactions
contemplated by the merger agreement, if completed, can properly be
accounted for as a pooling-of-interests business combination in
accordance with generally accepted accounting principles and the
criteria of Accounting Principles Board Opinion No. 16 and the
regulations of the Securities and Exchange Commission,
. each of MapQuest's directors, executive officers and affiliates must
have executed and delivered to America Online an affiliate agreement
concerning restrictions on the transfer of shares of MapQuest common
stock and America Online common stock,
. each of the stockholders agreement, the stock option agreement and
releases, which release America Online from certain possible claims
against MapQuest that could be brought by MapQuest's directors,
officers, certain stockholders and certain employees of MapQuest, must
have been executed and delivered and actions required thereunder prior
to the date of the merger must have been taken, except for actions
required under the stockholders agreement or release agreements, which
individually or in the aggregate would not reasonably be expected to
have a material adverse effect on or materially impede the ability of
the parties to consummate the merger, and
. employment offer letters between America Online and five specified
individuals, two of three specified individuals (or replacement
employees reasonably satisfactory to America Online) and one of three
specified individuals (or replacement employees reasonably satisfactory
to America Online) must be in full force and effect.
A "Material Adverse Effect" is any fact, event, change, development,
circumstance or effect that:
. when such term is used in relation to MapQuest,
. is materially adverse to the business, financial condition, results
of operations, assets, liabilities, properties or prospects of
MapQuest and its subsidiaries, taken as a whole, or
. would materially impair or delay MapQuest's ability to perform its
obligations under the merger agreement or under the option
agreement, and
. when such term is used in relation to America Online or MQ Acquisition,
. is materially adverse to the business, financial condition, results
of operations, assets, liabilities, properties or prospects of
America Online and its subsidiaries, taken as a whole, or
. would materially impair or delay America Online's or MQ
Acquisition's ability to perform its obligations under the merger
agreement.
MapQuest's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
. America Online's and MQ Acquisition's representations and warranties
must be true and correct on the date the merger is to be completed as if
made at and as of such time, except for:
. representations and warranties that address matters only as of a
particular date, which must be true and correct in all material
respects as of such date, and
. any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on the ability of
America Online or MQ Acquisition to consummate the merger, and
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. America Online and MQ Acquisition must have performed or complied in all
material respects with all of their agreements and covenants required by
the merger agreement, except for any failures to so perform or comply
that would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the ability of America Online or MQ
Acquisition to consummate the merger.
MapQuest's Conduct of Business Before Completion of the Merger
MapQuest agreed that until the completion of the merger or unless America
Online consents in writing, MapQuest and its subsidiaries will operate their
businesses in the ordinary course and in a manner consistent with past practice
with the goal of:
. preserving intact their business organizations,
. operating in accordance with the plans and budgets provided to America
Online,
. keeping available the services of their current officers, employees and
consultants, and
. maintaining their material contracts and preserving their relationships
with:
. advertisers,
. sponsors,
. customers,
. licensees,
. suppliers, and
. others having business relations with them.
MapQuest also agreed that until the completion of the merger, or unless
America Online consents in writing, MapQuest and its subsidiaries would conduct
their businesses in compliance with specific restrictions relating to the
following:
. modification of MapQuest's or any of its subsidiaries' certificate of
incorporation and by-laws,
. the issuance and redemption of securities,
. the issuance of dividends or other distributions,
. the disposition of MapQuest's assets,
. liens,
. the acquisition of assets or other entities,
. the incurrence of indebtedness,
. capital expenditures,
. employees and employee benefits,
. accounting policies and procedures,
. entrance into or modification of contracts,
. tax elections and liabilities,
. settlement of litigation and claims,
. related party transactions,
. maintenance of insurance, and
. actions relating to the treatment of the merger as a pooling-of-
interests and a tax-free reorganization.
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The agreements related to the conduct of MapQuest's business in the merger
agreement are complicated and not easily summarized. You are urged to carefully
read the article of the merger agreement entitled "Conduct of Business Pending
the Merger."
Solicitation of Other Proposals Involving MapQuest
MapQuest has certain obligations with respect to "Acquisition Proposals."
An "Acquisition Proposal" is any inquiry, proposal or offer from any person
(other than America Online, MQ Acquisition or any of their affiliates) to
MapQuest and its subsidiaries that relates to any of the following:
. a merger, consolidation, recapitalization, liquidation or other direct
or indirect business combination involving MapQuest or its subsidiaries,
. the issuance or acquisition of 20% or more (by voting power) of the
outstanding capital stock or equity interests of MapQuest or its
subsidiaries,
. any tender offer or exchange offer that, if completed, would result in
any person or its affiliates beneficially owning 20% or more (by voting
power) of the outstanding capital stock or other equity securities of
MapQuest or its subsidiaries,
. the sale, lease, exchange, license or other disposition of any
significant portion of the business or other assets of MapQuest or its
subsidiaries, or
. any other transaction that could reasonably be expected to impede,
interfere with, prevent or materially delay the merger or would
reasonably be expected to diminish significantly the benefits to America
Online or its affiliates of the transactions contemplated by the merger
agreement.
Until the merger is completed or the merger agreement is terminated,
MapQuest has agreed not to take any of the following actions and has agreed not
to permit any of its affiliates, subsidiaries or representatives to take any of
the following actions:
. solicit, facilitate, initiate, entertain or encourage any Acquisition
Proposal, or take any action to solicit, facilitate, initiate, entertain
or encourage any inquiries or the making of any proposal or offer that
constitutes or may constitute an Acquisition Proposal, or
. participate or engage in discussions or negotiations with, or provide
any information to, any person concerning an Acquisition Proposal or
concerning matters that might reasonably be expected to result in an
Acquisition Proposal.
MapQuest also agreed to terminate any discussions or negotiations with any
third parties that were taking place when the merger agreement was signed, if
the discussions or negotiations could reasonably be expected to result in an
Acquisition Proposal. Furthermore, MapQuest has agreed to provide America
Online with detailed information about any Acquisition Proposal it receives.
However, MapQuest may participate in any discussions or negotiations that
are otherwise prohibited, or furnish otherwise prohibited information regarding
MapQuest pursuant to a confidentiality agreement (which must be on terms no
less favorable to MapQuest than those in effect between MapQuest and America
Online), if all of the following occur:
. a third person has submitted an unsolicited, bona fide written
Acquisition Proposal to MapQuest's board of directors,
. neither MapQuest nor any of its representatives has violated any of the
restrictions outlined in the foregoing paragraph,
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. MapQuest's board of directors determines by majority vote and in good
faith, based upon consultation with outside counsel to MapQuest, that
taking such action is required to satisfy the fiduciary duties of the
board under applicable law, and
. MapQuest's board of directors provides America Online with prior written
notice of its decision to participate in such discussions or to furnish
such information.
Additionally, MapQuest's board of directors must comply with certain
limitations. Except as explained below, MapQuest's board of directors and any
board committee may not take any of the following actions:
. approve or recommend, or propose to approve or recommend, any
Acquisition Proposal other than the merger,
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to America Online, the board's approval or recommendation of the
merger and the related transactions and agreements,
. upon request by America Online, fail to reaffirm the board's approval or
recommendation of the merger agreement or the merger within two days of
America Online's request for reaffirmation,
. approve, enter or permit or cause MapQuest to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to an Acquisition Proposal, or
. resolve or announce its intention to do any of the foregoing.
However, MapQuest's board of directors may take certain actions described above
if it receives a superior proposal. A "superior proposal" is any bona fide
proposal to effect a merger, consolidation or sale of all or substantially all
of the assets or capital stock of MapQuest which is on terms that MapQuest's
board of directors determines by a majority vote and in good faith that will
result in a transaction more favorable to MapQuest's stockholders than the
merger (such decision must be based on the written opinion of MapQuest's
financial advisors and on other relevant factors including the superior
proposal's conditions, the form of consideration, the timing of the closing of
the proposal, the likelihood of consummation and the ability of the person
making the proposal to finance the transaction and any required approvals). If
MapQuest does receive such a proposal, then its board of directors may take any
of the following actions:
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to America Online, the MapQuest board's approval or
recommendation of the merger and the related transactions and
agreements,
. fail to reaffirm the board's approval or recommendation of the merger
agreement or the merger within two business days from America Online's
request for reaffirmation, or
. resolve or announce its intention to do either of the foregoing.
Prior to MapQuest's board of directors engaging in any of the three above
actions, it must determine by a majority vote and in good faith, after
consultation with outside counsel, that taking such action is required to
satisfy the fiduciary duties of the board under applicable laws. Additionally,
MapQuest must furnish America Online two business days' prior notice of its
intent to take such actions.
Additional Agreements Made in the Merger Agreement
Both MapQuest and America Online have agreed to use their reasonable best
efforts to take, or cause to be taken (and to do or cause to be done), all
actions to assist and cooperate with each other in performing all things
necessary, proper and advisable to complete the merger and the related
transactions. Accordingly, MapQuest and America Online have agreed to use their
reasonable best efforts to:
. as promptly as practicable, obtain all necessary approvals and make all
necessary filings under applicable laws relating to the merger agreement
and the option agreement,
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. furnish all information required for any application or other filing
required to be made by Delaware law or any other law or applicable
regulation in connection with the merger and the related transactions,
. lift, rescind or mitigate the effects of any injunction or other order
adversely affecting the ability of either America Online or MapQuest to
complete the merger, subject to certain limitations specified in the
merger agreement, and
. satisfy or cause to be satisfied all of the conditions that must be
satisfied prior to the merger being completed (as have been outlined in
the preceding section of the proxy statement/prospectus, "Conditions to
Completion of the Merger").
However, America Online and its affiliates are not obligated to take either of
the following actions:
. make proposals, execute or carry out agreements, or submit to orders,
(1) providing for the sale or other disposition of any of the assets of
America Online, its affiliates, or its subsidiaries, or (2) imposing or
seeking to impose any limitation on the ability of America Online, its
affiliates or its subsidiaries to acquire, hold or exercise full rights
of ownership of MapQuest's common stock, or
. take any steps to avoid or eliminate any impediment asserted under any
antitrust law if taking such steps, in America Online's reasonable
judgment, might result in a limitation of the benefit that America
Online expects to derive as a result of the merger or might adversely
affect MapQuest, America Online or America Online's affiliates.
Additionally, America Online and MapQuest have agreed to cooperate with one
another in the following manners:
. the preparation of this proxy statement/prospectus and the registration
statement of which it is a part,
. the preparation of any filing required under applicable antitrust laws,
. the identification and seeking of any filings and consents that are
required to complete,
. the listing on the NYSE of the America Online common stock that will be
issued as part of the merger, and
. the facilitating of the achievement of the benefits reasonably
anticipated by the merger.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after adoption of the merger agreement by
MapQuest stockholders:
. by mutual consent of America Online and MapQuest,
. by America Online or MapQuest, if the merger is not completed before
June 30, 2000 (unless the merger is not completed solely due to the
applicable waiting periods under antitrust laws not having expired or
being terminated, in which case such date shall be extended to September
30, 2000), except that the right to terminate the merger agreement is
not available to any party whose willful failure to fulfill any material
obligation under the merger agreement has been the cause of the failure
to complete the merger on or before such date,
. by America Online or MapQuest, if there is any final and nonappealable
order, decree or ruling of a court or governmental authority permanently
prohibiting the completion of the merger,
. by America Online or MapQuest, if the merger agreement fails to receive
the requisite vote for adoption by the stockholders of MapQuest at the
special meeting,
. by America Online, if MapQuest's board of directors:
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. approves or recommends, or proposes to approve or recommend, any
Acquisition Proposal other than the merger (see the definition of
Acquisition Proposal on page of this proxy statement/prospectus),
. fails to present and recommend approval and adoption of the merger
agreement to the MapQuest stockholders, or withdraws or modifies, or
proposes to withdraw or modify, its recommendation or approval in a
manner adverse to America Online,
. fails to mail this proxy statement/prospectus to MapQuest's
stockholders when it is available for mailing or fails to include in
it MapQuest board' recommendation of the merger, including the
recommendation that the MapQuest stockholders vote in favor of the
adoption of the merger agreement,
. fails to publicly reaffirm its approval and recommendation that
MapQuest stockholders adopt the merger agreement within two business
days of a request by America Online,
. enters into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Acquisition Proposal, or takes any other prohibited actions with
respect to negotiations involving MapQuest as described on pages -
of this proxy statement/prospectus,
. materially breaches the stock option agreement, or
. resolves or announces its intention to take any of the actions
specified above,
. by America Online, if a third party acquires 20% or more of the
outstanding shares of capital stock or other equity interests of
MapQuest,
. by America Online, as long as it is not in material breach of any of its
obligations under the merger agreement, (1) if any of MapQuest's
representations or warranties are or become untrue or inaccurate, or (2)
if MapQuest has breached any of its covenants or agreements contained in
the merger agreement, in each case so that the corresponding condition
to completion of the merger would not be met, and in each case where
such breach or inaccuracy (if curable) has not been cured within 30 days
after notice to MapQuest of the breach or inaccuracy,
. by MapQuest, as long as it is not in material breach of any of its
obligations under the merger agreement, (1) if any of America Online's
or MQ Acquisition's representations or warranties are or become untrue
or inaccurate, or (2) if America Online or MQ Acquisition has breached
any of their covenants or agreements contained in the merger agreement,
in each case so that the corresponding condition to completion of the
merger would not be met, and in each case where such breach or
inaccuracy (if curable) has not been cured within 30 days after notice
to MapQuest of the breach or inaccuracy, and
. by America Online if any stockholder that is a party to the stockholders
agreement has breached or failed to perform in any material respect its
obligations under the stockholders agreement, unless such breach or
failure, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on or materially impede the
parties' ability to consummate the merger.
Payment of Termination Fee
MapQuest will pay to America Online a termination fee of $34.6 million if
America Online terminates the merger agreement because of any of the following
circumstances:
. the merger agreement fails to receive the requisite vote for adoption by
the stockholders of MapQuest at the special meeting,
. MapQuest's board of directors:
48
<PAGE>
. approves or recommends, or proposes to approve or recommend, any
Acquisition Proposal other than the merger (see the definition of
Acquisition Proposal on page of this proxy statement/prospectus),
. fails to present and recommend approval and adoption of the merger
agreement to the MapQuest stockholders, or withdraws or modifies, or
proposes to withdraw or modify, its recommendation or approval in a
manner adverse to America Online,
. fails to mail this proxy statement/prospectus to MapQuest's
stockholders when it is available for mailing or fails to include in
it MapQuest board's recommendation of the merger, including the
recommendation that the MapQuest stockholders vote in favor of the
adoption of the merger agreement,
. fails to publicly reaffirm its approval and recommendation that
MapQuest stockholders adopt the merger agreement within two business
days of a request by America Online,
. enters into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Acquisition Proposal, or takes any other prohibited actions with
respect to negotiations involving MapQuest as described on pages -
of this proxy statement/prospectus,
. materially breaches the stock option agreement, or
. resolves or announces its intention to take any of the actions
specified above,
. a third party acquires 20% or more of the outstanding shares of capital
stock or other equity interests of MapQuest,
. MapQuest has willfully breached any of its covenants or agreements
contained in the merger agreement so that the corresponding condition to
completion of the merger would not be met, and when such breach or
inaccuracy (if curable) has not been cured within 30 days after notice
to MapQuest of the breach or inaccuracy, or
. any stockholder that is a party to the stockholders agreement has
breached or failed to perform in any material respect its obligations
under the stockholders agreement that individually or in the aggregate
would reasonably be expected to have a material adverse effect on or
materially impede the ability of the parties to consummate the merger.
MapQuest has agreed to pay America Online up to $2.5 million of fees and
expenses actually incurred by America Online in connection with the merger
agreement and the merger:
. if the merger agreement is terminated in the circumstances identified
above as giving rise to MapQuest's obligation to pay to America Online
the termination fee, or
. if MapQuest has materially breached the merger agreement and such breach
remains uncured.
MapQuest's Employees
Individuals who are employed by MapQuest or any of its subsidiaries when the
merger is completed will become employees of America Online or one of America
Online's subsidiaries, although America Online may terminate these employees at
any time. After the merger is completed and on a schedule determined by America
Online in connection with the integration of its business with that of
MapQuest's, the employees of MapQuest will be eligible to participate in the
employee benefit plans of America Online to the same extent as any similarly
situated and geographically located employees of America Online. MapQuest
employees will be allowed credit for their service with MapQuest for purposes
of vesting, calculating the number of vacation days to which they are entitled
(subject to a maximum of five incremental days) and participation only (and not
for entitlement, except as provided with respect to vacation, or benefit
accrual purposes) with respect to the America Online employee benefit plans in
which MapQuest employees are allowed to participate.
49
<PAGE>
If requested to do so by America Online, MapQuest will adopt, prior to the
merger's completion, resolutions to cease all contributions to the MapQuest
Retirement Savings Plan and to terminate the plan immediately prior to the
consummation of the merger. If requested by America Online, these resolutions
will also provide that all of the participants in the plan will be fully vested
in their account balances and that the participants will receive their account
balances as soon as practicable following the consummation of the merger.
Treatment of MapQuest Stock Options
America Online will assume each stock option issued by MapQuest, including
those options issued under MapQuest's 1995 Stock Option Plan and 1999 Stock
Plan, each as amended.
Upon completion of the merger, each outstanding option to purchase MapQuest
common stock will be converted into an option to purchase the number of shares
of America Online common stock equal to 0.31558 multiplied by the number of
shares of MapQuest common stock that would have been obtained before the merger
upon the exercise of each option, rounded down to the nearest whole share. The
exercise price will be equal to the exercise price per share of MapQuest common
stock subject to the option before conversion divided by 0.31558, rounded up to
the nearest whole cent.
The other terms of each MapQuest option referred to above will continue to
apply, including any provisions providing for acceleration of vesting.
America Online will file a registration statement on Form S-8 for the shares
of America Online common stock issuable with respect to each MapQuest option
and will use its reasonable best efforts to maintain the effectiveness of that
registration statement for as long as any of the options remain outstanding.
As of the date of the merger agreement, MapQuest must ensure that no
offerings or options are granted without the approval of America Online and
that MapQuest's employee stock purchase plan is not activated.
Representations and Warranties
We each made a number of representations and warranties in the merger
agreement regarding aspects of our respective businesses, financial conditions,
structures and other facts pertinent to the merger.
The representations given by MapQuest cover the following topics, among
others, as they relate to MapQuest and its subsidiaries:
. MapQuest's corporate organization and its qualification to do business,
. the possession of and compliance with approvals required to conduct
MapQuest's business,
. MapQuest's certificate of incorporation and by-laws,
. MapQuest's capitalization,
. authorization of the merger agreement by MapQuest,
. the effect of the merger on obligations of MapQuest and under applicable
laws,
. regulatory approvals required to complete the merger,
. MapQuest's material contracts,
. MapQuest's compliance with applicable laws,
. MapQuest's filings and reports with the Securities and Exchange
Commission,
. MapQuest's financial statements,
. changes in MapQuest's business since December 31, 1998,
50
<PAGE>
. MapQuest's liabilities,
. litigation involving MapQuest,
. MapQuest's employee benefit plans,
. MapQuest's labor matters,
. information supplied by MapQuest in this proxy statement/prospectus and
the related registration statement filed by America Online,
. restrictions on MapQuest's business practices,
. MapQuest's title to the properties it owns and leases,
. MapQuest's taxes,
. environmental laws that apply to MapQuest,
. intellectual property used by MapQuest,
. compliance with Year 2000 related issues,
. MapQuest's insurance,
. MapQuest's satisfaction of business combination laws,
. the treatment of the merger as a pooling-of-interests and a tax-free
reorganization,
. MapQuest's brokers,
. MapQuest's business practices with respect to the absence of any
unlawful payments relating to political activity, the Foreign Corrupt
Practices Act of 1977, the Social Security Act or any other unlawful
payment,
. transactions between MapQuest and interested parties, and
. MapQuest's financial advisors.
The representations given by America Online cover the following topics,
among others, as they relate to America Online and MQ Acquisition:
. corporate organization and qualification to do business,
. the possession of and compliance with approvals required to conduct
business,
. capitalization,
. authorization of the merger agreement,
. the effect of the merger on obligations under applicable laws,
. regulatory approvals required to complete the merger,
. America Online's filings and reports with the Securities and Exchange
Commission,
. America Online's financial statements,
. litigation involving America Online,
. information supplied by America Online in this proxy
statement/prospectus and the related registration statement filed by
America Online, and
. the treatment of the merger as a pooling-of-interests and a tax-free
reorganization.
51
<PAGE>
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Parent and Merger Sub."
Extension, Waiver and Amendment of the Merger Agreement
We may amend the merger agreement before completion of the merger. However,
after the MapQuest stockholders adopt the merger agreement, no change will be
made that will reduce the amount of or change the type of consideration into
which each share of MapQuest common stock will be converted upon completion of
the merger.
Either of us may extend the other's time for the performance of any of the
obligations or other acts under the merger agreement, waive any inaccuracies in
the other's representations and warranties and waive compliance by the other
with any of the agreements or conditions contained in the merger agreement. If
any of our conditions or other obligations are waived, we will consider the
facts and circumstances at that time and make a determination as to whether a
resolicitation of proxies is appropriate.
The Stock Option Agreement
The following summary of the stock option agreement is qualified in its
entirety by reference to the complete text of the stock option agreement, which
is incorporated by reference and attached as Annex B to this proxy
statement/prospectus. We urge you to read the full text of the stock option
agreement.
The stock option agreement grants America Online the option to buy up to
3,571,661 shares of MapQuest common stock at an exercise price of $27.00 per
share. The number of shares issuable upon exercise of the option and the
exercise price of the option are subject to adjustment to prevent dilution.
Based on the number of shares of MapQuest common stock outstanding on December
21, 1999, the option would be exercisable for approximately 10.0% of the
outstanding shares of MapQuest and approximately 9.1% of the outstanding shares
after giving effect to the exercise of the option.
The option is intended to increase the likelihood that the merger will be
completed. Consequently, aspects of the stock option agreement may have the
effect of discouraging persons who might be interested in acquiring all or a
significant interest in MapQuest or its assets before completion of the merger.
America Online may exercise the option, in whole or part, up to one year
from the date on which America Online first has the right to receive the
termination fee. The option will terminate and not become exercisable upon any
of the following:
. completion of the merger,
. America Online's written notice to MapQuest effecting the termination of
the option agreement,
. the termination of the merger agreement under circumstances which cannot
cause the option to become exercisable, or
. twelve months after termination of the merger agreement.
However, if America Online exercises the option to purchase shares of
MapQuest common stock prior to the option's expiration, America Online will
return the right to purchase the shares subject to the option, even after the
option expires.
If the merger agreement is terminated under circumstances that require
MapQuest to pay America Online a termination fee pursuant to the terms of the
merger agreement, then America Online has the right to require MapQuest to
repurchase the option or, if the option has been exercised by America Online
the shares issued
52
<PAGE>
upon exercise of the option. The stock option agreement provides that in no
event will America Online's total profit under the stock option agreement, less
any termination fee paid by MapQuest under the merger agreement, exceed $34.6
million.
The stock option agreement grants registration rights to America Online with
respect to the shares of MapQuest common stock represented by the option.
The Stockholders Agreement
The following summary of the stockholders agreement is qualified in its
entirety by reference to the complete text of the stockholders agreement, which
is incorporated by reference and attached as Annex C to this proxy
statement/prospectus. You are urged to read the full text of the stockholders
agreement.
The stockholders agreement requires the following MapQuest stockholders vote
all of the shares of MapQuest common stock beneficially owned by them in favor
of the merger:
. Trident Capital Partners Fund-I, L.P.,
. Trident Capital Partners Fund-I, C.V.,
. Highland Capital Partners III Limited Partnership,
. Highland Entrepreneurs' Fund III, L.P.,
. National Geographic Holdings, Inc.,
. Weston Presidio Capital II, L.P.,
. Michael J. Mulligan, and
. James W. Thomas.
As of the record date, the MapQuest stockholders who entered into the
stockholders agreement collectively beneficially owned approximately
of the shares of MapQuest common stock, which represented approximately . %
of the outstanding shares of MapQuest common stock.
Each MapQuest stockholder who is a party to the stockholders agreement has
agreed not to sell the MapQuest stock and options owned, controlled or
acquired, either before or after the date of the merger agreement, by that
person except for sales completed earlier than 30 days prior to the date that
the merger is consummated. Additionally, each stockholder agreed that it will
not do any of the following (and nor will it authorize any of its affiliates,
directors, officers, employees or representatives to do any of the following):
. solicit, facilitate, initiate or encourage any inquiries or
communications or the making of any proposal or offer that constitutes,
or may constitute, an Acquisition Proposal, or
. participate or engage in any discussion or negotiations with, or take
any action with the intent to facilitate the efforts of, any third party
concerning:
. any possible Acquisition Proposal, or
. any communication that might reasonably be expected to result in an
Acquisition Proposal.
The stockholders agreement will terminate upon the earlier to occur of (1)
the termination of the merger agreement in accordance with its terms, or (2)
the completion of the merger.
53
<PAGE>
The Distribution Agreement
America Online, Digital City and MapQuest entered into a distribution
agreement simultaneously with the merger agreement. Under the distribution
agreement, MapQuest will provide America Online and Digital City the use and
license of its mapping and routing data and services. America Online will
provide access to these data and services through its network. MapQuest also
will provide the use of certain business information to Digital City so that
visitors to Digital City's website may search the MapQuest databases by a
business or telephone number within a city or state.
Under the distribution agreement, America Online will pay MapQuest an annual
fee based on the amount of revenue generated as a result of America Online's
use of MapQuest's products and services. The agreement has an initial term with
respect to the core services to be provided over the AOL network of five years,
and America Online has the right to extend the term for three additional one-
year terms, provided that either America Online or MapQuest may decide to
terminate the agreement if the other party has:
. materially breached the agreement and not cured such breach within 30
days,
. ceased doing business in the normal course,
. been declared insolvent or bankrupt, or has been subjected to any
proceeding relating to its liquidation.
The agreement with respect to Digital City's access to MapQuest's business
information database expires March 31, 2001. The distribution agreement became
effective upon signing. The parties' obligations and rights under the
distribution agreement are independent of their rights and obligations under
the merger agreement or the other agreements related to the merger and will
remain in effect notwithstanding any termination or amendment of the merger
agreement or the other agreements related to the merger.
54
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
MapQuest common stock is traded on the Nasdaq National Market under the
symbol "MQST." America Online common stock is traded on the New York Stock
Exchange under the symbol "AOL." Because the market price of America Online
common stock that you will receive in the merger may increase or decrease
before the merger, you are urged to obtain current market quotations.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of MapQuest common stock as reported on the
Nasdaq National Market and per share of America Online common stock as quoted
on the New York Stock Exchange.
The prices in the following tables have been adjusted to reflect America
Online's two-for-one stock split that was effected on November 22, 1999.
<TABLE>
<CAPTION>
America
Online
MapQuest common
common stock stock
------------- -----------
High Low High Low
------ ------ ----- -----
<S> <C> <C> <C> <C>
1997:
Quarter Ended September 30, 1997.................. $ -- $ -- $5.03 $3.53
Quarter Ended December 31, 1997................... -- -- 5.71 4.00
1998:
Quarter Ended March 31, 1998...................... -- -- 8.74 5.16
Quarter Ended June 30, 1998....................... -- -- 13.71 8.66
Quarter Ended September 30, 1998.................. -- -- 17.57 8.75
Quarter Ended December 31, 1998................... -- -- 40.00 10.33
1999:
Quarter Ended March 31, 1999...................... -- -- 76.88 33.50
Quarter Ended June 30, 1999....................... 25.94 13.75 87.50 44.75
Quarter Ended September 30, 1999.................. 20.63 9.31 64.60 38.50
Quarter Ended December 31, 1999................... 32.50 12.50 95.63 52.03
</TABLE>
The following table sets forth the closing prices per share of MapQuest
common stock as reported on the Nasdaq National Market and the closing prices
per share of America Online common stock as reported on the New York Stock
Exchange on (a) December 21, 1999, the last full trading day preceding public
announcement that America Online and MapQuest had entered into the merger
agreement and (b) , 2000, the last full trading day for which closing
prices were available at the time of the printing of this proxy
statement/prospectus.
<TABLE>
<CAPTION>
MapQuest America Online
Common Stock Common Stock
------------ --------------
<S> <C> <C>
December 21, 1999.............................. $32.500 $86.688
, 2000................................... $ $
</TABLE>
Because the market price of America Online common stock that you will
receive in the merger may increase or decrease before completion of the merger,
you are urged to obtain current market quotations.
55
<PAGE>
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS,
MANAGEMENT AND DIRECTORS OF MAPQUEST
The following table sets forth information concerning the beneficial
ownership of common stock of MapQuest as of February 8, 2000 for the following:
. each person or entity who is known by MapQuest to own beneficially more
than 5% of the outstanding shares of MapQuest common stock,
. each of MapQuest's current directors,
. the chief executive officer and each of the other most highly
compensated executive officers of MapQuest, and
. all directors and executive officers of MapQuest as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within 60 days of February 8, 2000 through
the exercise of any stock option or other right. Unless otherwise indicated in
the footnotes or table, each person or entity has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the shares
shown as beneficially owned.
The calculation of percentages in the "Percentage of Outstanding Shares"
column in the table below is based upon the number of shares of MapQuest common
stock issued and outstanding on February 8, 2000, plus shares of MapQuest
common stock subject to options held by the respective persons on February 8,
2000 and exercisable within 60 days thereafter.
Those stockholders of MapQuest in the table below who have entered into a
stockholders agreement with America Online, agreeing to vote their shares of
MapQuest common stock in favor of the proposed merger, are identified by
footnote.
56
<PAGE>
Unless otherwise indicated below, the address for each person or entity
listed below is:
c/o MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
<TABLE>
<CAPTION>
Beneficially Owned Securities
-------------------------------------
Number of
Shares
Beneficially
Total Owned
Number of Includes Percentage
Shares Securities of
Beneficially Underlying Outstanding
Name Owned (1) Options Shares
---- ------------ ------------ -----------
<S> <C> <C> <C>
Trident Capital Partners Fund--I,
L.P. (2)(4)(5)...................... 9,684,242 -- 26.8%
Trident Capital Partners Fund--I,
C.V. (2)(4)(5)...................... 1,915,731 -- 5.3%
Robert McCormack(3)(6)............. 11,599,973 -- 32.1%
John Moragne(3)(6)................. 11,599,973 -- 32.1%
Rockwell Schnabel(6)............... 11,599,973 -- 32.1%
Donald Dixon(6).................... 11,599,973 -- 32.1%
Weston Presidio Capital II, L.P.
(2)(4)(7)........................... 6,844,479 -- 19.0%
Carlo von Schroeter(3)(8).......... 6,844,479 -- 19.0%
Michael Cronin(8).................. 6,844,479 -- 19.0%
Michael Lazarus(8)................. 6,844,479 -- 19.0%
James McElwee(8)................... 6,844,479 -- 19.0%
Philip Halperin(8)................. 6,844,479 -- 19.0%
Highland Capital Partners III Limited
Partnership (2)(4)(9)............... 6,570,665 -- 18.2%
Highland Entrepreneurs' Fund III L.P.
(2)(4)(9)........................... 273,777 -- 0.8%
Daniel Nova(3)(10)................. 6,844,442 -- 19.0%
Robert Higgins(10)................. 6,844,442 -- 19.0%
Paul Maeder(10).................... 6,844,442 -- 19.0%
Wycliffe Grousbeck(10)............. 6,844,442 -- 19.0%
Michael Mulligan (2)(3)(4)........... 2,254,542 1,694,000 6.0%
James Thomas (2)(4).................. 803,766 515,675 2.2%
William Muenster (4)................. 806,390 512,915 2.2%
C. Richard Allen (2)(3)(4)(11)(12)... 899,018 -- 2.5%
Directors & Executive Officers as a
group (eight persons)............... 30,052,610 -- 77.4%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of February 8, 2000 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name.
(2) Signed the stockholders agreement with America Online.
(3) Director of MapQuest.
(4) Signed affiliate agreement with America Online.
(5) The address of each of Trident Capital Partners Fund--I, L.P. and Trident
Capital Partners Fund--I, C.V., as well as Messrs. McCormack, Moragne,
Schnabel and Dixon, is 2480 Sand Hill Road, Suite 100, Menlo Park,
California 94025.
(6) Includes 9,684,242 shares held by Trident Capital Partners Fund--I, L.P.
and 1,915,731 shares held by Trident Capital Partners Fund--I, C. V.
Messrs. McCormack, Moragne, Schnabel, Hall and Dixon are officers of
Trident Capital, Inc., the general partner of Trident Capital, L.P., which
is the general partner of Trident Capital Partners Fund--I, L.P. and the
investment general partner of Trident Capital Partners Fund--I, C.V., and
therefore may be considered to share beneficial ownership of the shares
held by each of Trident Capital Partner Fund--I, L.P. and Trident Capital
Partners Fund--I, C.V. Messrs. McCormack, Moragne, Schnabel, Hall and Dixon
disclaim beneficial ownership of shares held by Trident Capital, Inc. and
its affiliates, except to the extent of their pecuniary interests, if any.
(7) The address of Weston Presidio Capital II, L.P., as well as Messrs. von
Schroeter, Cronin, Lazarus, McElwee and Halperin, is One Federal Street,
21st Floor, Boston, Massachusetts 02110.
(8) Includes 6,844,479 shares held by Weston Presidio Capital II, L.P. Messrs.
Cronin, Lazarus, McElwee, von Schroeter and Halperin are the general
partners of Weston Presidio Capital Management II, L.P. the general partner
of Weston Presidio Capital II, L.P. and
57
<PAGE>
therefore may be considered to share the beneficial ownership of the shares
held by Weston Presidio Capital II, L.P. Messrs. Cronin, Lazarus, McElwee,
von Schroeter and Halperin disclaim beneficial ownership of these shares,
except to the extent of their pecuniary interests, if any.
(9) The address of each of Highland Capital Partners III, L.P. and Highland
Entrepreneurs' Fund III, L.P., as well as Messrs. Nova, Higgins, Maeder
and Grousbeck, is Two International Place, Boston, Massachusetts 02110.
(10) Includes 6,570,665 shares held by Highland Capital Partners III Limited
Partnership and 273,777 shares held by Highland Entrepreneur's Fund III,
L.P. Messrs. Higgins, Maeder, Nova and Grousbeck are the general partners
of Highland Management Partners III, L.P., the general partner of
Highland Capital Partners III Limited Partnership, and the members of HEF
III, L.L.C., the general partner of Highland Entrepreneurs' Fund III,
L.P. and therefore may be considered to share the beneficial ownership of
the shares held by each of Highland Capital Partners III, Limited
Partnership and Highland Entrepreneurs' Fund III, L.P. Messrs. Higgins,
Maeder, Nova and Grousbeck disclaim beneficial ownership of these shares,
except to the extent of their pecuniary interests if any.
(11) Includes 899,018 shares held by National Geographic Holdings, Inc., a
wholly-owned indirect subsidiary of National Geographic Society. Mr.
Allen disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest, if any. The address of National
Geographic Holdings, Inc. is 1145 17th Street, N.W., Washington, DC
20036.
(12) Served as director of MapQuest during fiscal year 1999 and resigned as
director as of December 22, 1999.
58
<PAGE>
DESCRIPTION OF MAPQUEST'S BUSINESS
Overview
MapQuest is a leading online provider of mapping and destination
information. By leveraging its over 30 years of traditional digital mapping
experience, MapQuest's proprietary integration and editing of geographic
databases enable it to provide comprehensive mapping solutions to businesses
and to provide customized maps, destination information and driving directions
to consumers. Each month, MapQuest delivers approximately 100 million maps and
driving directions through its own websites and through third-party websites.
According to Media Metrix, Inc., over 3.5 million unique users visited
mapquest.com in December 1999, making mapquest.com the largest travel-related
Internet property in terms of audience reach and the 68th largest Internet
property overall.
The MapQuest.com Solution
MapQuest online products and services enable businesses to:
. provide customized maps, destination information and driving directions
to potential customers,
. provide potential customers with proximity information regarding which
of a business' multiple locations is closest to the potential customer,
. expand the functionality of their websites to attract and retain users,
. outsource their map-enabling and destination information needs, thereby
avoiding a significant portion of the expenses normally associated with
establishing and maintaining a map-enabling infrastructure, and
. provide delivery of driving directions to potential customers on
wireless platforms.
MapQuest online products and services enable consumers to:
. receive maps, destination information and driving directions based on
geocentric information provided by the consumer on a real-time basis,
and
. retrieve accurate and reliable mapping and destination information at
any time and from any place over the Internet.
MapQuest is also a leading United States provider of traditional digital
mapping products and services to the educational, reference, directory, travel
and governmental markets. In addition, companies that incorporate call centers,
CD-ROMs or stand-alone driving direction kiosks into their information delivery
strategy require non-Internet customized mapping solutions. MapQuest has
developed its map-enabling software to promote the rapid development of mapping
applications in these environments.
MapQuest Products and Services
Internet-related Products and Services for Businesses
<TABLE>
<CAPTION>
Name of Product/Service Host Description
----------------------- ---- -----------
<C> <C> <S>
Connect Services Products
MapQuest Connect......... MapQuest . Allows businesses to display
consumer- requested maps based on any
combination of city, state, street
address and ZIP code in the United
States.
MapQuest InterConnect.... MapQuest . Enhances MapQuest Connect.
. Offers proximity searching, which
allows consumers visiting a business'
website to find the closest locations
within a fixed mile radius of a user-
defined point of origin.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Name of Product/Service Host Description
----------------------- ---- -----------
<C> <S> <C>
MapQuest Locator........ MapQuest . Enhances MapQuest InterConnect.
. Allows more advanced proximity searching
by integrating MapQuest with specific
geographic search parameters contained in
its business customer's database, such as
"find closest gas station with a car wash."
MapQuest TripConnect.... MapQuest . Allows businesses to provide consumers
with door-to-door driving instructions,
including a route-highlighted map, trip
mileage and estimated driving time.
Enterprise Solutions
MapQuest Enterprise MapQuest . Provides mapping, routing and destination
Service................. information capability designed primarily
for high volume websites.
. Allows business customers the flexibility to
fully customize generated map pages to
convey their corporate images.
MapQuest Enterprise Business . Provides mapping, routing and destination
Server.................. Customer information capability designed primarily to
users of a business
website.
MapQuest Server for . Business customer-hosted service designed
Windows NT.............. for MapQuest business customers with
networked applications who want to
customize their own mapping solutions.
</TABLE>
Internet Consumer
The mapquest.com website offers several menu options for consumers including
the following:
. Online Maps--the consumer is able to generate maps either based on
detailed supplied information or a more general location request,
. Driving Directions--the consumer can find the most direct route from a
point of origin to a destination using a variety of options and formats,
including door-to-door, city-to-city, overview map with text, text only
or turn-by-turn,
. Travel Guide--the consumer is able to access lodging, dining, city
information, weather and build-an-itinerary options for virtually any
consumer-supplied destination, all of which can be tailored by the
consumer to fit his or her particular information needs,
. My MapQuest--by becoming a member, the consumer is able to save
generated maps, place his or her personalized icons on generated maps
that can be stored for future use, receive advance notice of new
MapQuest features and enhancements and become eligible for promotional
offers,
. Real Time Traffic--the consumer can get real-time traffic reports for
major U.S. cities, and
. Local City Guide--the consumer can access local news and events and
other local information for 60 U.S. cities.
MapQuest's product development strategy is to enhance the technology and
features of its web-based and non-Internet mapping applications and to further
expand its core geographical database assets. To this end, MapQuest has
numerous development projects in process including, but not limited to,
Internet optimization tools and collaboration technologies and geographical
database improvements. MapQuest expects to continue to devote substantial
resources to its product development activities.
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Traditional Digital Mapping Products and Services
MapQuest publishes printed road maps, atlases, travel guides, hotel and
telephone directories, maps used in textbooks and map-related reference books,
and CD-ROMs. In addition, MapQuest's products and services include software
applications to incorporate customized mapping solutions into call centers, CD-
ROMs or information kiosks. MapQuest also provides extensive cartography,
geographic database development, comprehensive map data maintenance, advance
mapping technology and consultation services to a wide variety of customers on
a fee for service basis. MapQuest's traditional digital mapping customers
include National Geographic, Lonely Planet, Readers Digest, United States
Forest Service, Exxon, Best Western and Republic Industries.
Sales and Marketing
MapQuest sells its Internet-related business products and services in the
United States, Canada and Europe through a sales organization of forty-five
employees as of December 31, 1999. The majority of these employees are located
at MapQuest's sales offices across the United States with two employees located
in the United Kingdom and one employee located in Canada. This sales
organization consists of twenty-two direct field salespeople and twenty-three
inside salespeople. In addition, MapQuest indirectly sells its Internet
products and services through value-added resellers such as SABRE BTS, Three-X
Communication, Moore Data and Kingswood Ltd.
Sales of advertisements on mapquest.com have been generated by third-party
advertising sales representatives and by MapQuest's internal advertising sales
force, which consisted of seven persons as of December 31, 1999.
MapQuest sells its traditional and digital mapping products through a direct
sales force consisting of nineteen field salespersons and telemarketers.
MapQuest markets its products and services online by placing advertisements
on third-party websites. In addition, MapQuest advertises through traditional
offline media and utilizes public relations campaigns, trade shows and ongoing
customer communications programs.
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Customers
As of December 31, 1999, MapQuest had licensed its products and services to
over 1000 business customers. No one customer accounts for over 10% of
MapQuest's overall revenues. The following is a representative list of
customers as of December 31, 1999:
Business Products and Consumer Products and Digital Mapping
Services Services Products and Services
American Automobile AIG Insurance Ameritech
Association Alta Vista Best Western
Avis Ameritrade Choice Hotels
Bass Hotel and Resorts AutoByTel Classical Atlas
Best Western BellSouth Yellow Pages Cracker Barrel
Budget Rent-A-Car Ecoupons Don Tech
Cendant Ford Motor Exxon
Excite Holiday Inns Harcourt Brace
Federal Express Interstate America Holt, Rinehart &
GM OnStar NextCard Winston
GTE Pet Planet Houghton Mifflin
Hertz SABRE McGraw-Hill
Infoseek Travelocity/Preview National Geographic
InfoSpace Toyota Prentice Hall
Lycos Travelscape R.R. Donnelley
Moore Data US West Ryder
Sabre YesMail.com Southwestern Bell
Thomas Cook Trailer Life
Yahoo!
Technology and Infrastructure
Geographic Data
MapQuest maintains a worldwide geographic database suitable for high quality
map production. MapQuest has licensed a significant portion of its data from a
number of sources through non-exclusive short-term contractual arrangements.
MapQuest currently relies on primary geographic data drawn from data supplied
to it under contract by Navigation Technologies Corporation (NavTech),
Geographic Data Technology, Inc. (GDT) Digital Mapping Technologies, Inc.
(DMTI) and other data suppliers. MapQuest obtains Western European street and
major road data from TeleAtlas, NavTech and AND Mapping BV. Major road data for
the rest of the world is obtained from AND Mapping BV. MapQuest's business
relationships with NavTech and other vendors are currently in good standing.
However, should MapQuest lose access to these sources of third-party data or
should the terms of these contractual arrangements materially change, MapQuest
would need to substitute possibly higher-priced alternatives, including
expenses associated with developing substitute data internally, and MapQuest's
business, financial condition and results of operations could be materially and
adversely affected.
MapQuest's own proprietary data assets also support its online and
traditional digital mapping products and services. MapQuest has spent
approximately six years developing, and continues to enhance and update, its
USDB, a digital geographic United States database (including adjacent areas of
Canada and Mexico). MapQuest also maintains a graphical image database that
contains over 190,000 archived images, which serves as MapQuest's internal
reference library and is supported by a customized database management system
for image retrieval. In addition, MapQuest has developed a suite of
international city map data which includes over
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300 metropolitan maps and over 500 downtown maps of most major international
tourist and business destinations.
MapQuest plans to update its geographic databases periodically. However, in
view of the complexity of updating several different databases, revising
software and the need for third party geocoding, there can be no assurance that
MapQuest will be able to perform this update each quarter.
Software and Editing Tools
MapQuest has developed numerous software tools and has customized existing
commercial applications to create and maintain its proprietary digital map
databases and produce its mapping products.
MapQuest's proprietary software development toolkit, GeoLocate, employs
scalable object-oriented technology and comprises the core tools used to
perform high-speed mapping while maintaining high-quality cartographic display.
Designed with an open architecture, GeoLocate offers platform flexibility in
converting a variety of data formats. MapQuest's extensive investment in
GeoLocate has been leveraged for use in the development of MapQuest's Internet
technology, resulting in the creation of a uniquely scalable, high performance
platform that serves millions of routes and maps on a daily basis. Easy-to-use
consumer interface functionality overlays MapQuest's seamless integration of a
variety of data formats and personalization tools which enable consumers to
save and display maps in their preferred styles.
System Architecture
Web pages, maps, and driving directions delivered to MapQuest's customers
and users are generated utilizing a Solaris operating system, Apache web server
software and MapQuest's proprietary mapping applications. Traffic is
distributed and load-balanced across multiple servers via our proprietary
software and equipment provided by F5 Networks which maintain replicated, local
storage of underlying software and data, resulting in minimal interdependencies
between servers. Each server has its own local storage, and all data and
software is replicated across all servers. The system is designed as a
flexible, robust architecture which is dynamically scalable to meet anticipated
future demand. In addition to built-in redundancies, MapQuest operates
automated internal monitoring tools on a continual, full-time basis and
independent third-party monitoring of MapQuest's website is generated at all
times from at least thirty different cities on at least twelve different
national and international Internet backbone providers.
MapQuest's network, hosting facilities, internal architecture and monitoring
have been deployed to provide high availability, efficiency and redundancy at
every level of the infrastructure. MapQuest's Internet map and route servicing
facilities are located in two Denver, Colorado data centers, a Qwest
Communications Cyber Center hosting facility tied to Qwest's nationwide,
dedicated high speed OC-48 IP network and an Inflow, Inc. hosting facility with
UUNet bandwidth provisioned exclusively for MapQuest's use. MapQuest and its
associated websites are tied to Qwest's and Inflow's backbones via Cisco
routers and multiplexes. Qwest and Inflow do not guarantee that our Internet
access will be uninterrupted, secure, or error free and MapQuest's operations
are dependent on Qwest's and Inflow's ability to protect their and our systems
against damage from fire, power loss, water damage, telecommunications failure,
vandalism, and other malicious acts. Any disruption in the Internet access
provided by Qwest or Inflow could have a material adverse effect on MapQuest's
business, financial condition and results of operations.
Competition
The markets for MapQuest's products and services are highly competitive.
MapQuest competes for business customers and consumers with companies offering
Internet-based map-enabling technology and publishers and distributors of
traditional media (such as television, radio and print) that use or license
their content for use on the Internet, commercial publishing companies,
corporate materials and information market companies, and governmental
authorities.
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MapQuest expects competition to continue to increase because these markets,
particularly the markets for Internet-related products and services, pose no
substantial barriers to entry. Competition may also increase as a result of
industry consolidation. In addition, MapQuest's licensees may develop products
and services that are equal or superior to MapQuest's or that achieve greater
market acceptance than those of MapQuest. Similarly there can be no assurances
that MapQuest's data suppliers will not develop products and services
competitive with those of MapQuest. Increased competition could result in
reduced markets, loss of market share or less traffic to MapQuest's website,
any of which could have a material adverse effect on MapQuest's business,
financial condition and results of operations.
MapQuest believes that its ability to compete depends upon many factors,
many of which are beyond its control. These factors include MapQuest's ability
to provide depth, quality and accuracy of destination information, to increase
its sales force and to implement its sales and marketing initiatives, the
introduction and acceptance of new and enhanced products and services developed
either by MapQuest or its competitors and the ease of use of products and
services developed either by MapQuest or its competitors.
Government Regulation
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for MapQuest's
service, increase MapQuest's cost of doing business or otherwise have a
material adverse effect on MapQuest's business, financial condition and results
of operations.
Liability for Information Retrieved from mapquest.com and from the Internet
Content may be accessed on mapquest.com or on the websites of MapQuest's
distribution partners, and this content may be downloaded by users and
subsequently transmitted to others over the Internet. This could result in
claims against MapQuest based on a variety of theories, including negligence,
copyright or trademark infringement or other theories based on the nature,
publication and distribution of this content. These types of claims have been
brought, sometimes successfully, against providers of Internet services in the
past. MapQuest could also be exposed to liability with respect to third-party
content that may be posted by users in chat rooms or bulletin boards offered by
certain of MapQuest's distribution partners. It is also possible that if any
information, including information deemed to constitute professional advice
such as legal, medical, financial or investment advice, provided on
mapquest.com contains errors or false or misleading information, third parties
could make claims against MapQuest for losses incurred in reliance on such
information. The mapquest.com website contains over fifty human-filtered
annotated links to other websites. As a result, MapQuest may be subject to
claims alleging that, by directly or indirectly providing links to other
websites, MapQuest is liable for copyright or trademark infringement or the
wrongful actions of third parties through their respective websites. The
Communications Decency Act of 1996 provides that, under certain circumstances,
a provider of Internet services shall not be treated as a publisher or speaker
of any information provided by a third-party content provider. This safe harbor
has been interpreted to exempt certain activities of providers of Internet
services. MapQuest's activities may prevent it from being able to take
advantage of this safe harbor provision. While MapQuest attempts to reduce its
exposure to such potential liability through, among other things, provisions in
guide agreements, user policies and disclaimers, the enforceability and
effectiveness of such measures are uncertain.
MapQuest's general liability insurance may not cover all potential claims to
which MapQuest is exposed and may not be adequate to indemnify MapQuest for all
liability that may be imposed. Any imposition of
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liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on MapQuest's business, financial
condition and results of operations. Even to the extent that such claims do not
result in liability to MapQuest, MapQuest could incur significant costs in
investigating and defending against such claims. Potential liability for
information disseminated through mapquest.com could lead MapQuest to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources and limit the attractiveness of MapQuest's
service to users.
Privacy Concerns
The Federal Trade Commission (FTC) is considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing websites. While MapQuest has implemented or
intends to implement programs designed to enhance the protection of the privacy
of its users, including children, there can be no assurance that such programs
will conform with any regulations adopted by the FTC. The FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal information from users, which could have an adverse effect on
MapQuest's ability to provide highly targeted opportunities for advertisers and
e-commerce marketers. Any such developments would have a material adverse
effect on MapQuest's business, financial condition and results of operations.
The European Union (EU) has adopted a directive that imposes restrictions on
the collection and use of personal data. This directive could, among other
things, affect U.S. companies that collect information over the Internet from
individuals in EU member countries, and may impose restrictions that are more
stringent than current Internet privacy standards in the United States. This
directive does not, however, define what standards of privacy are adequate. As
a result, there can be no assurance that this directive will not adversely
affect the activities of entities such as MapQuest that engage in data
collection from users in EU member countries.
Internet Taxation
A number of legislative proposals have been made at the federal, state and
local level, and by certain foreign governments, that would impose additional
taxes on the sale of goods and services over the Internet and certain states
have taken measures to tax Internet-related activities. Such legislation or
other attempts at regulating commerce over the Internet may substantially
impair the growth of commerce on the Internet and, as a result, adversely
affect MapQuest's opportunity to derive financial benefit from such activities.
Domain Names
Domain names are the user's Internet "addresses." The current system for
registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
Although MapQuest has registered "mapquest.com" as a trademark, third parties
may bring claims for infringement against MapQuest for the use of this
trademark. There can be no assurance that MapQuest's domain names will not lose
their value, or that MapQuest will not have to obtain entirely new domain names
in addition to or in lieu of its current domain names if reform efforts result
in a restructuring in the current system.
Jurisdictions
Due to the global nature of the Internet, it is possible that, although
transmissions by MapQuest over the Internet originate primarily in Denver,
Colorado, the governments of other states and foreign countries might attempt
to regulate MapQuest, MapQuest's business activities, MapQuest's transmissions
or prosecute MapQuest for violations of their laws which could have a material
adverse effect on MapQuest's business, financial condition and results of
operations. In addition, as MapQuest's service is available over the Internet
in multiple states and foreign countries, such jurisdictions may require
MapQuest to qualify to do business as a
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foreign corporation in each such state or foreign country, which could subject
MapQuest to taxes and penalties and could result in the inability of MapQuest
to enforce contracts in such jurisdictions.
Intellectual Property
MapQuest regards its copyrights, trademarks, trade secrets and similar
intellectual property as critical to its success. MapQuest relies upon a
combination of trademark and copyright law, trade secret protection and
contractual restrictions with employees, customers, partners and others to
protect its proprietary rights. MapQuest does not currently hold any patents.
If MapQuest fails to adequately protect its proprietary rights, or if it
becomes involved in intellectual property litigation its business, financial
condition and results of operations could be materially and adversely affected.
Despite MapQuest's efforts to protect our proprietary rights, third parties
may infringe or misappropriate these rights, which could result in a material
adverse effect on MapQuest's business, financial condition and results of
operations. In the ordinary course of business MapQuest has been, and expects
to continue to be, subject to claims, including claims of alleged infringement
of the trademarks and other proprietary rights of third parties. Furthermore,
the validity, enforceability and scope of protection of proprietary rights in
Internet-related industries is uncertain and still evolving. MapQuest expects
that infringement claims in its markets will increase in number as more
participants enter the market. Such claims and any resultant litigation, should
it occur, could subject MapQuest to significant liability for damages and could
result in the invalidation of our proprietary rights. In addition, even if we
prevail, such litigation could be time-consuming and expensive to defend, and
could result in the diversion of MapQuest's time and attention, any of which
could materially adversely affect its business, financial condition and results
of operations. Any claims from third parties may also result in limitation on
MapQuest's ability to use the trademarks and other intellectual property
subject to such claims unless it enters into agreements with the third parties
responsible for such claims, which may be unavailable on commercially
reasonable terms.
MapQuest has also been approached by Unisys concerning a license under U.S.
Patent No. 4,558,302, which covers certain data compression technology commonly
referred to as the Lempel-Zev-Welch or "LZW" algorithm. Unisys and MapQuest are
presently engaged in negotiations concerning a possible license under the '302
patent. Unisys has not filed a lawsuit, although it has suggested the
possibility of litigation to enforce the '302 patent if negotiations are
unsuccessful. Under the terms of the merger agreement, MapQuest may not settle
certain claims without America Online's consent.
Pursuant to an indemnity obligation, MapQuest defended Moore U.S.A., Inc.,
in a legal proceeding filed by Mark Tornetta on December 14, 1998 in the United
States District Court for the Eastern District of Pennsylvania. Mr. Tornetta
alleged that Moore U.S.A., Inc. infringed his patent describing a specific
method for searching real estate properties. This case was dismissed without
prejudice.
Rand McNally has written a letter to National Geographic claiming that
National Geographic's laminated maps infringe upon one of its patents. MapQuest
has agreed to take responsibility pursuant to its indemnification obligations.
MapQuest believes that this claim will be settled for approximately $10,000.
Employees
As of December 31, 1999, MapQuest employed 335 persons, including 57
cartographers, 12 GIS/database analysts, 91 software/systems/Internet
engineers, 109 persons in sales, marketing and customer-support, and 66 persons
in general and administrative areas. None of MapQuest's employees is
represented by a labor union and MapQuest believes it has good employee
relations.
MapQuest believes that its future success will depend in part on its
continued ability to attract, integrate, retain and motivate highly qualified
sales, technical, and managerial personnel, and upon the continued service of
MapQuest's senior management and key sales and technical personnel. There can
be no assurance that
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MapQuest will successfully attract, integrate, retain and motivate a sufficient
number of qualified personnel to conduct its business in the future.
Facilities
MapQuest's headquarters are located in Mountville, Pennsylvania, where
MapQuest currently leases approximately 62,000 square feet under a ten-year
lease expiring in March 2007. In addition, MapQuest maintains executive offices
in New York, New York, where MapQuest leases approximately 9,000 square feet
under a nine-year lease expiring in May 2008. MapQuest also leases
approximately 7,200 square feet in Columbia, Maryland under a two-year lease
expiring in June 2000, approximately 19,400 square feet in Denver, Colorado
under a three-year lease expiring in November 2002, approximately 11,520 square
feet in Mount Joy, Pennsylvania under a three-year lease expiring in December
2000 and approximately 3,600 square feet in the Hague, Netherlands under a
sixteen-month lease expiring in December 2000. MapQuest also leases sales
office space in Redwood Shores, California, Wakefield, Massachusetts, Chicago,
Illinois, and Atlanta, Georgia. These offices are approximately 250 to 2,200
square feet with lease terms of one month to five years.
Legal Proceedings
Pursuant to an indemnity obligation, MapQuest defended Moore U.S.A., Inc.,
in a legal proceeding filed by Mark Tornetta on December 14, 1998 in the United
States District Court for the Eastern District of Pennsylvania. Mr. Tornetta
alleged that Moore U.S.A., Inc. infringed his patent describing a specific
method for searching real estate properties. This case was dismissed without
prejudice.
Rand McNally has written a letter to National Geographic claiming that
National Geographic's laminated maps infringe upon one of its patents. MapQuest
has agreed to take responsibility pursuant to its indemnification obligations.
MapQuest believes that this claim will be settled for approximately $10,000.
MapQuest has also been approached by Unisys concerning a license under U.S.
Patent No. 4,558,302, which covers certain data compression technology commonly
referred to as the Lempel-Zev-Welch or ALZW@ algorithm. Unisys and MapQuest are
presently engaged in negotiations concerning a possible license under the '302
patent. Unisys has not filed a lawsuit, although it has suggested the
possibility of litigation to enforce the '302 patent if negotiations are
unsuccessful. Under the terms of the merger agreement, MapQuest may not settle
certain claims without America Online's consent.
Universal Map Enterprises, Inc. filed a lawsuit against MapQuest and America
Online in the United States District Court in the Western District of New York.
In that lawsuit, Universal Map Enterprises alleges claims against MapQuest for
breach of contract, conversion and specific performance, and against America
Online for tortious interference with business arrangements, in connection with
an alleged agreement to sell MapQuest's online electronic commerce website,
MapStore.com, to Universal Map. Since the commencement of the action, Universal
Map has subsequently agreed to dismiss America Online from the action without
prejudice. Universal Map is seeking to recover $1,000,000 in damages and/or
specific performance of the alleged agreement, plus costs and fees. MapQuest
and Universal Map have entered into a stipulation whereby MapQuest has agreed
not to frustrate the ability of Universal Map to enforce a judgment for
specific performance against MapQuest if so rendered. MapQuest denies liability
and intends to vigorously defend the action.
ICM Conferences, Inc. and International Championship Management, Inc. filed
a claim against MapQuest in the Superior Court of the State of California for
the County of San Francisco alleging breach of contract relating to the lease
of exhibition space. The parties seek to recover $46,610, plus costs and
reasonable fees incurred. MapQuest denies any liability and intends to
vigorously defend the action.
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MAPQUEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the historical
financial information and the notes thereto included in this proxy
statement/prospectus and MapQuest's financial statements and notes thereto.
The following discussion of the financial condition and results of
operations of MapQuest contains forward-looking statements relating to future
events and the future performance of MapQuest within the meaning of Section 27a
of the Securities Act of 1993, as amended, and Section 21e of the Securities
Exchange Act of 1934, as amended. Investors are cautioned that such statements
involve risks and uncertainties. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions
that are difficult to predict; therefore, actual results and outcomes may
differ materially from what is expressed or forecasted in any such forward-
looking statements. Such risks and uncertainties include those set forth in
MapQuest's registration statement on Form S-1, particularly under the section
entitled "Risk Factors." MapQuest undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Overview
MapQuest is a leading online provider of mapping and destination
information. MapQuest provides comprehensive online mapping solutions to
businesses and provides customized maps, destination information and driving
directions to consumers. MapQuest has three lines of business: Internet
business products and services, Internet consumer products and services and
digital mapping products and services.
Since 1967, MapQuest has provided traditional cartographic products and
services. In 1989, MapQuest began offering digital mapping products and
services. Beginning in 1991, MapQuest introduced map-generating products and
services which evolved into online mapping and routing applications. During the
first quarter of 1996, MapQuest launched mapquest.com and initiated sales and
marketing efforts to build brand awareness and to generate advertising revenues
from its website. In the third quarter of 1996, MapQuest began providing online
mapping and destination information products and services from its website to
companies with an Internet presence and to high-traffic websites offering users
a wide range of information and services on their websites, which are commonly
referred to as portal websites. In 1997, MapQuest increased its focus on its
Internet business and consumer lines of business by devoting significant
resources to the mapquest.com web site and to its other Internet products and
services. In 1998, MapQuest introduced its MapQuest Enterprise Server.
MapQuest's Enterprise Server is designed to provide mapping and routing
capability to high volume websites.
MapQuest derives its revenues from three lines of business:
Business Products and Services. MapQuest provides Internet products and
services to companies with an Internet presence and to portal web sites. These
companies typically contract for MapQuest's services on an annual basis in
consideration for a service fee based on usage and an initial set-up fee.
MapQuest recognizes service fees ratably over the period of the service.
Revenues from the set-up fee are recognized upon completion of the related
installation services. Revenues for software and data licenses relating to
MapQuest business products are recognized upon delivery of the product.
Further, under those agreements where MapQuest has a maintenance or upgrade
obligation, MapQuest recognizes revenue for these obligations over the period
of the obligation. Revenues from systems integration contracts, typically long-
term fixed-price contracts, are recognized on the percentage-of-completion
method. MapQuest has also historically provided business products and services
for non-Internet applications by licensing software and data and by providing
professional services on a time and material basis or a fixed-fee basis.
Consumer Products and Services. Through mapquest.com, MapQuest derives
revenues primarily from the sale of advertising and sponsorships. Advertising
rates vary depending on whether the advertisements are
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delivered to a general audience or a targeted audience based on specific
geographic location. Advertising revenues are typically recognized ratably over
the period in which the advertisements are displayed, provided that no
significant obligations remain and the collection of the resulting receivable
is likely. MapQuest may guarantee its advertisers a pre-set level of
impressions on mapquest.com. Impression refers to a delivery of an
advertisement to a user. If the guaranteed impressions are not met, MapQuest
defers recognition of the corresponding revenue until the guaranteed
impressions are achieved. Sponsorship contracts may have longer terms and may
allow sponsors to be exclusive sponsors of portions of mapquest.com or
particular advertising categories.
Digital Mapping Products and Services. MapQuest derives revenues from
providing digital mapping services to businesses and from the sale of mapping
products to distributors, retailers, and corporate customers. MapQuest
typically receives fees and payments on a time and material basis or a fixed
fee basis. Revenues from these services are recognized when the projects are
completed. In addition, revenues from long-term contracts are recognized on the
percentage-of-completion method, measured as the number of hours incurred to
date as a percentage of estimated total labor hours for each contract. MapQuest
also licenses software and data for a license fee and/or royalties. License
fees are recognized upon delivery of the software and data. Royalty revenue is
recognized upon receipt of payment. With respect to the sale of mapping
products, MapQuest is paid negotiated amounts, depending on volume, from
retailers and distributors, subject to minimum sales and return arrangements.
As a result of MapQuest's relatively recent focus on the Internet and the
emerging nature of the Internet markets in which it competes, MapQuest is
limited in its ability to accurately forecast its revenue. MapQuest's current
and future expense levels are based largely on its estimates of future revenue
and are to a large extent fixed. Accordingly, MapQuest may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and a shortfall in revenue in relation to MapQuest's expectations could have a
material adverse effect on MapQuest's business, financial condition and results
of operations. In addition, MapQuest currently intends to significantly
increase its operating expenses to develop and enhance its technology, to
create, introduce and enhance its service offerings, to acquire and develop
content, to fund increased sales and marketing expenses and to enter into new
strategic agreements. To the extent that such expenses precede or are not
subsequently followed by increased revenue, MapQuest's business, financial
condition and results of operations could be materially adversely affected.
MapQuest's annual operating results are likely to fluctuate significantly in
the future due to a variety of factors, many of which are outside MapQuest's
control. Factors that will influence MapQuest's operating results include: (i)
MapQuest's ability to retain existing portals, and online clients, to attract
new online clients at a steady rate and to maintain business customer and end-
user satisfaction; (ii) the announcement or introduction of new websites, Web
stores, services and products by MapQuest and its competitors; (iii) price
competition and margin erosion; (iv) the rate at which the online market for
the purchase of products and services continues to emerge; (v) MapQuest's
ability to upgrade and develop its systems and infrastructure; (vi) the
termination of any account that represents a significant portion of its sales;
(vii) technical difficulties or system downtime; (viii) MapQuest's ability to
attract new personnel in a timely and effective manner; (ix) MapQuest's ability
to increase the proportion of sales from portals and online clients; (x) the
failure of Internet bandwidth to increase over time and/or an increase in the
cost to end-users of obtaining or utilizing Internet bandwidth; and (xi)
certain U.S. and foreign government regulations. MapQuest also may, as
inducement to obtain certain strategic contracts, offer favorable pricing terms
to portals, software publishers and online retailers which would reduce its
gross margins. As a result, MapQuest believes that it will continue to incur
operating losses in the future. Due to the foregoing factors, MapQuest's annual
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the common stock would likely be
materially adversely affected.
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Results of Operations
The following table sets forth the results of operations for MapQuest
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Nine Months Ended Year ended
September 30, December 31,
------------------ -------------------
1999 1998 1998 1997 1996
-------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue
Business........................... 36.5% 27.4% 26.4% 22.2% 35.9%
Consumer........................... 18.6% 4.5% 5.6% 6.0% 0.7%
-------- -------- ----- ----- -----
Total business and consumer........ 55.1% 31.8% 32.0% 28.2% 36.6%
Digital Mapping.................... 44.9% 68.2% 68.0% 71.8% 63.4%
-------- -------- ----- ----- -----
Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues
Business and consumer.............. 29.5% 19.8% 19.5% 21.2% 22.1%
Digital mapping.................... 34.9% 50.5% 51.9% 50.3% 40.8%
-------- -------- ----- ----- -----
Total cost of revenues............. 64.4% 70.3% 71.4% 71.5% 62.9%
-------- -------- ----- ----- -----
Gross profit......................... 35.6% 29.7% 28.6% 28.5% 37.1%
Operating expenses
Sales and marketing................ 55.4% 20.8% 21.2% 33.9% 22.8%
Product development................ 16.4% 13.5% 12.0% 23.6% 13.4%
General and administrative......... 14.2% 8.5% 9.4% 8.5% 9.7%
-------- -------- ----- ----- -----
Total operating expenses........... 86.0% 42.9% 42.6% 65.9% 45.9%
-------- -------- ----- ----- -----
Operating loss....................... -50.5% -13.2% -14.0% -37.4% -8.8%
Interest income and expense, net..... 4.4% 0.3% 0.2% 0.6% 1.0%
Other income......................... 0.8% 1.3% 1.0% 1.2% 1.2%
-------- -------- ----- ----- -----
Loss before provision for income
taxes............................... -45.3% -11.7% -12.8% -35.5% -6.6%
Provision for income taxes........... 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- ----- ----- -----
Net loss............................. -45.3% -11.7% -12.8% -35.5% -6.6%
======== ======== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1999 as Compared to 1998
Revenues
Revenues were $23.4 million for the first nine months of 1999, compared to
$17.8 million for the corresponding period in 1998. The increase in revenues
for the first nine months of 1999 compared to the same period in 1998 is
primarily attributable to increased business and consumer Internet related
revenues. As a result of MapQuest's increased focus on positioning itself as an
Internet company, the number of business customers using MapQuest's Internet
mapping services increased from 313 at September 30, 1998 to 780 at September
30, 1999, an increase of 149%. The consumer segment also experienced increases
in revenue as a result of increased resources devoted to direct sales of
advertising in addition to MapQuest's third-party advertising sales
representative. These increases reflected in 1999 were partially offset by
lower digital mapping services volume as compared to the same period in 1998.
For the nine-months ended September 30, 1999, as a percent of total revenues,
business and consumer related revenues and digital mapping revenues were 55.1%
and 44.9%, respectively, compared to 31.8% and 68.2% respectively for the nine-
months ended September 30, 1998. MapQuest expects its percentage of business
and consumer related revenues to continue to increase in the future.
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Cost of Revenues
Cost of revenues consists primarily of compensation for operations personnel
and related operations costs, including depreciation of operating assets,
third-party data and royalties, print and paper costs for printed products, and
subcontractor costs. Cost of revenues increased to $15.1 million for the first
nine months of 1999, as compared to $12.6 million for the corresponding period
in 1998. This increase was primarily due to increased costs associated with
adding staff and related expenses to support the expansion of our Internet
products and services as traffic on the mapquest.com website grew and the
number of business clients increased.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel-related expenses, sales promotion expenses,
public relations expenses and costs of marketing materials. For the nine months
ended September 30, 1999, sales and marketing expenses were $13.0 million, or
55.4% of revenues. In comparison, the nine months ended September 30, 1998
sales and marketing expenses were $3.7 million, or 20.8% of revenues. This
increase is primarily attributable to MapQuest's marketing promotions and
advertising efforts as well as an increase to the number of sales and marketing
personnel and related expenses.
Product Development. Product development expenses consist primarily of the
costs of developing new products and services and modifying existing products
and services, including software and data. These costs consist primarily of
salaries for product development personnel and related expenses, contract labor
expense and consulting fees. Product development expenses were $3.8 million for
the nine months ended September 30, 1999, and $2.4 million for the nine months
ended September 30, 1998. As a percentage of revenues, these expenses were
16.4% for the nine-month period ended September 30, 1999 versus 13.5% for the
comparable period in 1998. This increase was primarily attributable to
increased business and consumer product development expenses.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for general corporate functions,
including executive, accounting and administrative personnel, and legal
expenses. General and administrative expenses were $3.3 million for the nine
months ended September 30, 1999 compared to $1.5 million for the nine months
ended September 30, 1998. As a percentage of revenues, these expenses were
14.2% for the nine-month period ended September 30, 1999, compared to 8.5% for
the nine-month period ended September 30, 1998. This increase was primarily
attributable to increased salaries and related expenses associated with hiring
additional personnel as a result of company growth. Additional costs related to
being a publicly held entity, including additional personnel, as well as
directors' and officers' liability insurance and professional services fees
were also incurred in 1999.
Interest Income and Expense, Net
Interest income was $1.0 million for the first nine months of 1999, compared
to $0.1 million for the corresponding period in 1998. This increase was due to
changes in average cash and cash equivalent and short-term investment balances
as a result of the proceeds received from the public offering in May 1999.
Income Taxes
MapQuest paid no income taxes for the nine months ended September 30, 1998
and 1999, as MapQuest incurred net operating losses for those periods. Due to
the uncertainty of future profitability, MapQuest has not recognized any
potential future tax benefits of net operating loss carryforwards.
Year Ended December 31, 1998 as Compared to 1997
Revenues
Total revenues increased by $3.3 million from $21.4 million in 1997 to $24.7
million in 1998. Revenue for the top 10 customers of MapQuest as a percent of
total revenue decreased from 44.5% in 1997 to 27.2% in 1998.
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Business Revenues. Business revenues increased by $1.7 million from $4.8
million in 1997 to $6.5 million in 1998. This increase was primarily due to an
increase in the number of businesses using MapQuest's products and services and
the introduction of additional products and services. In addition, during 1998
MapQuest introduced its Enterprise Server products and services. MapQuest
expects its business products and services revenues to become a greater
percentage of its total revenue in the future. As a percent of total revenues,
business revenues increased from 22.2% in 1997 to 26.4% in 1998.
Consumer Revenues. Consumer revenues increased $0.1 million from $1.3
million in 1997 to $1.4 million in 1998. This increase was due to increased
advertising sales, including advertisements placed on its website and
sponsorship advertisements. During 1998, MapQuest changed its third-party
advertising sales representative organization. Consequently, MapQuest did not
recognize revenues from third-party advertising sales representative
organizations during this transition. MapQuest expects to continue to derive
revenue from selling advertisements on mapquest.com and also expects that
revenues from its consumer business will increase as a percentage of its total
revenue. As a percent of total revenues, consumer revenues decreased from 6.0%
in 1997 to 5.6% in 1998.
Digital Mapping Revenues. Digital mapping revenues increased by $1.4 million
from $15.4 million in 1997 to $16.8 million in 1998. This increase was
primarily due to increased sales of printed products, including the National
Geographic Road Atlas and the National Geographic American Road Atlas. MapQuest
expects digital mapping revenues will decrease as a percentage of total revenue
as MapQuest believes the growth in this business line to be slower than that of
the Internet consumer and business lines of business. As a percent of total
revenues, digital mapping revenues decreased from 71.8% in 1997 to 68.0% in
1998.
Cost of Revenues
Cost of revenues consists primarily of compensation for operations personnel
and related operations costs, including depreciation of operating assets,
third-party royalties, print and paper costs for printed products, and
subcontractor costs. Cost of revenues increased by $2.3 million from $15.3
million in 1997 to $17.6 million in 1998. This increase was primarily due to
the increased cost of printed products for distributors, retailers and
corporate customers and higher depreciation costs associated with computer
hardware purchases.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel related expenses, sales promotion expenses,
public relations expenses and costs of marketing materials. Sales and marketing
expenses decreased by $2.1 million from $7.3 million in 1997 to $5.2 million in
1998. This decrease reflects lower promotional costs and personnel expenses as
MapQuest implemented expense reduction efforts in early 1998. These expense
reductions included a reduction in personnel, decreased travel expenses and
lower spending for sales promotions involving trade shows and public relations.
These expense reduction efforts were undertaken as MapQuest revised its
business strategy.
Product Development. Product development expenses are primarily the costs of
developing new products and services and modifying existing products and
services, including software and data. These expenses consist primarily of
salaries for product development personnel and related expenses, contract labor
expense, and consulting fees. Product development expenses decreased by $2.0
million from $5.0 million in 1997 to $3.0 million in 1998. The decrease from
1997 to 1998 was primarily due to decreases in personnel and related expenses
as MapQuest implemented the expense reduction efforts described in the
preceding paragraph in early 1998. MapQuest plans to increase product
development expenditures significantly for MapQuest's business and consumer
products and services in absolute dollars in future periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for MapQuest's executive, accounting
and administrative personnel, professional services and other general corporate
expenses. These expenses increased by $0.5 million from $1.8 million in 1997 to
$2.3 million in 1998. The increase from 1997 to 1998 was primarily due to costs
associated with the hiring of a new Chief Executive Officer and for additional
professional services. MapQuest anticipates hiring additional personnel and
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incurring additional costs related to being a publicly held entity, including
directors' and officers' liability insurance, investor relations programs and
professional service fees.
Interest Income and Expense, Net
Interest income was $0.1 million in 1997 and 1998.
Other Income
Other income decreased $0.1 million from $0.3 million in 1997 to $0.2
million in 1998. This decrease was primarily due to lower equity in the
earnings of a joint venture that serves a number of automobile clubs with trip
routing services.
Income Taxes
MapQuest paid no income taxes in 1997 or 1998. Other than for the fiscal
year ended December 31, 1995, MapQuest has incurred a net loss for each period
since incorporation. As of December 31, 1998, MapQuest had approximately $11.7
million of net operating loss carryforwards for federal income tax purposes,
which expire beginning in 2009. Due to the uncertainty of future profitability,
a valuation allowance equal to the deferred tax asset has been recorded.
Changes in ownership resulting from transactions among MapQuest's stockholders
and sales of common stock may limit the future annual realization of the tax
net operating loss carryforwards under Section 382 of the Internal Revenue Code
of 1986.
Year Ended December 31, 1997 as Compared to 1996
Revenues
Total revenues increased by $1.8 million from $19.6 million in 1996 to $21.4
million in 1997. Revenue for the top 10 customers of MapQuest as a percent of
total revenue decreased from 58.3% in 1996 to 44.5% in 1997.
Business Revenues. Business revenues decreased by $2.2 million from $7.0
million in 1996 to $4.8 million in 1997 as MapQuest transitioned its focus from
non-Internet client/server based products and services to Internet products and
services.
Consumer Revenues. Consumer revenues increased $1.2 million from $0.1
million in 1996 to $1.3 million in 1997. This increase was primarily due to
increased advertising sales on mapquest.com.
Digital Mapping Revenues. Digital mapping revenues increased $3.0 million
from $12.4 million in 1996 to $15.4 million in 1997. This increase reflects
increased sales from printed products for retail, wholesale and corporate
customers, particularly the introduction of the National Geographic Road Atlas.
Cost of Revenues
Cost of revenues increased by $3.0 million from $12.3 million in 1996 to
$15.3 million in 1997. This increase was primarily due to the increased cost of
printed products for distributors, retailers and corporate customers and
increased costs for operational personnel and related costs.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased $2.8 million
from $4.5 million in 1996 to $7.3 million in 1997. This increase was primarily
due to increased expenses for the hiring of additional personnel and for
increased promotional expenses.
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Product Development. Product development expenses increased $2.4 million
from $2.6 million in 1996 to $5.0 million in 1997. This increase was primarily
the result of the development of the National Geographic Road Atlas and the
hiring of additional personnel to develop MapQuest's Internet products and
services.
General and Administrative. General and administrative expenses decreased
$0.1 million from $1.9 million in 1996 to $1.8 million in 1997. This decrease
was primarily due to lower personnel costs resulting from expense reduction
efforts as MapQuest revised its business strategy.
Interest Income and Expense, Net
Interest income decreased $0.1 million from $0.2 million in 1996 to $0.1
million in 1997. This decrease resulted primarily from changes in average cash
and cash equivalent balances.
Other Income
Other income remained constant at $0.2 million in 1996 and in 1997.
Income Taxes
MapQuest paid no income taxes in 1997. Income taxes paid in 1996 were less
than $0.1 million.
Liquidity and Capital Resources
MapQuest has financed its operations to date primarily through the public
sale of common stock, private placement of equity securities, funds from
operations and bank borrowings. As of September 30, 1999, MapQuest had $29.7
million of cash and cash equivalents and $17.9 million in short-term
investments.
Net cash used in operating activities was $1.1 million for the nine months
ended September 30,1998, and $10.6 million for the nine months ended September
30, 1999. In both periods cash used by operating activities was primarily a
result of net losses.
Net cash used in operating activities was $9.5 million in 1997 and $0.8
million in 1998. In 1997, cash used by operating activities was primarily a
result of a net loss and increased working capital. In 1998, cash used by
operating activities was primarily a result of a net loss.
Net cash used in investing activities was $0.9 million for the nine months
ended September 30, 1998 and $21.6 million for the nine months ended September
30, 1999. This increase was due to the purchase of short-term investments of
$17.9 million with a portion of the initial public offering proceeds and a $2.8
million increase related to property and equipment purchases over 1998 levels.
Net cash used in investing activities was $1.5 million in 1996, $1.3 million
in 1997 and $1.1 million in 1998. Cash used in investing activities in each
period was primarily related to purchases of property and equipment. In
addition, in 1996 MapQuest acquired the assets of a map specialty supplier.
Net cash used in financing activities was less than $0.1 million for the
nine months ended September 30,1998, and net cash provided by financing
activities was $61.3 million for the nine months ended September 30, 1999. In
1999, the net amount of $61.3 million resulted primarily from the sale of
common stock, net of the redemption of preferred stock.
Net cash provided by financing activities was $11.4 million in 1997. In
1997, cash provided by financing activities was primarily attributable to net
proceeds from the issuance of convertible preferred stock.
MapQuest's capital commitments for the nine month period ended September 30,
1998 and the nine month period ended September 30, 1999 consisted of
obligations under facilities and operating leases. Management
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anticipates that it will experience an increase in its capital expenditures and
lease commitments consistent with its anticipated growth in operations,
infrastructure and personnel, in addition to committing resources to promoting
its brand name and building marketing and sales forces.
In May 1999, the Company completed an initial public offering of 4,600,000
shares of its common stock at a public offering price of $15 per share, which
generated approximately $62.1 million in net proceeds to MapQuest.
Upon the closing of the Company's initial public offering in May 1999, all
of the outstanding shares of MapQuest's Series A and Series C Preferred Stock
were converted into 27,122,455 shares of common stock and all of the
outstanding shares of MapQuest's Series B Preferred Stock were redeemed for
approximately $8.6 million.
During June 1999, the underwriters of MapQuest's initial public offering
exercised an over-allotment option for 597,990 shares of MapQuest's common
stock at the initial public offering price of $15 per share, which generated
approximately $7.7 million in net proceeds to MapQuest.
MapQuest believes its existing cash and cash equivalents, and short-term
investments will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next twelve months. Our
future capital requirements will depend on many factors, including the level of
investment we make in new technologies and improvements to existing
technologies and the levels of monthly expenses required to launch new products
and services.
New Accounting Pronouncements
The Securities and Exchange Commission and the accounting standards setters
have been challenging, clarifying and determining the accounting by Internet
companies for various kinds of revenues and costs. Recently, the Securities and
Exchange Commission's staff issued Staff Accounting Bulletin 101 (SAB 101)
which addresses revenue recognition and display issues. The Emerging Issues
Task Force (EITF) of the Financial Accounting Standards Board has reached a
consensus position on several issues. MapQuest is evaluating the impact of the
SAB and EITF rules to determine whether changes in accounting methods are
required. The EITF will be considering other rule changes that could also
require changes to MapQuest's accounting methods.
Quantitative and Qualitative Disclosures About Market Risk
Net proceeds from the initial public offering have been invested in short-
term, interest bearing, investment grade obligations with various maturities
ranging from one day to less than six months. Therefore, in the near term,
MapQuest's primary exposure to market risk will result from interest rates
associated with these investments.
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COMPARISON OF RIGHTS OF HOLDERS OF MAPQUEST COMMON STOCK AND
AMERICA ONLINE COMMON STOCK
America Online and MapQuest are both organized under the laws of the State
of Delaware. Any differences, therefore, in the rights of holders of America
Online capital stock and MapQuest capital stock arise primarily from
differences in their respective certificates of incorporation and by-laws. Upon
completion of the merger, holders of MapQuest common stock will become holders
of America Online common stock and their rights will be governed by Delaware
law, the America Online restated certificate of incorporation and the America
Online restated by-laws.
This section of the proxy statement/prospectus describes the material
differences between the rights of America Online stockholders and MapQuest
stockholders. This section does not include a complete description of all
differences among the rights of these stockholders, nor does it include a
complete description of the specific rights of these stockholders. In addition,
the identification of some of the differences in the rights of these
stockholders as material is not intended to indicate that other differences
that are equally important do not exist. You are urged to read carefully the
relevant provisions of Delaware law, as well as the restated certificate of
incorporation and restated by-laws of America Online and the certificate of
incorporation and by-laws of MapQuest.
Capitalization
Common Stock
Both MapQuest and America Online have only one class of common stock issued
and outstanding. All shares of America Online common stock are identical and
entitle each holder to identical rights and privileges.
Holders of both America Online and MapQuest common stock have the right to
cast one vote for each share of their respective common stock held of record on
all matters submitted to a vote of stockholders, including the election of
directors. Neither holders of America Online common stock nor holders of
MapQuest common stock have cumulative voting rights.
Preferred Stock
Both of our certificates of incorporation provide that our boards of
directors are authorized to provide for the issuance of shares of undesignated
preferred stock in one or more series, and to fix the designations, powers,
preferences and rights of the shares of each series and any qualifications,
limitations or restrictions thereof.
The number of authorized shares of America Online undesignated preferred
stock may be increased by the affirmative vote of the holders of a majority of
America Online's common stock, without a vote of the holders of preferred
stock, unless their vote is required pursuant to the terms of any preferred
stock then outstanding. The number of authorized shares of undesignated
preferred stock of America Online may be reduced or eliminated by the
affirmative vote of the holders of 80% of the outstanding capital stock of
America Online entitled to vote in the election of directors, voting together
as a single class.
Classified Board of Directors
Delaware law provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Both MapQuest's and
America Online's boards of directors are divided into three classes, as nearly
equal in size as possible, with one class being elected annually. Members of
America Online's board of directors are elected to serve a term of three years
and until their successors are elected and qualified. America Online's
classified board of directors may make it more difficult for a third party to
gain control of America Online.
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Number of Directors
America Online's board of directors currently has eleven members. The number
of directors on America Online's board may only be changed by a vote of a
majority of the directors, subject to the rights of the holders of any
outstanding series of America Online preferred stock to elect additional
directors. There is currently no preferred stock of America Online outstanding.
MapQuest's board of directors currently consists of five directors. The
number of directors on MapQuest's board shall not be less than three nor more
than nine, the exact number of which is fixed from time to time by the board of
directors.
Removal of Directors
America Online directors, or the entire America Online board, may be removed
for cause by the affirmative vote of the holders of at least 80% of the
outstanding shares of capital stock of America Online entitled to vote in the
election of directors, voting as a single class and subject to the rights of
the holders of any outstanding series of America Online preferred stock. There
is currently no preferred stock of America Online outstanding.
America Online's restated certificate of incorporation states that "cause"
means:
. conviction of a felony,
. declaration of unsound mind by order of a court,
. gross dereliction of duty, and
. commission of an action which constitutes intentional misconduct or a
knowing violation of law if that action results in both an improper
substantial personal benefit and a material injury to America Online.
MapQuest directors, or the entire MapQuest board, may be removed for cause
by the affirmative vote of the holders of a majority of the MapQuest shares
then entitled to vote in the election of directors. Neither MapQuest's
certificate of incorporation nor by-laws defines "cause." Delaware law provides
that unless otherwise provided in the certificate of incorporation or by-laws
of a company, any director can be removed, with or without cause, by the
holders of a majority of the shares entitled to vote for the election of
directors of such company.
Filling Vacancies on the Board of Directors
Vacancies in either of our boards of directors, including vacancies
resulting from newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by a majority vote of the
directors then in office, though less than a quorum. Delaware law provides that
if, at the time of the filling of any vacancy or newly created directorship,
the directors then in office constitute less than a majority of the authorized
number of directors, the Chancery Court for the State of Delaware may, upon
application of any stockholder or stockholders holding at least 10% of the
total voting power of the capital stock, order an election to be held to fill
the vacancy or replace the directors selected by the directors then in office.
Newly created directorships or decreases in directorships in both of our
boards of directors are to be apportioned among the classes of directors so as
to make all classes as nearly equal in number as practicable, provided that no
decreases in the number of directors on either of our board of directors may
shorten the term of any director then in office.
To the extent reasonably possible, any newly created America Online
directorship will be added to the class of directors whose term of office is to
expire at the latest date following the creation of that directorship,
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unless otherwise provided for by resolution of the majority of the directors
then in office. Any newly eliminated America Online directorship will be
subtracted from the class whose office is to expire at the earliest date
following the elimination of the directorship, unless otherwise provided for by
resolution of the majority of the directors then in office.
Limits on Stockholder Action by Written Consent
Delaware law provides that, unless otherwise stated in the certificate of
incorporation, any action which may be taken at an annual meeting or special
meeting of stockholders may be taken without a meeting, if a consent in writing
is signed by the holders of the outstanding stock having the minimum number of
votes necessary to authorize the action at a meeting of stockholders.
The America Online restated certificate of incorporation limits
stockholders' ability to act by written consent by requiring any action by
written consent to be unanimous.
MapQuest stockholders may not take action by written consent.
Ability to Call Special Meetings
Special meetings of America Online stockholders may be called by America
Online's board of directors, by affirmative vote of a majority of the total
number of authorized directors at that time, regardless of any vacancies, or by
the chief executive officer.
Special meetings of MapQuest stockholders may be called by a majority of
MapQuest's board of directors, by the chairman of the board, by its president
or at the request of stockholders holding at least 20% of the outstanding
MapQuest shares of stock generally entitled to vote.
Advance Notice Provisions for Stockholder Nominations and Proposals
Under the America Online restated by-laws, in order for a stockholder to
nominate candidates for election to America Online's board of directors at any
annual or any special stockholder meeting at which the board of directors has
determined that directors will be elected, timely written notice must be given
to the Secretary of America Online before the annual or special meeting.
Similarly, in order for a stockholder to propose business to be brought before
any annual stockholder meeting, timely written notice must be given to the
Secretary of America Online before the annual or special meeting.
Under America Online's restated by-laws, to be timely, notice of stockholder
nominations or proposals to be made at an annual stockholder meeting must be
received by the secretary of America Online no less than 60 days nor more than
90 days before the first anniversary of the preceding year's annual meeting. If
the date of the annual meeting is more than 30 days before or more than 60 days
after the anniversary of the preceding year's annual meeting, notice will also
be timely if delivered within 10 days of the date on which public announcement
of the meeting was first made by America Online.
In addition, if the number of directors to be elected is increased and no
public announcement is made by America Online naming all of the nominees or
specifying the size of the increased board of directors at least 70 days before
the first anniversary of the preceding year's annual meeting, or, if the date
of the annual meeting is more than 30 days before or 60 days after the
anniversary of the preceding year's annual meeting, at least 70 days before the
annual meeting, then a stockholder's notice will be considered timely, with
respect to the nominees for any new positions created by the increase, if it is
delivered to the secretary of America Online within 10 days of the date on
which public announcement of the meeting was first made by America Online.
A stockholder's notice to America Online must set forth all of the
following:
. all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable
law, relating to any person that the stockholder proposes
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to nominate for election or re-election as a director, including that
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected,
. a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed, and
. the stockholder's name and address as they appear on America Online's
books and the class and number of shares of America Online which are
beneficially owned by the stockholder.
Stockholder nominations and proposals will not be brought before any
America Online stockholder meeting unless the nomination or proposal was
brought before the meeting in accordance with America Online's stockholder
advance notice procedure.
The chairman of the America Online stockholder meeting has the power to
determine whether the nomination or proposal was made by the stockholder in
accordance with the advance notice procedures set forth in America Online's
restated by-laws. If the chairman determines that the nomination or proposal
is not in compliance with America Online's advance notice procedures, the
chairman may declare that the defective proposal or nomination will be
disregarded.
The MapQuest by-laws allow stockholders to nominate candidates for election
to MapQuest's board of directors at any annual or any special stockholder
meeting at which the board of directors has determined that directors will be
elected. In addition, the by-laws allow stockholders to propose business to be
brought before any annual stockholder meeting. However, nominations and
proposals may only be made by a stockholder who has given timely written
notice to the secretary of MapQuest before the annual or special stockholder
meeting.
Under MapQuest's by-laws, to be timely, notice of stockholder nominations
to be made at an annual stockholder meeting must be received by the secretary
of MapQuest no less than 60 days before the first anniversary of the preceding
year's annual stockholder meeting. If the date of the annual meeting is more
than 30 days before or more than 60 days after the anniversary of the
preceding year's annual stockholder meeting, notice will also be timely if
delivered within 10 days of the date on which public announcement of the
meeting was first made by MapQuest.
Under MapQuest's by-laws, to be timely, notice of a stockholder nomination
for the election of directors to be made at a special stockholder meeting must
be received no less than 7 days following the date on which notice of the
special meeting was first made by MapQuest.
In addition, under the by-laws, to be timely, notice of stockholder to
propose business must be received by the secretary of MapQuest no less than 60
days prior to the annual meeting. If notice is given less than 70 days or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice to be timely must be received no later than 10 days
following the earlier of the day notice of the annual meeting was mailed or
publicly disclosed.
A stockholder's notice to MapQuest must set forth all of the following:
. all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable
law, relating to any person that the stockholder proposes to nominate
for election or re-election as a director, including that person's
written consent to being named in the proxy statement as a nominee and
to serving as a director if elected,
. the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated,
. a representation that the stockholder is a holder of record of stock of
the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice,
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. a description of all arrangements or understandings between the
stockholder, each nominee or any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are
to be made by the stockholder, and
. a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed.
Stockholder nominations and business proposals will not be brought before
any MapQuest stockholder meeting unless the nominations or proposal was brought
before the meeting in accordance with MapQuest's stockholder advance notice
procedure.
Amendment of Certificate of Incorporation
Under Delaware law, an amendment to the certificate of incorporation of a
corporation requires the approval of the corporation's board of directors and
the approval of holders of a majority of the outstanding stock entitled to vote
upon the proposed amendment, unless a higher vote is required by the
corporation's certificate of incorporation.
America Online's restated certificate of incorporation provides that the
affirmative vote of the holders of 80% or more of the voting power of all of
the then outstanding America Online capital stock entitled to vote generally in
the election of directors, voting together as a single class, is required to:
. reduce or eliminate the number of authorized shares of America Online
common stock or the number of authorized shares of America Online
preferred stock, or
. amend, repeal or adopt the provisions of America Online's restated
certificate of incorporation relating to:
. undesignated preferred stock,
. the board of directors, including the powers and authority expressly
conferred upon the board of directors, the number of members, board
classification, vacancies and removal,
. the manner in which stockholder action may be effected,
. amendments to America Online's restated certificate of incorporation
and restated by-laws,
. business combinations with interested stockholders of America
Online,
. indemnification of officers and directors of America Online, and
. the personal liability of directors of America Online or its
stockholders for breaches of fiduciary duty.
MapQuest's certificate of incorporation does not contain a provision that
requires a vote greater than that required by Delaware law in order to amend
its certificate of incorporation.
Amendment of By-laws
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal by-laws. In addition, a corporation may, in its certificate of
incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal the by-laws, even though the
board may also be delegated such power.
American Online's restated certificate of incorporation authorizes the
America Online board of directors to adopt, amend or repeal any provision of
America Online's restated by-laws by the affirmative vote of a majority of the
total number of authorized directors. American Online's restated certificate of
incorporation
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further provides that provisions of America Online's restated by-laws may be
adopted, amended and repealed by the affirmative vote of the holders of at
least 80% of the outstanding shares of capital stock entitled to vote in the
election of directors, voting together as a single class.
MapQuest's board of directors and stockholders have concurrent power to
adopt, amend or repeal MapQuest's by-laws. All such modifications must be
approved by either a majority of the entire board of directors or the holders
of a majority of the aggregate voting power of the outstanding capital stock
entitled to vote.
State Anti-Takeover Statutes
Under the business combination statute of Delaware law, a corporation is
prohibited from engaging in any business combination with an interested
stockholder who, together with its affiliates or associates, owns, or who
became an affiliate of the corporation and within a three-year period did own,
15% or more of the corporation's voting stock for a three-year period following
the time the stockholder became an interested stockholder, unless:
. prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
. the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
. at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at
an annual or special meeting and not by written consent, of at least 66
2/3% of the outstanding voting shares of the corporation, excluding
shares held by that interested stockholder.
A business combination generally includes:
. mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder;
. specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the restated certificate of
incorporation or by-laws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
Neither America Online nor MapQuest has adopted any provision in its
restated certificate of incorporation to "opt-out" of Section 203 and
therefore, Section 203 applies to both America Online and MapQuest.
Limitation on Personal Liability of Directors and Officers
Delaware law provides that a corporation may include in its certificate of
incorporation a provision limiting or eliminating the liability of its
directors to the corporation and its stockholders for monetary damages arising
from a breach of fiduciary duty, except for:
. a breach of the duty of loyalty to the corporation or its stockholders;
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. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. payment of a dividend or the repurchase or redemption of stock in
violation of Delaware law; or
. any transaction from which the director derived an improper personal
benefit.
Both of our respective certificates of incorporation provide that, to the
fullest extent Delaware law permits the limitation or elimination of the
liability of directors, none of our respective directors will be liable to
America Online or MapQuest, as applicable, or our respective stockholders for
monetary damages for breach of fiduciary duty as a director.
Indemnification of Directors and Officers
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action which they had no
reasonable cause to believe was unlawful.
In addition, Delaware law provides that a corporation may advance to a
director or officer expenses incurred in defending any action upon receipt of
an undertaking by the director or officer to repay the amount advanced if it is
ultimately determined that he or she is not entitled to indemnification.
Our respective certificates of incorporation and by-laws provide that any
person who is or was a party or is threatened to be a party to or is involved
in any action, suit, or proceeding, whether civil, criminal, administrative or
investigative, because that person is or was a director, officer or employee,
or is or was serving at the request of either of us as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, will be indemnified against expenses, including
attorney's fees, and held harmless by each of us to the fullest extent
permitted by the Delaware General Corporation Law. The indemnification rights
conferred by each of us are not exclusive of any other right to which persons
seeking indemnification may be entitled under any statute, our respective
certificates of incorporation or by-laws, any agreement, vote of stockholders
or disinterested directors or otherwise. In addition, each of us is authorized
to purchase and maintain insurance on behalf of its directors and officers.
Additionally, each of us may pay expenses incurred by our directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the final disposition of
that action, suit or proceeding. However, such payment will be made only if we
receive an undertaking by or on behalf of that director or officer to repay all
amounts advanced if it is ultimately determined that he or she is not entitled
to be indemnified by us, as authorized by our respective certificates of
incorporation and by-laws.
Fair Price Provision
America Online's restated certificate of incorporation contains a "fair
price" provision which states that certain "business combinations" with any
"interested stockholder" may not be completed without an affirmative vote of
the holders of at least 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of America Online, voting together as a
single class, in addition to any other vote required by America Online's
certificate of incorporation or Delaware law.
This fair price provision does not apply if the business combination will
have been approved either by a majority of the directors of America Online who
are not affiliated with the interested stockholder, of which there must be at
least two, or if certain price and procedural requirements, set forth in detail
in America Online's restated certificate of incorporation, are met.
The business combinations to which America Online's fair price provision
applies include:
. any merger or consolidation of America Online or any subsidiary with any
interested stockholder or any other corporation, whether or not itself
an interested stockholder, which is, or after the merger or
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consolidation, would be, an affiliate of an interested stockholder who
was an interested stockholder before the transaction,
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate of any interested
stockholder, of any assets of America Online or any subsidiary having an
aggregate fair market value, as determined in accordance with America
Online's restated certificate of incorporation, equaling or exceeding
10% or more of the assets of America Online,
. the issuance or transfer by America Online or any subsidiary, in one
transaction or a series of transactions, of any securities of America
Online or any subsidiary, to any interested stockholder or any affiliate
of any interested stockholder in exchange for cash, securities or other
property having an aggregate fair market value equaling or exceeding 10%
of the combined fair market value of the outstanding shares of voting
stock of America Online, except for any issuance or transfer pursuant to
an employee benefit plan of America Online or any subsidiary,
. the adoption of any plan or proposal for the liquidation or dissolution
of America Online proposed by or on behalf of an interested stockholder
or any affiliate of any interested stockholder, and
. any reclassification of securities, including any reverse stock split,
or recapitalization of America Online, or any merger or consolidation of
America Online with any of its subsidiaries or any other transaction
which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares of any class of equity or
convertible securities of America Online or any subsidiary which is
directly or indirectly owned by any interested stockholder or any
affiliate of any interested stockholder.
America Online's fair price provision defines an "interested stockholder" as
any person, other than America Online or any America Online holding company or
subsidiary, who or which:
. is the beneficial owner, directly or indirectly, of more than 15% of the
voting power of the outstanding voting stock of America Online,
. is an affiliate of America Online and at any time within the two-year
period immediately before the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the voting power of the
outstanding voting stock of America Online, and
. is an assignee of or has otherwise succeeded to any shares of voting
stock of America Online which were, at any time within the two-year
period immediately before the date in question, beneficially owned by
any interested stockholder, if the assignment or succession did not
occur as part of an initial public offering.
The "fair price" provision may deter a purchaser from using two-tiered
pricing and similar unfair or discriminatory tactics in an attempt to acquire
America Online. The provision could also have the effect of discouraging a
third party from making a tender or exchange offer for America Online, even
though an offer by a third party might be beneficial to America Online and its
stockholders.
MapQuest's certificate of incorporation and by-laws do not contain a
provision similar to the fair price provision that is contained in America
Online's restated certificate of incorporation.
Stockholder Rights Plan
In 1998, America Online adopted a stockholder rights plan pursuant to a
rights agreement with BankBoston, N.A., as rights agent. Set forth below is a
summary of the material provisions of the rights agreement. The summary does
not include a complete description of all of the terms of the rights agreement.
You are urged to read carefully the relevant provisions of America Online's
rights plan, copies of which will be sent to America Online stockholders upon
request. See "Where You Can Find More Information."
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Exercisability of Rights. Under the America Online rights agreement, one
right, referred to as an America Online right, attaches to each share of
America Online common stock outstanding and, when exercisable, entitles the
registered holder to purchase from America Online one quarter of one one-
thousandth of a share of America Online series A-1 preferred stock at an
initial purchase price of $900, subject to antidilution adjustments in the
event of a stock split, stock dividend or similar transaction with respect to
America Online series A-1 preferred stock.
The America Online rights will not become exercisable until the earlier of:
. ten days following a public announcement that a person has become the
beneficial owner of 15% or more of the AOL common stock then
outstanding;
. ten days following the public disclosure of facts indicating that a
person has become the beneficial owner of 15% or more of the America
Online common stock then outstanding; and
. ten business days, or such later date as may be determined by the board
of directors of America Online, following the commencement of, or the
announcement of an intention to commence, a tender offer or exchange
offer that would result in a person becoming the beneficial owner of 15%
or more of the America Online common stock then outstanding.
In connection with the proposed merger between America Online and Time
Warner, the America Online rights agreement was amended to provide that neither
Time Warner nor AOL Time Warner will cause the America Online rights to become
exercisable solely by reason of that merger.
"Flip In" Feature. In the event a person becomes the beneficial owner of 15%
or more of the America Online common stock outstanding, each holder of an
America Online right, except for that person, will have the right to acquire,
upon exercise of the America Online right, instead of one quarter of one-
thousandth of a share of America Online series A-1 preferred stock, shares of
America Online common stock having a value equal to twice the exercise price of
the America Online right. For example, if we assume that the initial purchase
price of $900 is in effect on the date that the flip-in feature of the America
Online rights is exercised, any holder of an America Online right, except for
the person that has become the beneficial owner of 15% or more of the America
Online common stock then outstanding, may exercise his or her America Online
right by paying to America Online $900 in order to receive from America Online
shares of America Online common stock having a value equal to $1,800.
"Exchange" Feature. At any time after a person becomes the beneficial owner
of 15% or more, but less than 50%, of the America Online common stock then
outstanding, the board of directors of America Online may, at its option,
exchange all or some of the America Online rights, except for those held by
such person, for America Online common stock at an exchange ratio of one share
of America Online common stock for each America Online right, subject to
adjustment, and cash instead of fractional shares, if any. Use of this exchange
feature means that eligible America Online rights holders would not have to pay
a purchase price before receiving shares of America Online common stock.
"Flip Over" Feature. In the event that, after a person acquires 15% or more
of the America Online common stock then outstanding:
. America Online merges into another entity;
. an acquiring entity merges into America Online; or
. America Online sells more than 50% of its assets or earning power,
then each holder of an America Online right, except for a person that is the
beneficial owner of 15% or more of the America Online common stock then
outstanding, will have the right to receive, upon exercise of the America
Online right, the number of shares of the acquiring company's capital stock
with the greatest voting power having a value equal to twice the exercise price
of the America Online right.
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Redemption of Rights. At any time prior to the earlier to occur of:
. public disclosure that a person has become the beneficial owner of 15%
or more of the America Online common stock then outstanding; and
. May 12, 2008,
the board of directors of America Online may redeem all of the America Online
rights at a redemption price of $0.001 per right, subject to adjustment. The
right to exercise the America Online rights, as described under "Rights Plan-
Exercisability of Rights," will terminate upon redemption, and at that time,
the holders of the America Online rights will have the right to receive only
the redemption price for each America Online right they hold.
Amendment of Rights. At any time before a person or group becomes the
beneficial owner of 15% or more of the America Online common stock then
outstanding, the terms of the existing America Online rights agreement may be
amended by the board of directors of America Online without the approval of the
holders of the rights. However, after the date any person acquires at least 15%
of America Online's outstanding common stock, the rights agreement may not be
amended in any manner that would adversely affect the interests of the holders
of the America Online rights, excluding the interests of the acquiror.
Termination of Rights. If not previously exercised, the America Online
rights will expire on May 12, 2008, unless America Online earlier redeems or
exchanges the America Online rights or extends the expiration date.
Anti-Takeover Effects. The America Online rights have anti-takeover effects.
Once the America Online rights have become exercisable, in most cases the
America Online rights will cause substantial dilution to a person that attempts
to acquire or merge with America Online. Accordingly, the existence of the
America Online rights may deter potential acquirors from making a takeover
proposal or a tender offer. The America Online rights should not interfere with
any merger or other business combination approved by the board of directors of
America Online since America Online may redeem the America Online rights as and
since a transaction approved by the America Online board of directors would not
cause the America Online rights to become exercisable.
Series A-1 Preferred Stock. In connection with the creation of the America
Online rights, the board of directors of America Online authorized the issuance
of 500,000 shares of America Online preferred stock designated as America
Online series A-1 junior participating preferred stock.
America Online designed the dividend, liquidation, voting and redemption
features of the America Online series A-1 preferred stock so that the value of
one quarter of one-thousandth of a share of America Online series A-1 preferred
stock approximates the value of one share of America Online common stock.
Shares of America Online series A-1 preferred stock may only be purchased after
the America Online rights have become exercisable.
The rights of the America Online series A-1 preferred stock as to dividends,
liquidation and voting, and in the event of mergers or consolidations, are
protected by customary antidilution provisions.
MapQuest has not entered into a stockholder's rights agreement.
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LEGAL OPINION
The validity of the shares of America Online common stock offered by this
proxy statement/prospectus will be passed upon for America Online by Simpson
Thacher & Bartlett.
Mayer, Brown & Platt, counsel for MapQuest, and Simpson Thacher & Bartlett,
counsel for America Online, will pass upon certain Federal income tax
consequences of the merger for MapQuest and America Online, respectively.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of America Online, Inc. included in its 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 proxy statement/prospectus and elsewhere
in the registration statement. These financial statements are incorporated by
reference in reliance on Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of MapQuest.com, Inc. as of December 31, 1998
and 1997, and for each of the three years in the period ended December 31,
1998, as set forth in their reports. These financial statements and schedule
are included in this proxy statement/prospectus and elsewhere in this
registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of Time Warner Inc. and Time Warner
Entertainment Company, L.P. included in Time Warner Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998 as amended by Form 10-K/A dated
June 28, 1999, as set forth in their reports, which are incorporated by
reference in this proxy statement/prospectus and elsewhere in the registration
statement. These consolidated financial statements and schedules are
incorporated by reference in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF MAPQUEST STOCKHOLDERS IF
THE MERGER IS NOT COMPLETED
If the merger is not completed, MapQuest will set a date for its 2000 annual
meeting of stockholders. MapQuest welcomes stockholder proposals on matters
appropriate for stockholder action at an annual meeting in accordance with
regulations adopted by the SEC and the provisions of MapQuest's by-laws.
However, for proposals by stockholders to have been included in the proxy
statement for the 2000 annual meeting of MapQuest stockholders, MapQuest would
have had to receive such proposals on or before , 2000. Proposals
for any future annual meeting of MapQuest stockholders should be directed to
MapQuest, Attention: .
WHERE YOU CAN FIND MORE INFORMATION
This proxy statement/prospectus incorporates documents by reference which
are not presented in or delivered with this proxy statement/prospectus.
All documents filed by America Online pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this proxy statement/prospectus
and before the date of the special meeting are incorporated by reference into
and are deemed to be a part of this proxy statement/prospectus from the date of
filing of those documents.
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you
with any additional information.
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The following documents, which have been filed by America Online with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement/prospectus:
. America Online's 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)
. America Online's 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)
. America Online's Proxy Statement on Schedule 14A (SEC file number 001-
12143 and filing date of September 24, 1999)
. America Online's Current Report on Form 8-K dated December 1, 1999 (SEC
file number 001-12143 and filing date of December 2, 1999)
. America Online's Current Report on Form 8-K, dated December 21, 1999
(SEC file number 001-12143 and filing date of January 3, 2000)
. America Online's Current Report on Form 8-K, dated January 10, 2000 (SEC
file number 001-12143 and filing date of January 14, 2000)
. America Online's Current Report on Form 8-K, dated January 19, 2000 (SEC
file number 001-12143 and filing date of January 20, 2000)
. America Online's Current Report on Form 8-K, dated January 10, 2000 (SEC
file number 001-12143 and filing date of February 11, 2000)
. The description of America Online capital stock, including preferred
share purchase rights, which are contained in Registration Statement on
Forms 8-A under the Exchange Act, including any amendments or reports
filed for the purpose of updating such descriptions
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement/prospectus will be deemed
to be modified or superseded for purposes of this proxy statement/prospectus to
the extent that a statement contained in this proxy statement/prospectus or any
other subsequently filed document that is deemed to be incorporated by
reference into this proxy statement/prospectus modifies or supersedes the
statement. Any statement so modified or superseded will not be deemed, except
as so modified or superseded, to constitute a part of this proxy
statement/prospectus.
The documents incorporated by reference into this proxy statement/prospectus
are available from us upon request. We will provide a copy of any and all of
the information that is incorporated by reference in this proxy
statement/prospectus to any person, without charge, upon written or oral
request. If exhibits to the documents incorporated by reference in this proxy
statement/prospectus are not themselves specifically incorporated by reference
in this proxy statement/prospectus, then such exhibits will not be provided.
Any request for documents should be made by , 2000 to ensure timely
delivery of the documents.
Requests for documents relating to MapQuest should be directed to:
MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
(717) 285-8701
[email protected]
Requests for documents relating to America Online should be directed to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-2741
AOL [email protected]
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We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza 7 World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661-2511
</TABLE>
Reports, proxy statements and other Reports and information concerning
MapQuest and America Online may be inspected at:
<TABLE>
<S> <C>
The National Association of Securities Dealers The New York Stock Exchange
1735 K Street, N.W. 20 Broad Street
Washington, D.C. 20006 New York, New York 10005
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the Commission at l-800-SEC-0330. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding each of us. The address of the
Commission website is http://www.sec.gov.
America Online has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
America Online's common stock to be issued to MapQuest stockholders in the
merger. This proxy statement/prospectus constitutes the prospectus of America
Online filed as part of the registration statement. This proxy
statement/prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted in accordance with the rules and regulations of the Commission. The
registration statement and its exhibits are available for inspection and
copying as set forth above.
If you have any questions about the merger, please call MapQuest Investor
Relations at (717) 285-8701. You may also call America Online Investor
Relations at (703) 265-2741.
This proxy statement/prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this proxy
statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this proxy statement/prospectus nor any distribution of
securities pursuant to this proxy statement/prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated into this proxy statement/prospectus by
reference or in our affairs since the date of this proxy statement/prospectus.
The information contained in this proxy statement/prospectus with respect to
MapQuest and its subsidiary was provided by MapQuest and the information
contained in this proxy statement/prospectus with respect to America Online was
provided by America Online.
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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This proxy
statement/prospectus contains such "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be made directly in this proxy statement/prospectus referring to
America Online and MapQuest, and they may also be made a part of this proxy
statement/prospectus by reference to other documents filed with the Securities
and Exchange Commission by America Online and MapQuest, which is known as
"incorporation by reference." These statements may include statements regarding
the period following completion of the merger.
Words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance, or the merger
of America Online and MapQuest, or the proposed merger between America Online
and Time Warner, identify forward-looking statements. All forward-looking
statements are management's present expectations of future events and are
subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. In addition to the risks related to their businesses, the following
factors relating to the mergers, among others, could cause actual results to
differ from those described in the forward-looking statements: the inability to
obtain, or meet conditions imposed for, governmental approvals of the mergers,
the failure of the MapQuest stockholders to approve our merger, the failure of
the America Online or Time Warner stockholders to approve the proposed Time
Warner merger, the costs related to the mergers, the inability to further
identify, develop and achieve commercial success for new products and services
and access and distribution technologies, increased competition and its effects
on pricing, spending, third-party relationships and the subscriber base and
revenues, the inability to establish and maintain relationship with commerce,
advertising, marketing, technology and content providers, the risk of accepting
warrants in certain agreements and the risks of new and changing regulation in
the United States and internationally. Stockholders are cautioned not to place
undue reliance on the forward-looking statements, which speak only of the date
of this proxy statement/prospectus or the date of the document incorporated by
reference in this proxy statement/prospectus. Neither America Online nor
MapQuest is under any obligation, and each expressly disclaims any obligation,
to update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise.
For additional information that could cause actual results to differ
materially from those described in the forward-looking statements, please see
the quarterly reports on Form 10-Q and the annual reports on Form 10-K that
America Online and MapQuest have filed with the Securities and Exchange
Commission.
All subsequent forward-looking statements attributable to America Online or
MapQuest or any person acting on their behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
89
<PAGE>
MAPQUEST.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... F-2
Balance Sheets as of December 31, 1997 and 1998.......................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998.................................................................... F-4
Statements of Changes in Redeemable Preferred Stock, Common Stock, and
other Stockholders' Equity (Deficit) for the years ended December 31,
1996, 1997, and 1998.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998.................................................................... F-6
Notes to Financial Statements............................................ F-7
Report of Independent Auditors........................................... F-21
Schedule II--Valuation and Qualifying Accounts........................... F-22
Balance Sheet as of September 30, 1999 (Unaudited)....................... F-23
Statements of Operations for the nine months ended September 30, 1998 and
1999 (Unaudited)........................................................ F-24
Statements of Cash Flows for the nine months ended September 30, 1998 and
1999 (Unaudited)........................................................ F-25
Notes to Financial Statements............................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MapQuest.com, Inc.
We have audited the accompanying balance sheets of MapQuest.com, Inc.
(formerly GeoSystems Global Corporation) as of December 31, 1997 and 1998, and
the related statements of operations, changes in redeemable preferred stock,
common stock, and other stockholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MapQuest.com, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
February 18, 1999, except
for the matters discussed in
the next to last paragraph
of Note 14 and all of
Note 15, as to which the
date is May 3, 1999
F-2
<PAGE>
MAPQUEST.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
1997 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,482,090 $ 564,087
Accounts receivable, net of allowance for doubtful
accounts (1997 --$407,136; 1998--$469,726)........... 5,468,654 6,646,882
Accounts receivable--affiliates....................... 57,500 127,989
Inventories........................................... 1,686,117 1,364,608
Contract work in progress............................. 385,778 147,317
Prepaid expenses and other current assets............. 1,079,347 481,921
----------- -----------
Total current assets................................ 11,159,486 9,332,804
Property and equipment, net of accumulated depreciation
(1997-- $2,420,561; 1998--$3,433,368)................. 1,830,324 1,844,324
Goodwill, net.......................................... 208,763 178,212
Other assets........................................... 22,650 94,901
----------- -----------
Total assets........................................ $13,221,223 $11,450,241
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 1,332,656 $ 1,715,133
Current portion of note payable.................... 51,716 48,108
Accrued personnel costs............................ 450,287 561,714
Advance billings on contracts...................... 346,383 498,108
Deferred revenue................................... 505,238 1,207,867
Other accrued liabilities.......................... 1,012,809 1,000,940
----------- -----------
Total current liabilities........................ 3,699,089 5,031,870
Note payable, less current portion.................. 48,108 --
Convertible Redeemable Preferred Stock--Series A,
voting, $1.00 per share redemption value, aggregate
liquidation preference of $6,550,000:
Issued and outstanding shares--6,550,000 in 1997
and 1998.......................................... 6,550,000 6,550,000
Cumulative Redeemable Preferred Stock--Series B,
nonvoting, $6.15 per share redemption value,
aggregate liquidation preference of $7,815,737 in
1997 and $8,332,036 in 1998:
Issued and outstanding shares--1,270,851 in 1997
and 1,354,802 in 1998............................. 7,815,737 8,332,036
Convertible Redeemable Preferred Stock--Series C,
voting, $3.51 per share redemption value, aggregate
liquidation preference of $12,268,292:
Issued and outstanding shares--3,495,354 in 1997
and 1998.......................................... 11,636,252 11,595,176
Notes receivable arising from issuance of preferred
stock.............................................. (290,835) (290,835)
Stockholders' deficit:
Common Stock--$.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--216,419 in 1997
and 336,028 in 1998 ............................ 216 336
Additional paid-in capital......................... -- 140,170
Retained deficit................................... (16,237,344) (19,908,512)
----------- -----------
Total stockholders' deficit...................... (16,237,128) (19,768,006)
----------- -----------
Total liabilities and stockholders' deficit...... $13,221,223 $11,450,241
=========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Revenues
Business............................. $ 7,019,461 $ 4,762,627 $ 6,536,153
Consumer............................. 140,200 1,275,900 1,375,900
----------- ------------ -----------
Total business and consumer
revenues............................ 7,159,661 6,038,527 7,912,053
Digital mapping...................... 12,417,232 15,377,141 16,805,149
----------- ------------ -----------
Total revenues..................... 19,576,893 21,415,668 24,717,202
Cost of Revenues
Business and consumer................ 4,325,166 4,535,153 4,808,764
Digital mapping...................... 7,994,347 10,767,256 12,837,036
----------- ------------ -----------
Total cost of revenues............. 12,319,513 15,302,409 17,645,800
----------- ------------ -----------
Gross profit........................... 7,257,380 6,113,259 7,071,402
Operating expenses
Sales and marketing.................. 4,454,791 7,256,519 5,243,377
Product development.................. 2,619,443 5,047,744 2,954,510
General and administrative........... 1,901,857 1,811,391 2,326,191
----------- ------------ -----------
Total operating expenses........... 8,976,091 14,115,654 10,524,078
Operating loss......................... (1,718,711) (8,002,395) (3,452,676)
Interest income and expense, net....... 198,632 135,888 53,916
Other income........................... 243,900 267,384 243,891
----------- ------------ -----------
Loss before provision for income
taxes................................. (1,276,179) (7,599,123) (3,154,869)
Provision for income taxes............. -- -- --
----------- ------------ -----------
Net loss........................... (1,276,179) (7,599,123) (3,154,869)
Less preferred stock dividends and
accretion............................. (525,320) (5,833,651) (667,223)
----------- ------------ -----------
Net loss applicable to common
stockholders.......................... $(1,801,499) $(13,432,774) $(3,822,092)
=========== ============ ===========
Basic and diluted loss per share....... $ (8.84) $ (64.43) $ (12.09)
Shares used to compute basic and
diluted loss per share................ 203,779 208,499 316,202
Pro forma basic and diluted loss per
share................................. $ (0.11)
===========
Shares used to compute pro forma basic
and diluted loss per
share................................. 27,994,126
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Notes
Receivable
Arising
Convertible Cumulative Convertible from
Redeemable Redeemable Redeemable Issuance Convertible
Preferred Preferred Preferred of Preferred Additional
Stock-- Stock-- Stock-- Preferred Stock-- Common Paid in Retained
Series A Series B Series C Stock Series A Stock Capital Deficit
----------- ---------- ----------- ---------- ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ -- $6,877,136 $ -- $ (87,500) $65,150 $199 $1,238,435 $ (1,003,071)
Net loss............... -- -- -- -- -- -- -- (1,276,179)
Payment on notes
receivable............ -- -- -- 31,168 -- -- -- --
Dividends.............. -- 454,295 -- -- -- -- -- (525,320)
Issuance of 35,000
shares convertible
preferred stock--
Series A.............. -- -- -- (31,500) 350 -- 34,650 --
Exercise of 7,074
options............... -- -- -- -- -- 7 255 --
---------- ---------- ----------- --------- ------- ---- ---------- ------------
Balance at December 31,
1996................... -- 7,331,431 -- (87,832) 65,500 206 1,273,340 (2,804,570)
Net loss............... -- -- -- -- -- -- -- (7,599,123)
Payment on notes
receivable -- -- -- 21,132 -- -- -- --
Dividends.............. -- 484,306 -- -- -- -- -- (560,025)
Exercise of 10,314
options............... -- -- -- -- -- 10 775 --
Addition of redemption
feature to Series A
preferred stock....... 6,550,000 -- -- -- (65,500) -- (1,274,115) (5,210,383)
Issuance of 3,495,354
shares convertible
preferred stock--
Series C, net......... -- -- 11,573,009 (224,135) -- -- -- --
Accretion of redeemable
preferred stock to
redemption value...... -- -- 63,243 -- -- -- -- (63,243)
---------- ---------- ----------- --------- ------- ---- ---------- ------------
Balance at December 31,
1997................... $6,550,000 $7,815,737 $11,636,252 $(290,835) $ -- $216 $ -- $(16,237,344)
Net loss............... -- -- -- -- -- -- -- (3,154,869)
Dividends.............. -- 516,299 -- -- -- -- -- (516,299)
Exercise of 119,610
options............... -- -- -- -- -- 120 7,444 --
Issuance of 522,234
warrants.............. -- -- (192,000) -- -- -- 192,000 --
Issuance of 41,266
warrants for
services.............. -- -- -- -- -- -- 53,650 --
Accretion of redeemable
preferred stock to
redemption value...... -- -- 150,924 -- -- -- (150,924) --
Compensation related to
stock options......... -- -- -- -- -- -- 38,000 --
---------- ---------- ----------- --------- ------- ---- ---------- ------------
Balance at December 31,
1998................... $6,550,000 $8,332,036 $11,595,176 $(290,835) $ -- $336 $ 140,170 $(19,908,512)
========== ========== =========== ========= ======= ==== ========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net loss................................ $(1,276,179) $(7,599,123) $(3,154,869)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation.......................... 527,990 816,369 1,074,875
Amortization.......................... 30,550 30,550 30,551
Provision for doubtful accounts....... 232,500 262,388 271,598
Issuance of warrants for services..... -- -- 53,650
Compensation expense related to
options.............................. -- -- 38,000
Equity in earnings of joint venture... (282,461) (256,068) (291,558)
Dividends received from joint
venture.............................. 285,273 288,556 285,976
Loss (gain) on disposal of property
and equipment........................ -- 59,758 (3,089)
Changes in operating assets and
liabilities, net of effects from
acquisition of a business:
Accounts receivable................. (1,505,806) (1,115,351) (1,449,823)
Accounts receivable--affiliates..... 10,154 72,400 (70,489)
Inventories......................... (20,778) (1,182,649) 321,509
Contract work in progress........... (151,563) (60,575) 238,461
Prepaid expenses.................... (231,318) (724,940) 597,426
Other assets........................ (16,694) 14,659 (94,638)
Accounts payable.................... 448,974 448,374 382,447
Advance billings on contracts....... 471,473 (688,387) 151,726
Deferred revenue.................... -- 396,807 702,629
Accrued personnel costs and other
liabilities........................ 316,892 (257,500) 99,557
----------- ----------- -----------
Net cash used in operating activities... (1,160,993) (9,494,732) (816,061)
Investing activities
Property and equipment purchases........ (1,190,210) (1,354,690) (1,062,126)
Proceeds from disposal of property and
equipment.............................. -- 32,264 4,340
Purchase of Interarts' assets........... (328,600) -- --
----------- ----------- -----------
Net cash used in investing activities... (1,518,810) (1,322,426) (1,057,786)
Financing activities
Proceeds from note payable.............. -- 131,468 --
Principal payments on debt.............. -- (32,499) (51,716)
Proceeds from issuance of Series A
convertible preferred stock............ 3,500 -- --
Net proceeds from issuance of Series C
convertible preferred stock -- 11,348,874 --
Exercise of common stock options........ 262 785 7,560
Principal payments received on notes
receivable arising from issuance of
preferred stock 31,168 21,132 --
Cash dividends paid..................... (69,889) (74,506) --
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. (34,959) 11,395,254 (44,156)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (2,714,762) 578,096 (1,918,003)
Cash and cash equivalents at the
beginning of the year.................. 4,618,756 1,903,994 2,482,090
----------- ----------- -----------
Cash and cash equivalents at the end of
the year............................... $ 1,903,994 $ 2,482,090 $ 564,087
=========== =========== ===========
Supplemental cash flow information
Stock dividends paid on Preferred Stock
Series B............................... $ 454,294 $ 484,306 $ 516,299
=========== =========== ===========
Dividends accrued on Preferred Stock
Series B............................... $ 18,329 $ 19,540 $ --
=========== =========== ===========
Notes receivable received for stock..... $ 31,500 $ 224,135 $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Business and Accounting Policies
Business
In February 1999, GeoSystems Global Corporation changed its name to
MapQuest.com, Inc. MapQuest.com, Inc. ("MapQuest" or the "Company") is an
online provider of mapping and destination information through its Web site,
mapquest.com. MapQuest's proprietary integration and editing of geographic
databases enable it to provide comprehensive mapping solutions to businesses
and provide customized maps, destination information and driving directions to
consumers. Consumers can also purchase maps and cartography information from
MapQuest's MapStore located on mapquest.com.
MapQuest is also a United States provider of traditional digital mapping
products and services to the educational, reference, directory, travel and
governmental markets. In addition, companies that incorporate call centers, CD-
ROMs or stand-alone driving direction kiosks into their information delivery
strategy require non-Internet customized mapping solutions. MapQuest has
developed its map-enabling software to promote the rapid development of mapping
applications in these environments.
Revenue Recognition
Contracts with businesses for Internet products and services are generally
on an annual basis and consist of a one-time setup fee and annual service or
license fee. The one-time setup fee is based on costs incurred to initially
integrate the Web site connection and is recognized upon installation of the
connection. The remaining service or license fee is recognized ratably over the
contract period. Revenues recognized under this method are included in the
statements of operations as business revenues.
Royalty revenues are recognized when earned based on the revenues generated
by the sale of a licensed product or based on the minimum royalty provisions in
the related contract. Revenue from the sale of licenses to its customers for
the use of MapQuest's geographic systems or products are generally recognized
upon delivery of the licensed systems or products if no significant obligations
exist. If a maintenance or upgrade obligation exists, revenues are recognized
ratably over the obligation period. MapQuest's license agreements have terms
generally ranging from one to three years. Substantially all revenues
recognized under this method are included in the statements of operations as
business revenues.
Revenues from long-term fixed price contracts for the development of
customized geographic and cartographic data are recognized on the percentage of
completion method, measured by the percentage of labor hours incurred to date
to estimated total labor hours for each contract. Revenues recognized in excess
of amounts billed are classified as contract work in progress. Amounts billed
to clients for contracts in excess of revenues recognized to date are
classified as advance billings on contracts. Revenues recognized under this
method are included in the statements of operations as digital mapping
revenues.
Advertising revenue is recognized ratably over the period in which the
advertisements are displayed, provided that no significant obligations remain
and collection of the resulting receivable is probable. The average duration of
MapQuest's advertising arrangements is one to two months. MapQuest may
guarantee its advertisers a pre-set level of impressions during the contract
period. To the extent minimum guaranteed impression levels are not met ratably
over the contract period, MapQuest defers recognition of the corresponding pro-
rata portion of the revenues relating to such unfulfilled obligations until the
guaranteed impression levels are achieved. Revenues recognized under this
method are included in the statements of operations as consumer revenues.
F-7
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Barter revenues are recognized in connection with agreements in which
MapQuest receives advertising or other goods and services in exchange for
content or advertising on mapquest.com. Barter transactions are recorded at the
lower of estimated fair value of the goods or services received or the
estimated fair value of the content or advertisements given. Barter
transactions accounted for approximately 0%, 1% and 2% of revenues during 1996,
1997 and 1998, respectively. Revenues recognized under this method are included
in the statements of operations as consumer revenues.
Revenues from all other services provided and products sold or licensed are
recognized when the services are rendered or delivery of the product is made
and no significant MapQuest obligations remain outstanding. Revenues recognized
under this method are included in the statements of operations as digital
mapping and business revenues.
Product Development
Product development expenses in the accompanying statements of operations
include the costs to develop new products and services and to modify existing
products and services, including software and data. These costs consist
primarily of salaries for product development personnel and related expenses,
contract labor expense, and consulting fees. Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. Based upon MapQuest's product development process, technological
feasibility is established upon completion of a working model. Costs incurred
by MapQuest between completion of the working model and the point at which the
product is ready for general release have been insignificant. As a result,
MapQuest has expensed software development costs.
Statements of Cash Flows
For purposes of the statements of cash flows, MapQuest considers all cash
and highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents, notes receivable and
notes payable approximate fair value because of the short-term maturity of
these instruments.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment consisting primarily of computer hardware are stated
at historical cost. Depreciation is computed principally using the straight-
line method over the estimated useful life of assets ranging from 3 to 5 years.
Goodwill
Goodwill, principally from the acquisition of Maryland Cartographics, Inc.
in July 1994, represents the excess of cost over fair value of net assets
acquired and is being amortized over 10 years using the straight-line method.
As of December 31, 1997 and 1998, accumulated amortization was $96,744 and
$127,295, respectively.
F-8
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation rights.
SFAS No. 123 requires compensation expense to be recorded (i) using the new
fair value method or (ii) using existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB 25") and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the fair value method. The Company accounts for its stock-based compensation
plans in accordance with the provisions of APB 25.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for 1996, 1997
and 1998 amounted to $332,300, $779,000 and $741,600, respectively, and include
barter advertising costs for 1997 and 1998 of $148,000 and $538,000,
respectively.
Investment in Joint Venture
The Company's 50 percent-owned joint venture, Donnelly Spatial Data
Partnership, is accounted for by the equity method. The joint venture is
engaged in providing, among other things, highway trip routing products and
services.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Materials........................................... $ 240,000 $ 96,006
Work-in-process..................................... 207,838 336,123
Finished goods...................................... 1,238,279 932,479
---------- ----------
$1,686,117 $1,364,608
========== ==========
</TABLE>
3. Asset Purchase--Interarts
Effective April 1, 1996, MapQuest acquired certain assets, primarily
inventory, of Interarts, Ltd. (Interarts) for $328,600. Interarts is an upscale
niche publisher of reference maps, atlases and products that use map images.
This transaction was accounted for in accordance with the purchase method of
accounting for business combinations. No goodwill has been recognized by
MapQuest in connection with this transaction. The operating results of
Interarts are included in MapQuest's results of operations from the effective
date of the acquisition. Pro forma information about operating results assuming
Interarts was acquired at the beginning of 1996 is not presented because it
would not differ materially from reported results.
F-9
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
4. Debt Arrangements
MapQuest has a $5,000,000 secured line of credit payable on demand with a
financial institution. Borrowings under the line of credit are limited to 80%
of MapQuest's qualified accounts receivable that are within 90 days of invoice.
Under the agreement, MapQuest may choose an interest rate based on the
following options: prime rate, a fixed rate as offered by the Bank from time to
time for varying periods up to 180 days or at the LIBOR Rate plus 1.75% for
periods of 30, 60, 90 or 180 days. No amount was drawn on the line at December
31, 1997 or 1998.
MapQuest entered into a promissory note during 1997. Terms of repayment
require thirty consecutive monthly payments of principal and interest. Interest
on the outstanding principal is fixed at a rate of 9%.
5. Preferred Stock and Stockholders' Equity
Restated Certificate of Incorporation
On July 17, 1997, MapQuest filed a Restated Certificate of Incorporation
with the State of Delaware in conjunction with the purchase and sale of Series
C Preferred Stock. The Restated Certificate of Incorporation authorizes
MapQuest to issue 35,000,000 shares, of which 20,000,000 shares are designated
Common Stock and 15,000,000 shares are designated Preferred Stock. Of the
Preferred Stock, 6,550,000 shares are designated Series A Preferred, 2,000,000
shares are designated Series B Preferred, 3,800,000 shares are designated
Series C Preferred and 2,650,000 shares are undesignated as to series (see Note
15).
Series A Preferred Stock
MapQuest is authorized to issue 6,550,000 shares (10,000,000 shares as of
December 31, 1996) of noncumulative, convertible, voting Series A Preferred
Stock. Effective July 17, 1997, a redemption feature was added and the issued
and outstanding shares were reclassified outside of stockholders' equity. At
the option of the Holder, each share of Series A Preferred Stock is convertible
into Common Stock at a conversion rate of 2.7 shares of Common Stock for each
share of Series A Preferred Stock. Each share of Series A Preferred Stock
automatically converts into shares of Common Stock, either (i) immediately
prior to the closing of MapQuest's initial underwritten public offering
pursuant to a Registration Statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and having an aggregate offering to the public of not less than
$15,000,000 or (ii) upon the affirmative vote of the holders of at least two-
thirds of the then outstanding shares of Series A Preferred Stock, whichever is
earlier. The Series A Preferred Stock ranks senior to the Common Stock as to
dividend, liquidation, and redemption rights. The Series A Preferred Stock
ranks junior to the Series B Preferred Stock and the Series C Preferred Stock
as to dividend, liquidation and redemption rights. Each share of Series A
Preferred Stock issued and outstanding has a number of votes equal to the
number of shares into which such share of Series A Preferred Stock is then
convertible. Subject to the prior and superior rights of the holders of the
shares of Series B Preferred Stock and shares of Series C Preferred Stock, upon
written notice at least 120 days prior to December 31 of any calendar year
from, and including, the year 2002, by the holders of at least two-thirds of
the then outstanding shares of Series A Preferred Stock, MapQuest shall be
required to redeem all of the issued, outstanding and nonredeemed shares of
Series A Preferred Stock held by each holder of Series A Preferred Stock at a
redemption price per share of $1.00 plus an amount equal to all declared but
unpaid dividends on the Series A Preferred Stock. The redemption would be
payable in three annual installments. No dividends may be paid on the Series A
Preferred Stock unless MapQuest has fulfilled its dividend obligations on the
Series B Preferred Stock and Series C Preferred Stock. The Series A Preferred
Stock has an annual cash dividend rate of $.075 per share when and as declared
by the Board of Directors. MapQuest has reserved 17,685,000 shares of Common
Stock for issuance upon conversion of Series A Preferred Stock.
F-10
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Pursuant to the terms of the stock purchase agreement dated October 31,
1994, MapQuest sold 215,000 shares of its Series A Preferred Stock at a
purchase price of $1 per share to MapQuest's then existing management. The
aggregate purchase price of $215,000 was paid $127,500 in cash and $87,500 in
notes due October 31, 1999. The notes bear interest at a rate of 7.5%
compounded annually. Payments are due annually in an amount that is the lesser
of one-fifth of the principal balance or 50% of any bonus to which each
employee is entitled. The notes are secured by the shares purchased, with
shares released to the extent each note is paid. At December 31, 1997 and 1998,
outstanding notes receivable in conjunction with this stock purchase was
$35,200.
On March 26, 1996, pursuant to the terms of an Employment Agreement dated
October 31, 1994, the Company sold 35,000 shares of its Series A Preferred
Stock at a purchase price of $1 per share to a member of MapQuest's then
existing management. The aggregate purchase price of $35,000 was paid $3,500 in
cash and $31,500 in a note due October 31, 2000. The note bears interest at a
rate of 7.5% compounded annually. The repayment terms were modified pursuant to
a severance agreement in 1997. The payment of the note, inclusive of interest,
is due on the earlier of September 30, 2000 or the date on which the severed
employee transfers all shares of the employee's Series A Preferred Stock. The
note is secured by the shares purchased with shares released to the extent the
note is paid. At December 31, 1997 and 1998, outstanding notes receivable in
conjunction with this stock purchase was $31,500.
Series B Preferred Stock
MapQuest is authorized to issue 2,000,000 shares of cumulative, redeemable,
nonvoting Series B Preferred Stock. Holders of shares of Series B Preferred
Stock are entitled to a cumulative dividend, payable semiannually, at the
annual rate of $.46125 per share with respect to dividends payable on or prior
to December 31, 1997 and $.39975 per share with respect to dividends payable
after December 31, 1997. The dividend may be paid in cash or a combination of
cash and additional shares of Series B Preferred Stock; however, at least
13.33% of the dividend payable in any period on or prior to December 31, 1997
shall be payable in cash. As of December 31, 1997 and 1998, there were no
dividends in arrears. Subject to the prior written consent of the holders of a
majority of the shares of Series C Preferred Stock then issued and outstanding,
the Series B Preferred Stock is redeemable at the option of MapQuest at any
time at a price of $6.15 per share, payable in cash or a combination of cash
and subordinated convertible debentures. Subject to the prior and superior
rights of holders of Series C Preferred Stock, the Series B Preferred Stock is
also redeemable at the option of the holders upon written notice at least 120
days prior to December 31 of any calendar year from and including the year
2002, by the holders of at least two-thirds of the then outstanding shares of
Series B Preferred Stock, at a price of $6.15 per share payable in cash, plus
an amount equal to all dividends accrued and unpaid thereon to the redemption
date. The redemption would be payable in three annual installments. The Series
B Preferred Stock ranks senior to the Series A Preferred Stock and the common
stock as to dividend, liquidation and redemption rights. The Series B Preferred
Stock ranks senior to the Series C Preferred Stock as to dividend rights and
junior to the Series C Preferred Stock as to liquidation and redemption rights.
During 1996, 1997 and 1998 MapQuest recorded dividends totaling $524,183,
$558,812 and $516,299, respectively, on Series B Preferred Stock. These
dividends included cash dividends of $69,889, $74,506 and -0-and stock
dividends of $454,295, $484,306 and $516,299, during 1996, 1997 and 1998,
respectively. The stock dividends were based on the issuance of additional
shares of Series B Preferred Stock of 73,869, 78,749 and 83,951 shares during
1996, 1997 and 1998, respectively, using a value of $6.15 per share.
F-11
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Series C Preferred Stock
MapQuest is authorized to issue 3,800,000 shares (0 shares as of December
31, 1996) of noncumulative, redeemable, convertible, voting Series C Preferred
Stock. At the option of the holder, each share of Series C Preferred Stock is
convertible into Common Stock at a conversion rate of 2.7 shares of Common
Stock for each share of Series C Preferred Stock. Each share of Series C
Preferred Stock automatically converts into shares of Common Stock, immediately
prior to the closing of MapQuest's initial underwritten public offering
pursuant to a Registration Statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, in which the aggregate proceeds to MapQuest equal at least $15,000,000
and in which the price per share of Common Stock equals or exceeds $2.60 per
share (as adjusted for stock splits, stock dividends, recapitalizations and
similar events). Each share of Series C Preferred Stock issued and outstanding
has a number of votes equal to the number of shares into which such share of
Series C Preferred Stock is then convertible. The Series C Preferred Stock
ranks senior to the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock as to liquidation and redemption rights and ranks senior to the
Common Stock and the Series A Preferred Stock with respect to the payment of
dividends. The Series C Preferred Stock ranks junior to the Series B Preferred
Stock with respect to the payment of dividends. The Series C Preferred Stock
has an annual cash dividend rate of $.26325 per share when and as declared by
the Board of Directors. Upon written notice at least 120 days prior to December
31 of any calendar year from, and including, the year 2002, by the holders of
at least two-thirds of the then outstanding shares of Series C Preferred Stock,
the Company shall be required to redeem all of the issued, outstanding and
nonredeemed shares of Series C Preferred Stock held by each holder of Series C
Preferred Stock at a redemption price per share of $3.51 plus an amount equal
to all declared but unpaid dividends on the Series C Preferred Stock. The
redemption would be payable in three annual installments. The Company has
reserved 9,437,456 shares of Common Stock for issuance upon conversion of
Series C Preferred Stock.
Pursuant to the terms of the stock purchase agreement dated July 17, 1997,
MapQuest sold 3,431,498 shares of its Series C Preferred Stock at a purchase
price of $3.51 per share. The aggregate purchase price of $12,044,558 was paid
in cash. The difference between the aggregate purchase price net of the
warrants issued during 1998 is being accreted to the redemption value through
2002. Accretion totaled $63,243 and $150,924 during 1997 and 1998,
respectively.
On November 1, 1997, MapQuest sold 63,856 shares of its Series C Preferred
Stock at a purchase price of $3.51 per share to members of the Company's then
existing management. The aggregate purchase price of $224,135 was paid by
$224,135 in notes due November 1, 2004. The notes bear interest at a rate of
7.0% compounded annually. Payments are due annually, commencing in the year
2000, in an amount that is the lesser of one-fifth of the principal balance or
50% of any bonus to which each employee is entitled. The note is secured by the
shares purchased with shares released to the extent the note is paid. At
December 31, 1997 and 1998, outstanding notes receivable in connection with
this stock purchase were $224,135.
Common Stock
As of December 31, 1998, MapQuest has a total of 35,778,701 shares of Common
Stock reserved for future issuance.
6. Stock Options and Warrants
1995 Stock Option Plan
As of December 31, 1998, 6,233,627 shares of MapQuest's Common Stock were
reserved for issuance under the GeoSystems Global Corporation 1995 Stock Option
Plan (the Plan), under which the Company may
F-12
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
grant stock options to key employees and consultants. Each option entitles the
holder to purchase from MapQuest one share of Common Stock at an exercise price
which shall not be less than the fair market value of one share of stock on the
date of grant. These options vest generally over five years and expire ten
years from the date of grant.
Changes during the years ended December 31, 1996, 1997 and 1998 in options
outstanding were as follows:
<TABLE>
<CAPTION>
Exercise
Number of Price
Options Per Option
--------- -----------
<S> <C> <C>
Balance at January 1, 1996........................ 1,375,515 $ 0.04
Granted during 1996............................... 1,071,179 $ 0.04
Granted during 1996............................... 365,310 $ 0.06
Granted during 1996............................... 429,300 $ 0.37
Exercised......................................... (7,074) $ 0.04
Forfeited......................................... (27,216) $ 0.04
--------- -----------
Outstanding at December 31, 1996.................. 3,207,014 $.04-$ 0.37
Granted during 1997............................... 933,678 $ 0.37
Exercised......................................... (3,240) $ 0.04
Exercised......................................... (6,210) $ 0.06
Exercised......................................... (864) $ 0.37
Forfeited......................................... (268,855) $ 0.04
Forfeited......................................... (24,840) $ 0.06
Forfeited......................................... (80,022) $ 0.37
--------- -----------
Outstanding at December 31, 1997.................. 3,756,661 $.04-$ 0.37
Granted during 1998............................... 2,218,050 $ 0.37
Exercised......................................... (78,570) $ 0.04
Exercised......................................... (33,750) $ 0.06
Exercised......................................... (7,290) $ 0.37
Forfeited......................................... (551,855) $ 0.04
Forfeited......................................... (135,000) $ 0.06
Forfeited......................................... (320,596) $ 0.37
--------- -----------
Outstanding at December 31, 1998.................. 4,847,650 $0.04-$0.37
========= ===========
</TABLE>
During June, 1998 MapQuest accelerated the vesting and extended the exercise
period of options in connection with a severance agreement for the former
President and recorded compensation expense of $38,000.
F-13
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if MapQuest had accounted for its
employee stock options under the fair value method of that statement. As
permitted under the provisions of SFAS No. 123, and based on the historical
lack of a public market for MapQuest.com, Inc. options, no factor for
volatility has been reflected in the option pricing calculation. The fair value
of the options was estimated at date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Assumptions
Volatility factor of the expected market price
of MapQuest's common stock..................... 0% 0% 0%
Average risk free interest rate................. 6.1% 6.1% 5.24%
Dividend yield.................................. 0.0% 0.0% 0.0%
Average life.................................... 5 years 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because MapQuest stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. MapQuest's
pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Pro forma net loss applicable
to common stockholders........ $(1,801,499) $(13,432,774) $(3,822,092)
Pro forma basic and diluted
loss per share................ $ (8.84) $ (64.43) $ (12.09)
</TABLE>
Additional information with respect to outstanding options as of December
31, 1998 is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------- -----------
Weighted
Average
Remaining
Number of Contractual Number of
Exercise Prices Options Life Options
--------------- --------- ----------- -----------
<S> <C> <C> <C>
$0.04................................... 1,509,883 6.7 1,043,163
$0.06................................... 165,510 7.5 89,640
$0.37................................... 3,172,257 8.5 669,394
--------- ---------
$0.04--$0.37............................ 4,847,650 1,802,197
========= =========
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and
1998 was $0 in each year.
On December 31, 1998 MapQuest granted 645,570 options for which the exercise
price per share will be the initial public offering price determined upon
completion of the offering MapQuest intends to make (see Note 15). These
options are excluded from the disclosures in this Note 6.
F-14
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Warrants
As of December 31, 1998, there were 390,258 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's Common
Stock for $.04 per share. The warrants were issued for $.004 per warrant in
connection with the original Series A Preferred Stock Purchase Agreement dated
October 31, 1994. The warrants expire upon the earlier of October 31, 2004 or
the fifth anniversary of an initial public offering. MapQuest has reserved
390,258 shares of common stock for issuance upon exercise of the warrants.
As of December 31, 1998, there were 406,709 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's common
stock for $1.30. The warrants were issued for $1,000 in connection with the
Purchase and Sale of Series C Preferred Stock Agreement. The warrants expire on
July 18, 2002. MapQuest has reserved 406,709 shares of common stock for
issuance upon exercise of the warrants.
As of December 31, 1998, there were 954,147 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's common
stock for $1.04 per share. The warrants were issued in connection with a
distribution agreement MapQuest executed in 1997. These warrants were valued at
$0 on the date of grant using the "Black Scholes" option pricing model. The
warrants expire on the earlier of April 22, 2002 or upon termination of the
agreement. In the event that the holder shall have exercised the warrants prior
to the Company terminating the distribution agreement due to a breach of the
agreement by the holder, the Company shall have the option to purchase these
shares of common stock for a period of 60 days after the termination of the
distribution agreement at a purchase price which is the lesser of $1.77 or the
then fair market value of such shares. The Company has reserved 954,147 shares
of common stock for issuance upon exercise of the warrants.
As of December 31, 1998, there were 522,231 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's common
stock for $.004 per share. The warrants were issued during May 1998 to certain
holders of Series C Preferred Stock in connection with the original issuance of
the Series C Preferred Stock. The warrants expire on April 30, 2008. MapQuest
has reserved 522,231 shares of common stock for issuance upon exercise of the
warrants.
As of December 31, 1998, there were 41,266 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's common
stock for $1.30. The warrants were issued for services rendered by an outside
party. The warrants expire in September 2003.
F-15
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
7. Loss Per Share
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
Numerator:
Net loss.................... $ (1,276,179) $ (7,599,123) $ (3,154,869)
Preferred stock dividends... (525,320) (560,025) (516,299)
Accretion of redeemable
preferred stock............ -- (63,243) (150,924)
Addition of redemption
feature to preferred
stock...................... -- (5,210,383) --
------------ ------------- ------------
Numerator for loss per share
applicable to common
stockholders............... $ (1,801,499) $ (13,432,774) $ (3,822,092)
============ ============= ============
Denominator:
Denominator for basic and
diluted loss per share--
weighted-average shares...... 203,779 208,499 316,202
Basic and diluted loss per
common share................. $ (8.84) $ (64.43) $ (12.09)
============ ============= ============
</TABLE>
The following securities and number of shares have been excluded from the
diluted per share computation as they are antidilutive:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Convertible redeemable preferred stock
Series A.................................. -- 6,550,000 6,550,000
Convertible redeemable preferred stock
Series C.................................. 3,495,354 3,495,354
Convertible preferred stock Series A....... 6,550,000 -- --
Stock options.............................. 3,207,014 3,756,661 4,847,650
Stock warrants............................. 390,258 1,751,114 2,314,611
</TABLE>
The following table sets forth the computation of pro forma basic and
diluted loss per share, assuming conversion of the shares of Series A Preferred
Stock and Series C Preferred Stock to shares of common stock and the redemption
of the shares of Series B Preferred Stock outstanding at December 31, 1998
using an initial public offering price of $15 per share at the beginning of the
year ended December 31, 1998.
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Numerator:
Net loss applicable to common stockholders................ $(3,822,092)
Redeemable preferred stock--Series C accretion............ 150,924
Preferred stock dividends on cumulative preferred stock--
Series B................................................. 516,299
-----------
Numerator for pro forma basic and diluted loss per share.. $(3,154,869)
Denominator:
Weighted average number of common shares.................. 316,202
Assumed conversion of preferred shares to common shares... 27,122,455
Assumed issuance of common shares to redeem Series B
Preferred Stock.......................................... 555,469
-----------
Denominator for pro forma basic and diluted loss per
share.................................................... 27,994,126
Pro forma basic and diluted loss per share................ $ (.11)
</TABLE>
F-16
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
8. Income Taxes
No provision for income taxes has been recorded as MapQuest has incurred net
operating losses during 1996, 1997 and 1998.
The tax effects of temporary differences and net operating loss and credit
carryforwards that give rise to MapQuest's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................... $ (385,093) $ (347,306)
Deferred tax assets:
Allowance for doubtful accounts................ 84,040 146,324
Other.......................................... 481,607 496,126
Net operating loss and credit carryforwards.... 3,486,589 4,746,255
---------- ----------
Total deferred tax assets........................ 4,052,236 5,388,705
---------- ----------
Net deferred tax assets.......................... 3,667,143 5,041,399
Valuation allowances for deferred tax assets..... (3,667,143) (5,041,399)
---------- ----------
Net deferred taxes............................. $ -- $ --
========== ==========
</TABLE>
Due to the uncertainty of the realization of the assets, a valuation
allowance has been provided. The valuation allowance was increased by
$1,239,780, $2,618,565 and $1,374,256 for the years ended December 31, 1996,
1997 and 1998, respectively.
As of December 31, 1998, MapQuest has net operating loss carryforwards of
approximately $11,680,000, which expire between 2009 and 2018, and research and
development tax credit carryforwards of approximately $623,000, which expire
during 2010 and 2013. The utilization of approximately $10,035,000 of such net
operating loss carryforwards and $561,000 of such research and development tax
credit carryforwards is subject to an annual limitation of approximately
$1,300,000, pursuant to Section 382 of the Internal Revenue Code.
9. Segment Information
MapQuest has two reportable segments: MapQuest Business/Consumer and Digital
Mapping Services. The MapQuest Business/Consumer segment provides products and
services to address the web-based destination information needs of both
businesses and consumers. Business and Consumer revenues and costs are combined
for this segment because a significant portion of the costs, primarily
compensation for operations personnel and related operations costs, are common
to both Business and Consumer revenues and are not allocated. The Digital
Mapping Services segment provides non-internet mapping products and services to
the education, reference, directory, travel and governmental markets as well as
providing customized mapping solutions to various other customers. Revenues are
derived principally from the United States.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. MapQuest evaluates performance
based on gross profit and does not allocate assets to the reportable segments
since management does not evaluate segment performance based on asset
information and common assets are used in the segments. Accordingly,
depreciation expense is not included in the information set forth below.
F-17
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
MapQuest's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
In thousands
Business segment revenues:
MapQuest consumer/business-trade...... $ 7,159.7 $ 6,038.6 $ 7,912.0
Digital mapping services-trade........ 12,417.2 15,377.1 16,805.1
--------- --------- ---------
Total............................... $19,576.9 $21,415.7 $24,717.1
========= ========= =========
Business segment profit:
MapQuest consumer/business............ 2,834.5 1,503.4 3,103.2
Digital mapping services.............. 4,422.9 4,609.9 3,968.1
--------- --------- ---------
Total segment profit.................... 7,257.4 6,113.3 7,071.3
Reconciling items:
Operating expenses.................... (8,976.1) (14,115.7) (10,524.1)
Other and interest income............. 442.5 403.3 297.9
--------- --------- ---------
Pre-tax loss............................ $(1,267.2) $(7,599.1) $(3,154.9)
========= ========= =========
</TABLE>
10. Leases
MapQuest leases certain office and warehouse space from one of its
stockholders under operating leases. MapQuest also leases other office space
and office equipment from unrelated parties under operating leases. Future
lease commitments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.......................................................... $1,039,000
2000.......................................................... 848,000
2001.......................................................... 754,000
2002.......................................................... 758,000
2003.......................................................... 762,000
Thereafter.................................................... 2,351,000
----------
$6,512,000
==========
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998, was
$683,000, $1,131,000 and $1,033,000, respectively.
11. Retirement Savings Plan
MapQuest sponsors a defined contribution retirement savings plan for
substantially all of its employees. Employees may elect to defer up to 15% of
their salary. MapQuest has the option to match up to 100% of the employees'
contribution up to 2% of their salary. The expense incurred related to this
plan was $161,549, $209,235 and $189,512 during the years ended December 31,
1996, 1997 and 1998, respectively.
12. Related Party Transactions
MapQuest paid a management fee of $75,000 to a stockholder during 1996 and
1997, respectively. In connection with the Purchase and Sale of Series C
Preferred Stock Agreement, the $75,000 annual management fee arrangement was
terminated effective July 17, 1997. MapQuest incurred rent expense of $112,000,
$35,591 and $16,597 related to leases with one of its stockholders during 1996,
1997 and 1998, respectively. MapQuest recorded sales to its stockholders of
$475,000, $432,320 and $513,626 during 1996, 1997 and 1998,
F-18
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
respectively. Also, MapQuest recorded sales to other affiliates of $181,000,
$1,290,900 and $2,022,000 during 1996, 1997 and 1998, respectively. As of
December 31, 1998, MapQuest's accounts receivable--affiliates was $127,989.
13. Concentration of Credit Risk
For the years ended December 31, 1996, 1997 and 1998, sales to MapQuest's
top four customers represented 38%, 25% and 18% of total sales, respectively.
During 1996, one customer represented 16% of total sales.
14. Commitments and Contingencies
Minimum Annual Royalties
MapQuest has guaranteed payment of the following minimum annual royalties
under a distribution agreement for each of the following years:
<TABLE>
<CAPTION>
Minimum
Annual
Royalty
Year ended December 31 ----------
<S> <C>
1997.......................................................... $ 166,667
1998.......................................................... 345,833
1999.......................................................... 462,500
2000.......................................................... 500,000
2001.......................................................... 500,000
2002.......................................................... 125,000
----------
Total....................................................... $2,100,000
==========
</TABLE>
Contingencies
On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A.,
Inc. in the United States District Court for the Eastern District of
Pennsylvania. The Company is defending this matter pursuant to an indemnity
provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent
describes a specific method for searching real estate properties, which Mr.
Tornetta alleges is infringed by Moore U.S.A., Inc.'s online and other real
estate services. The Company believes that the claims of the patent are not
infringed by Moore U.S.A. and the patent is invalid. While the litigation is in
the early stage, and its outcome cannot be predicted, MapQuest believes that
this litigation is without merit, and intends to defend this action vigorously.
On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States
District Court for the District of Colorado against twenty different
defendants, including MapQuest. Eight of these defendants are licensees of
MapQuest's technology and may have rights to indemnification under their
respective agreements or at law. The complaint alleges infringement by MapQuest
of two patents, through, for example, the manufacture, use, sale, and offer to
sell MapQuest's Electronic Yellow Page Services systems and products. On May 3,
1999, MapQuest and Civix entered into a license agreement, dated May 3, 1999,
pursuant to which MapQuest acquired a license under the Civix patents. The
license agreement also provides certain rights to customers and end users of
MapQuest products and services. The license agreement provides for MapQuest to
pay a license fee of $500,000. In connection with the acquisition of the
license, MapQuest and Civix agreed to settle the lawsuit and to jointly seek
entry in the lawsuit of an agreed-upon order dismissing MapQuest from the
lawsuit and dismissing certain claims against MapQuest's co-defendant customers
relating to their use and sale of MapQuest products and services.
MapQuest periodically receives notices of claims arising out of the normal
course of business. In the opinion of management, these matters will not have a
material effect on MapQuest's financial position, results of operations, or
liquidity.
F-19
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
15. Subsequent Events
During February 1999, the Board of Directors authorized MapQuest to file a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock. In connection with the
above, in April 1999, the Board of Directors authorized MapQuest to do the
following: (1) amend its Certificate of Incorporation such that it will have
the authority to issue an aggregate of 105,000,000 shares of capital stock,
consisting of 90,000,000 shares of common stock, par value $0.001 per share,
and 15,000,000 shares of preferred stock, par value $0.01 per share; (2) effect
a 2.7 for 1 common stock split; (3) adopt the 1999 Stock Plan for which
3,645,000 shares of common stock will be reserved for future issuances; and (4)
establish an employee stock purchase plan under which a total of 1,755,000
shares of common stock will be made available for sale. The above items were
approved by the stockholders during April 1999. The change to authorized shares
and the stock split became effective on April 29, 1999. The 1999 Stock Plan and
employee stock purchase plan take effect upon and subject to the effectiveness
of the registration statement. All references to common shares, per common
share and par value per common share, except for references to authorized
common shares, in the financial statements have been restated to give effect to
the common stock split and change in par value per common share.
In addition, during April 1999, the Board of Directors authorized and the
stockholders approved MapQuest to amend and restate its Certificate of
Incorporation such that it will have the authority to issue an aggregate of
105,000,000 shares of capital stock, consisting of 100,000,000 shares of common
stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par
value $0.01 per share. This amended and restated Certificate of Incorporation
is to only be adopted and filed upon and subject to the effectiveness of
MapQuest's registration statement.
MapQuest intends to use a portion of the proceeds of the offering to redeem
the outstanding shares of Series B Preferred Stock. Also, upon the completion
of an initial public offering in which the gross proceeds paid by the public
are at least $15,000,000 and, with respect to the Series C Preferred Stock at a
per share price to the public of not less than $2.60, all outstanding
redeemable preferred shares of Series A Preferred Stock and Series C Preferred
Stock will automatically be converted into shares of common stock in the manner
described in Note 5. The pro forma loss per share (Note 7) for the year ended
December 31, 1998 gives effect to the conversion of such shares and the
redemption of the outstanding shares of Series B Preferred Stock as if the
conversion and redemption occurred at the beginning of 1998.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MapQuest.com, Inc.
We have audited the financial statements of MapQuest.com, Inc. as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, and have issued our report thereon dated February 18, 1999
except for the matters discussed in the next to last paragraph of Note 14 and
all of Note 15 as to which the date is May 3, 1999 (included elsewhere in this
Registration Statement). Our audits also included the accompanying financial
statement schedule. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
February 18, 1999
F-21
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MapQuest.com, Inc.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ --------- --------------------------------- ------------ ---------
Additions
---------------------------------
Balance
at Charged to Other Balance
Beginning Charged to Costs Accounts-- Deductions-- at End
Description of Period and Expenses Describe Describe of Period
----------- --------- ---------------- ---------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998:
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts.......... $407,136 $271,598 $209,008(1) $469,726
Year Ended December 31,
1997:
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts.......... $433,672 $262,388 $288,924(1) $407,136
Year Ended December 31,
1996:
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts.......... $263,171 $232,500 $ 61,999(1) $433,672
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
F-22
<PAGE>
MAPQUEST.COM, INC.
BALANCE SHEET
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $29,685
Short term investments......................................... 17,940
Accounts receivable, net of allowance for doubtful accounts of
$580.......................................................... 9,840
Accounts receivable--affiliates................................ 707
Inventories.................................................... 1,126
Contract work in progress...................................... 231
Prepaid expenses and other current assets...................... 1,684
-------
Total current assets.......................................... 61,213
Property and equipment, net of accumulated depreciation of
$4,455.......................................................... 4,488
Goodwill, net.................................................... 155
Other assets..................................................... 825
-------
Total assets.................................................. $66,681
=======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................... $ 2,719
Current portion of note payable................................ 5
Accrued personnel costs........................................ 1,231
Advance billings on contracts.................................. 686
Deferred revenue............................................... 2,434
Other accrued liabilities...................................... 2,411
-------
Total current liabilities..................................... 9,486
-------
Stockholders' equity (deficit):
Preferred Stock--$.01 par value:
Authorized shares 5,000,000
Issued and outstanding shares, none........................... --
Common stock--$.001 par value:
Authorized shares--100,000,000
Issued and outstanding shares, 33,572,562..................... 34
Notes receivable for common stock.............................. (224)
Additional paid in capital..................................... 88,246
Retained deficit............................................... (30,861)
-------
Total stockholders' equity.................................... 57,195
-------
Total liabilities and stockholders' equity.................... $66,681
=======
</TABLE>
See accompanying notes.
F-23
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Nine months ended
September 30
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues
Business.......................................... $ 4,888 $ 8,538
Consumer.......................................... 796 4,355
----------- -----------
Total business and consumer revenues.............. 5,684 12,893
Digital mapping................................... 12,163 10,500
----------- -----------
Total revenues.................................. 17,847 23,393
Cost of revenues
Business and consumer............................. 3,535 6,906
Digital mapping................................... 9,020 8,170
----------- -----------
Total cost of revenues.......................... 12,555 15,076
----------- -----------
Gross profit........................................ 5,292 8,317
Operating expenses
Sales and marketing............................... 3,713 12,965
Product development............................... 2,418 3,836
General and administrative........................ 1,521 3,328
----------- -----------
Total operating expenses........................ 7,652 20,129
----------- -----------
Operating loss...................................... (2,360) (11,812)
Interest income and expense, net.................... 45 1,039
Other income........................................ 234 186
----------- -----------
Loss before provision for income taxes.............. (2,081) (10,587)
Provision for income taxes.......................... -- 1
----------- -----------
Net loss........................................ $ (2,081) $ (10,588)
Less preferred stock dividends and accretion........ (629) (378)
----------- -----------
Net loss applicable to common stockholders.......... $ (2,710) $ (10,966)
=========== ===========
Basic and diluted loss per share.................... $(8.75) $ (0.60)
Shares used to compute basic and diluted loss per
share.............................................. 309,569 18,195,328
Pro forma basic and diluted loss per share.......... $ (.07) $ (.35)
Shares used to compute pro forma basic and diluted
loss per share..................................... 27,987,524 30,673,976
</TABLE>
See accompanying notes.
F-24
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months
ended
September 30
-----------------
1998 1999
------- --------
<S> <C> <C>
Operating Activities
Net loss................................................... $(2,081) $(10,588)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................. 909 1,022
Amortization............................................. 23 92
Provision for doubtful accounts.......................... 121 110
Compensation expense recognized.......................... 38 --
Equity in earnings of joint venture...................... (60) (73)
(Gain) on disposal of property and equipment............. (1) --
Changes in operating assets and liabilities:
Accounts receivable.................................... (166) (3,303)
Accounts receivable--affiliates........................ (9) (579)
Inventories............................................ 354 238
Contract work in progress.............................. (290) (84)
Prepaid expenses and other current assets.............. 293 (1,202)
Other assets........................................... (71) (726)
Accounts payable....................................... (364) 1,004
Advance billings on contracts.......................... (54) 188
Deferred revenue....................................... 185 1,226
Accrued personnel costs and other liabilities.......... 99 2,079
------- --------
Net cash used in operating activities...................... (1,074) (10,596)
Investing activities
Purchase of short term investments......................... -- (17,940)
Property and equipment purchases........................... (869) (3,666)
Proceeds from disposal of property and equipment........... 3 --
------- --------
Net cash used in investing activities...................... (866) (21,606)
Financing activities
Principal payments on debt................................. (38) (43)
Principal payments received on notes receivable arising
from issuance of stock.................................... -- 67
Exercise of common stock options and warrants.............. 7 163
Proceeds from issuance of stock, net of offering costs..... -- 69,796
Redemption of preferred stock.............................. -- (8,660)
------- --------
Net cash provided by (used in) financing activities........ (31) 61,323
------- --------
Net (decrease) increase in cash and cash equivalents....... (1,971) 29,121
Cash and cash equivalents, beginning of period............. 2,482 564
------- --------
Cash and cash equivalents, end of period................... $ 511 $ 29,685
======= ========
Supplemental cash flow information
Stock dividends paid on Preferred Stock Series B........... $ 516 $ 328
======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
MAPQUEST.COM, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
September 30, 1999
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1998 included elsewhere in this proxy
statement/prospectus.
2. Stockholders' Equity
In May 1999, MapQuest completed an initial public offering of 4,600,000
shares of its common stock at a public offering price of $15 per share, which
generated approximately $62.1 million in net proceeds to MapQuest.
Upon the closing of MapQuest's initial public offering in May 1999, all of
the outstanding shares of MapQuest's Series A and Series C Preferred Stock were
converted into 27,122,455 shares of common stock and all of the outstanding
shares of MapQuest's Series B Preferred Stock were redeemed for approximately
$8.6 million.
During April 1999, the Board of Directors and the stockholders authorized a
2.7 for 1 split of MapQuest's common stock. In addition, the Board of Directors
and the stockholders authorized and approved the amendment and restatement of
MapQuest's Certificate of Incorporation such that MapQuest has the authority to
issue an aggregate of 105,000,000 shares of capital stock, consisting of
100,000,000 shares of common stock, par value $0.001 per share and 5,000,000
shares of preferred stock, par value $0.01 per share. This amended and restated
Certificate of Incorporation became effective upon the effectiveness of
MapQuest's Registration Statement. All references to common shares, per common
share, and par value per common share in the financial statements have been
restated to give effect to the common stock split and change in par value per
common share. Upon the effectiveness of MapQuest's Registration Statement,
MapQuest has adopted the 1999 Stock Plan pursuant to which 3,645,000 shares of
common stock were reserved for future issuance and established an employee
stock purchase plan under which a total of 1,755,000 shares of common stock
will be made available for sale.
During June 1999, in connection with MapQuest's initial public offering, the
underwriters of the offering exercised an over-allotment option for 597,990
shares of MapQuest's common stock at the initial public offering price of $15
per share, which generated approximately $7.7 million in net proceeds to
MapQuest.
3. Investments
The Company invests certain of its excess cash in debt instruments of the
U.S. Government and its agencies, and of high quality corporate issuers. All
highly liquid instruments with an original maturity of three months or less
when purchased are considered cash equivalents; those with original maturities
greater than three months but less than twelve months when purchased are
considered short term investments. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," MapQuest classifies its investment securities as available-
for-sale. Unrealized holding gains and losses at September 30, 1999 were not
significant.
F-26
<PAGE>
MAPQUEST.COM, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--(Continued)
September 30, 1999
4. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30,
1999
--------------
(in thousands)
<S> <C>
Materials.................................................. $ 272
Work-in-process............................................ 245
Finished goods............................................. 609
------
$1,126
======
</TABLE>
5. Loss Per Share
The following tables set forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1998 1999
------- ---------
(in thousands,
except loss per
share)
<S> <C> <C>
Numerator:
Net loss.......................................... $(2,081) $(10,588)
Preferred stock dividends......................... (516) (328)
Accretion of redeemable preferred stock........... (113) (50)
Net loss applicable to common stockholders........ $(2,710) $(10,966)
</TABLE>
<TABLE>
<CAPTION>
Nine months
ended
September 30
---------------
1998 1999
------ -------
(in thousands,
except loss
per share)
<S> <C> <C>
Denominator:
Denominator for basic and diluted loss per share--
weighted average shares............................. 310 18,195
Basic and diluted loss per common share.............. $(8.75) $ (0.60)
====== =======
</TABLE>
The following securities and number of shares have been excluded from the
diluted per share computations because they are antidilutive, for the nine
months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
----- -----
(in
thousands)
<S> <C> <C>
Convertible redeemable preferred stock Series A............... 6,550 --
Convertible redeemable preferred stock Series C............... 3,495 --
Stock options................................................. 4,851 6,040
Stock warrants................................................ 2,315 2,023
</TABLE>
F-27
<PAGE>
MAPQUEST.COM, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--(Continued)
September 30, 1999
The following table sets forth the computation of pro forma basic and
diluted loss per share, giving consideration to MapQuest's initial public
offering discussed in Note 2 and assuming conversion of the shares of Series A
Preferred Stock and Series C Preferred Stock to shares of common stock and the
redemption of the shares of Series B Preferred Stock outstanding at September
30, 1998 and the redemption date of May 4, 1999, using an initial public
offering price of $15 per share and assuming such conversion and redemption
occurred at the beginning of the respective periods.
<TABLE>
<CAPTION>
Nine months ended
September 30
-----------------------
1998 1999
---------- -----------
(in thousands, except
loss per share)
<S> <C> <C>
Numerator:
Net loss applicable to common stockholders.......... $ (2,710) $ (10,966)
Redeemable preferred stock--Series C accretion...... 113 50
Preferred stock dividends on cumulative preferred
stock--Series B.................................... 516 328
Numerator for pro forma basic and diluted loss per
share.............................................. $ (2,081) $ (10,588)
Denominator:
Weighted average number of common shares............ 310 18,195
Assumed conversion of preferred shares to common
shares(1).......................................... 27,122 12,220
Assumed issuance of common shares to redeem Series B
Preferred Stock(1)................................. 556 259
Denominator for pro forma basic and diluted loss per
share.............................................. 27,988 30,674
Pro forma basic and diluted loss per share.......... $ (0.07) $ (0.35)
========== ===========
</TABLE>
- --------
(1) Shares used for 1999 computations are weighted average amounts considering
the conversion redemption occurred on May 4, 1999.
6. Segment Information
MapQuest has two reportable segments: MapQuest Business/Consumer and Digital
Mapping Services. The MapQuest Business/Consumer segment provides products and
services to address the web-based destination information needs of both
businesses and consumers. Business and Consumer revenues and costs are combined
for this segment because a significant portion of the costs, primarily
compensation for operations personnel and related operations costs, are common
to both Business and Consumer revenues and are not allocated. The Digital
Mapping Services segment provides non-Internet mapping products and services to
the education, reference, directory, travel and governmental markets as well as
providing customized mapping solutions to various other customers. Revenues are
derived principally from the United States.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in MapQuest's 1998 financial
statements included elsewhere in this proxy statement/ prospectus. MapQuest
evaluates performance based on gross profit and does not allocate assets to the
reportable segments since management does not evaluate segment performance
based on asset information and common assets are used in the segments.
MapQuest's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
F-28
<PAGE>
MAPQUEST.COM, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--(Continued)
September 30, 1999
<TABLE>
<CAPTION>
Nine months
ended
September 30
-----------------
1998 1999
------- --------
<S> <C> <C>
Business segment revenues:
MapQuest business/consumer trade.......................... $ 5,684 $ 12,893
Digital mapping services trade............................ 12,163 10,500
------- --------
Total................................................... 17,847 23,393
Business segment profit:
MapQuest business/consumer................................ 2,149 5,987
Digital mapping services.................................. 3,143 2,330
------- --------
Total segment profit.................................... 5,292 8,317
Reconciling items:
Operating expenses........................................ (7,652) (20,129)
Provision for income taxes................................ -- (1)
Other and interest income................................. 279 1,225
------- --------
Pre-tax loss............................................ $(2,081) $(10,588)
======= ========
</TABLE>
7. Contingent Matters
Pursuant to an indemnity obligation, the Company defended Moore U.S.A.,
Inc., in a legal proceeding filed by Mark Tornetta on December 14, 1998 in the
United States District Court for the Eastern District of Pennsylvania. Mr.
Tornetta alleged that Moore U.S.A., Inc. infringed his patent describing a
specific method for searching real estate properties. This case was dismissed
without prejudice on April 30, 1999.
On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States
District Court for the District of Colorado against twenty different
defendants, including the Company. Eight of these defendants are licensees of
the Company's technology and may have rights to indemnification under their
respective agreements or at law. The complaint alleged infringement by the
Company of two patents, through, for example, the manufacture, use, sale, and
offer to sell electronic yellow page services systems and products. On May 3,
1999, the Company and Civix entered into a license agreement, dated May 3,
1999, pursuant to which the Company acquired a license under the Civix patents.
The license agreement also provides certain rights to customers and end users
of the Company's products and services. Pursuant to the license agreement, the
Company paid a one-time license fee. In connection with the acquisition of the
license, the Company and Civix agreed to settle the lawsuit and to jointly seek
entry in the lawsuit of an agreed-upon order dismissing the Company from the
lawsuit and dismissing certain claims against the Company's co-defendant
customers relating to their use and sale of the Company's products and
services. The order was entered by the Court on May 18, 1999.
Rand McNally has written a letter to National Geographic claiming that
National Geographic's laminated maps infringe upon one of its patents. The
Company has agreed to take responsibility pursuant to its indemnification
obligations and believes that this claim will be settled for approximately
$10,000.
The Company has also been approached by Unisys concerning a license under
U.S. Patent No. 4,558,302, which covers certain data compression technology
commonly referred to as the Lempel-Zev-Welch or ALZW@ algorithm. Unisys and the
Company are presently engaged in negotiations concerning a possible license
under the '302 patent. Unisys has not filed a lawsuit, although it has
suggested the possibility of litigation to enforce the '302 patent if
negotiations are unsuccessful. Under the terms of the merger agreement, as
described in Note 9, the Company may not settle certain claims without America
Online's consent.
F-29
<PAGE>
MAPQUEST.COM, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Universal Map Enterprises, Inc. filed a lawsuit against MapQuest and America
Online in the United States District Court in the Western District of New York.
In that lawsuit, Universal Map Enterprises alleges claims against the Company
for breach of contract, conversion and specific performance, and against
America Online for tortious interference with business arrangements, in
connection with an alleged agreement to sell the Company's online electronic
commerce website, MapStore.com, to Universal Map. Since the commencement of the
action, Universal Map has subsequently agreed to dismiss America Online from
the action without prejudice. Universal Map is seeking to recover $1,000,000 in
damages and/or specific performance of the alleged agreement, plus costs and
fees. The Company and Universal Map have entered into a stipulation whereby the
Company has agreed not to frustrate the ability of Universal Map to enforce a
judgment for specific performance against the Company if so rendered. The
Company denies liability and intends to vigorously defend the action.
ICM Conferences, Inc. and International Championship Management, Inc. filed
a claim against MapQuest in the Superior Court of the State of California for
the County of San Francisco alleging breach of contract relating to the lease
of exhibition space. The parties seek to recover $46,610, plus costs and
reasonable fees incurred. The Company denies any liability and intends to
vigorously defend the action.
MapQuest periodically receives notices of claims arising out of the normal
course of business. Management is not aware of any notices of claims that would
have a material adverse effect on MapQuest's financial position, results of
operations, or liquidity.
8. New Accounting Pronouncements
The Securities and Exchange Commission and the accounting standards setters
have been challenging, clarifying and determining the accounting by Internet
companies for various kinds of revenues and costs. Recently, the Securities and
Exchange Commission's staff issued Staff Accounting Bulletin 101 (SAB 101)
which addresses revenue recognition and display issues. The Emerging Issuers
Task Force (EITF) of the Financial Accounting Standards Board has reached a
consensus position on several issues. MapQuest is evaluating the impact of the
SAB and EITF rules to determine whether changes in accounting methods are
required. The EITF will be considering other rule changes that could also
require changes to MapQuest's accounting methods.
9. Subsequent Events
MapQuest merger with America Online, Inc.
On December 22, 1999, the Company announced that it will be acquired by
American Online, Inc. ("AOL") in an all-stock transaction. Shareholders of
MapQuest will receive .31558 shares of AOL common stock for each share of
MapQuest stock. The transaction is expected to close in the spring of 2000,
subject to various conditions including customary regulatory approvals and the
approval of MapQuest shareholders. The transaction will be accounted for as a
pooling-of-interests by AOL.
F-30
<PAGE>
ANNEX D
[Robertson Stephens Letterhead]
December 21, 1999
Board of Directors
MapQuest.com, Inc.
3710 Hempland Road
Mountville, Pennsylvania 17554
Members of the Board:
We understand that MapQuest.com, Inc. (the "Company"), America Online, Inc.
("Acquiror") and MQ Acquisition, Inc. (a wholly owned subsidiary of Acquiror,
"Merger Sub") are proposing to enter into an Agreement and Plan of Merger
(together with the agreements attached thereto as exhibits, including the
Stockholders Agreement (the "Stockholders Agreement") and the Stock Option
Agreement, the "Agreement") which will provide, among other things, for the
merger (the "Merger") of Merger Sub with and into the Company. Upon
consummation of the Merger, the Company will become a wholly owned subsidiary
of Acquiror. Under the terms set forth in a draft of the Agreement dated
December 21, 1999 (the "Draft Agreement"), at the effective time of the Merger
(the "Effective Time"), each share of common stock of the Company, par value
$.001 per share ("Company Common Stock") issued and outstanding immediately
prior to the Effective Time, other than certain shares to be canceled pursuant
to the Agreement, will be converted into the right to receive 0.31558 of a
share (the "Exchange Ratio") of the common stock of Acquiror, par value $0.01
per share ("Acquiror Common Stock"). The terms and conditions of the Merger are
set out more fully in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view and as of the date hereof to the "Holders of Company
Common Stock". The "Holders of Company Common Stock" shall be defined as all
holders of Company Common Stock other than Acquiror, Merger Sub or any
affiliates of Acquiror or Merger Sub (holders of Company Common Stock will not
be considered to be affiliates of Acquiror or Merger Sub simply by virtue of
entering into the Stockholders Agreement).
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and Acquiror,
respectively;
(ii) reviewed with the Company certain publicly available estimates of
research analysts relating to the Company;
(iii) reviewed certain publicly available estimates of research analysts
relating to Acquiror;
(iv) held discussions with the respective managements of the Company and
Acquiror concerning the businesses, past and current operations and
financial condition of both the Company and Acquiror and also the future
prospects of the combined company, including discussions with the
managements of the Company and Acquiror concerning their views regarding
the strategic rationale for the Merger;
(v) reviewed the financial terms and conditions set forth in the Draft
Agreement;
(vi) reviewed the stock price and trading history of Company Common
Stock and Acquiror Common Stock;
(vii) compared the financial performance of the Company and the prices
and trading activity of Company Common Stock with that of certain other
publicly traded companies comparable with the Company;
(viii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions that we
deemed relevant;
D-1
<PAGE>
(ix) reviewed the pro forma impact of the Merger on Acquiror's revenue
per share and earnings per share;
(x) prepared an analysis of the relative contributions of the Company
and Acquiror to the combined company;
(xi) participated in discussions and negotiations among representatives
of the Company and Acquiror and their financial and legal advisors; and
(xii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided to us (including information furnished to us orally
or otherwise discussed with us by the managements of the Company and Acquiror)
or publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the Company's management that it is not aware of any facts that
would make such information inaccurate or misleading. Furthermore, we did not
obtain or make, or assume any responsibility for obtaining or making, any
independent evaluation or appraisal of the properties, assets or liabilities
(contingent or otherwise) of the Company or Acquiror, nor were we furnished
with any such evaluation or appraisal. With respect to the publicly available
estimates of research analysts (and the assumptions and bases therefor) for
each of the Company and Acquiror that we have reviewed, we have assumed that
such forecasts and projections have been reasonably prepared in good faith on
the basis of reasonable assumptions and reflect the best currently available
estimates and judgments as to the future financial condition and performance
of the Company and Acquiror, respectively. In this regard, we note that each
of the Company and Acquiror face exposure to the Year 2000 problem. We have
not undertaken any independent analysis to evaluate the reliability or
accuracy of the assumptions made with respect to the potential effect that the
Year 2000 problem might have on the Company's and Acquiror's respective
forecasts. The only financial forecasts and projections that we used in our
analysis were the publicly available estimates of research analysts. We have
assumed that the Merger will be consummated upon the terms set forth in the
Draft Agreement without material alteration thereof, including, among other
things, that the Merger will be accounted for as a "pooling-of-interests"
business combination in accordance with U.S. generally accepted accounting
principles ("GAAP") and that the Merger will be treated as a tax-free
reorganization pursuant to the Internal Revenue Code of 1986, as amended. In
addition, we have assumed that the historical financial statements of each of
the Company and Acquiror reviewed by us have been prepared and fairly
presented in accordance with U.S. GAAP consistently applied. We have relied as
to all legal matters relevant to rendering our opinion on the advice of
counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
the conclusion expressed in this opinion and that we disclaim any undertaking
or obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of
view and as to the date hereof, to the Holders of Company Common Stock of the
Exchange Ratio. We do not express any opinion as to (i) the value of any
employee agreement or other arrangement entered into in connection with the
Merger, (ii) any tax or other consequences that might result from the Merger
or (iii) what the value of Acquiror Common Stock will be when issued to the
Company's stockholders pursuant to the Merger or the price at which the shares
of Acquiror Common Stock that are issued pursuant to the Merger may be traded
in the future. Our opinion does not address the relative merits of the Merger
and the other business strategies that the Company's Board of Directors has
considered or may be considering, nor does it address the decision of the
Company's Board of Directors to proceed with the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive (i) a fee contingent upon the delivery of this opinion
and (ii) an additional fee contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of our
D-2
<PAGE>
engagement. In the past, we have provided certain investment banking services
to the Company for which we have been paid fees, including acting as lead
manager on the Company's initial public offering. We maintain a market in the
shares of Company Common Stock and Acquiror Common Stock. In the ordinary
course of business, we may trade in the Company's securities and Acquiror's
securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in the Company's
securities or Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. Except as may have otherwise been
agreed by us in writing, this opinion may not be summarized, described or
referred to or furnished to any party except with our express prior written
consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to the Holders of
Company Common Stock from a financial point of view.
Very truly yours,
FleetBoston Robertson Stephens Inc.
/s/ FleetBostonRobertson Stephens Inc.
-------------------------------------
D-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), because the person is or
was a director or officer of the corporation. Such indemnity may be against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against
any liability asserted against the person in any such capacity, or arising out
of the person's status as such, whether or not the corporation would have the
power to indemnify the person against such liability under the provisions of
the law.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 21, 1999, among the
Registrant, MQ Acquisition, Inc. and MapQuest.com, Inc., including the
Stockholders Agreement and the Stock Option Agreement (filed as
Exhibit 2.1, 2.2 and 2.3, respectively, to the Registrant's Current
Report on Form 8-K, dated as of December 21, 1999 and incorporated
herein by reference).
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by reference).
3.2 Amendments of Section A of Article 4 of the Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-3, Registration
No. 333-46633, and as Exhibit 3.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999, both of which
are incorporated herein by reference).
3.3 Restated By-Laws of the Registrant (filed as Exhibit 3.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1998 and incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.1 Article 4, Article 6 and Article 8 of the Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997 and incorporated herein by reference).
4.2 Rights Agreement dated as of May 12, 1998, between the Registrant and
BankBoston, N.A., as Rights Agent (filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 and incorporated herein by reference).
4.3 Amendment No. 1, dated as of January 9, 2000, between the Registrant
and BankBoston, N.A., as Rights Agent (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form 8-A/A, dated as of January
14, 2000 and incorporated herein by reference.
4.4 Indenture, dated as of November 17, 1997, between the Registrant, as
issuer, and State Street Bank and Trust Company, as trustee (filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated as
of December 2, 1997 and incorporated herein by reference).
4.5 Form of Indenture to be dated as of December 6, 1999, between the
Registrant and State Street Bank and Trust Company, as trustee (filed
as Exhibit 4.5 to the Registrant's Current Report on Form 8-K, dated
as of December 2, 1999 and incorporated herein by reference).
4.6 Form of Supplemental Indenture No. 1 to be dated as of December 6,
1999, between the Registrant and State Street Bank and Trust Company,
as trustee (filed as Exhibit 4.7 to the Registrant's Current Report on
Form 8-K, dated as of December 2, 1999 and incorporated herein by
reference).
5.1* Opinion of Simpson Thacher & Bartlett regarding legality of securities
being registered.
8.1* Opinion of Simpson Thacher & Bartlett regarding certain U.S. income
tax aspects of the merger.
8.2* Opinion of Mayer, Brown & Platt regarding certain U.S. income tax
aspects of the merger.
15.1* Letter regarding Unaudited Interim Financial Information.
23.1* Consent of Simpson Thacher & Bartlett (included as part of its
opinions filed as Exhibit 5.1 and Exhibit 8.1, respectively, and
incorporated herein by reference).
23.2* Consent of Mayer, Brown & Platt (included as part of its opinion filed
as Exhibit 8.2 and incorporated herein by reference).
23.3 Consents of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature page of this Form S-4 and
incorporated herein by reference).
99.1 Opinion of FleetBoston Robertson Stephens (included as Annex D to the
proxy statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
99.2 Consent of FleetBoston Robertson Stephens.
99.3 Form of Proxy of MapQuest.com, Inc.
</TABLE>
- --------
* To be filed by amendment.
(b)-(c) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore
have been omitted.
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration
II-2
<PAGE>
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of any such request, and to send
the incorporated documents by first class mail or other equally prompt
means, including information contained in documents filed subsequent to the
effective date of this registration statement through the date of
responding to the request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Loudon, Commonwealth
of Virginia, on February 11, 2000.
America Online, Inc.
/s/ J. Michael Kelly
By:----------------------------------
J. Michael Kelly
Senior Vice President, Chief
Financial Officer and Assistant
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Stephen M. Case, Kenneth J. Novack, J. Michael
Kelly, Paul T. Cappuccio, Sheila A. Clark and James F. MacGuidwin and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and to file the same with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen M. Case Chief Executive Officer February 11, 2000
___________________________________________ and Chairman of the Board
Stephen M. Case (Principal Executive
Officer)
/s/ Robert W. Pittman President and Chief February 11, 2000
___________________________________________ Operating Officer
Robert W. Pittman
/s/ J. Michael Kelly Senior Vice President, February 11, 2000
___________________________________________ Chief Financial Officer
J. Michael Kelly and Assistant Secretary
(Principal Financial
Officer)
/s/ James F. MacGuidwin Vice President, February 11, 2000
___________________________________________ Controller, Chief
James F. MacGuidwin Accounting and Budget
Officer (Principal
Accounting Officer)
/s/ Daniel F. Akerson Director February 11, 2000
___________________________________________
Daniel F. Akerson
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James L. Barksdale Director February 11, 2000
___________________________________________
James L. Barksdale
/s/ Frank J. Caufield Director February 11, 2000
___________________________________________
Frank J. Caufield
/s/ Miles R. Gilburne Director February 11, 2000
___________________________________________
Miles R. Gilburne
/s/ Alexander M. Haig, Jr. Director February 11, 2000
___________________________________________
Alexander M. Haig, Jr.
Vice Chairman and Director February 11, 2000
___________________________________________
Kenneth J. Novack
/s/ Colin L. Powell Director February 11, 2000
___________________________________________
Colin L. Powell
/s/ Franklin D. Raines Director February 11, 2000
___________________________________________
Franklin D. Raines
/s/ Marjorie M. Scardino Director February 11, 2000
___________________________________________
Marjorie M. Scardino
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 21, 1999, among the
Registrant, MQ Acquisition, Inc. and MapQuest.com, Inc., including the
Stockholders Agreement and the Stock Option Agreement (filed as
Exhibits 2.1, 2.2 and 2.3, respectively, to the Registrant's Current
Report on Form 8-K, dated as of December 21, 1999 and incorporated
herein by reference).
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by reference).
3.2 Amendments of Section A of Article 4 of the Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-3, Registration No. 333-
46633, and as Exhibit 3.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, both of which are
incorporated herein by reference).
3.3 Restated By-Laws of the Registrant (filed as Exhibit 3.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1998 and incorporated herein by reference).
4.1 Article 4, Article 6 and Article 8 of the Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997 and incorporated herein by reference).
4.2 Rights Agreement dated as of May 12, 1998, between the Registrant and
BankBoston, N.A., as Rights Agent (filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 and incorporated herein by reference).
4.3 Amendment No. 1, dated as of January 9, 2000, between the Registrant
and BankBoston, N.A., as Rights Agent (filed by Exhibit 4.1 to the
Registrant's Registration Statement on Form 8-A/A, dated as of January
14, 2000 and incorporated herein by reference).
4.4 Indenture, dated as of November 17, 1997, between the Registrant, as
issuer, and State Street Bank and Trust Company, as trustee (filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated as
of December 2, 1997 and incorporated herein by reference).
4.5 Form of Indenture to be dated as of December 6, 1999, between the
Registrant and State Street Bank and Trust Company, as trustee (filed
as Exhibit 4.5 to the Registrant's Current Report on Form 8-K, dated
as of December 2, 1999 and incorporated herein by reference).
4.6 Form of Supplemental Indenture No. 1 to be dated as of December 6,
1999, between the Registrant and State Street Bank and Trust Company,
as trustee (filed as Exhibit 4.7 to the Registrant's Current Report on
Form 8-K, dated as of December 2, 1999 and incorporated herein by
reference).
5.1* Opinion of Simpson Thacher & Bartlett regarding legality of securities
being registered.
8.1* Opinion of Simpson Thacher & Bartlett regarding certain U.S. income
tax aspects of the Merger.
8.2* Opinion of Mayer, Brown & Platt regarding certain U.S. income tax
aspects of the Merger.
15.1* Letter regarding Unaudited Interim Financial Information.
23.1* Consent of Simpson Thacher & Bartlett (included as part of its
opinions filed as Exhibit 5.1 and Exhibit 8.1, respectively, and
incorporated herein by reference).
23.2* Consent of Mayer, Brown & Platt (included as part of its opinion filed
as Exhibit 8.2 and incorporated herein by reference).
23.3 Consents of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature page of this Form S-4 and
incorporated herein by reference).
99.1 Opinion of FleetBoston Robertson Stephens (included as Annex D to the
proxy statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
99.2 Consent of FleetBoston Robertson Stephens.
99.3 Form of Proxy of MapQuest.com, Inc.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 18, 1999 (except for the matters discussed in
the next to last paragraph of Note 14 and all of Note 15, as to which the date
is May 3, 1999), with respect to the financial statements and schedule of
MapQuest.com, Inc. included in the Proxy Statement/Prospectus of MapQuest.com,
Inc. that is made part of the Registration Statement (Form S-4 No. 333- ) of
America Online, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
February 9, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 21, 1999, with respect to the consolidated
financial statements of America Online, Inc. included in its Annual Report on
Form 10-K for the year ended June 30, 1999, filed with the Securities and
Exchange Commission, incorporated by reference in the Proxy Statement/
Prospectus of MapQuest.com, Inc. that is made part of the Registration Statement
(Form S-4 No. 333- ) of America Online, Inc. for the registration of its
common stock.
/s/ Ernst & Young LLP
McLean, Virginia
February 9, 2000
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Proxy Statement of MapQuest.com, Inc. that is made part of the Registration
Statement on Form S-4 and Prospectus of America Online, Inc. for the
registration of its common stock and to the incorporation by reference therein
of our reports dated February 3, 1999, with respect to the consolidated
financial statements, schedule and supplementary information of Time Warner
Inc. ("Time Warner") and the consolidated financial statements and schedule of
Time Warner Entertainment Company, L.P., included in Time Warner's Annual Report
on Form 10-K for the year ended December 31, 1998, as amended by Time Warner's
Form 10-K/A dated June 28, 1999, filed with the Securities and Exchange
Commission.
/s/ERNST & YOUNG LLP
New York, New York
February 9, 2000
<PAGE>
Exhibit 99.2
CONSENT OF FLEETBOSTON ROBERTSON STEPHENS INC.
We hereby consent to the use of and reference to our opinion dated
December 21, 1999 to the Board of Directors of MapQuest.com, Inc. in the proxy
statement/prospectus included in this Registration Statement on Form S-4 of
America Online, Inc. (the "Registration Statement"). In giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Securities Act"), or the rules and regulations promulgated thereunder, nor
do we admit that we are experts with respect to any part of the Registration
Statement within the meaning of the term "experts" as used in the Securities Act
or the rules and regulations promulgated thereunder.
FLEETBOSTON ROBERTSON STEPHENS INC.
/s/ FleetBoston Robertson Stephens Inc.
-------------------------------------
San Francisco, CA
February 11, 2000
<PAGE>
EXHIBIT 99.3
When OK to Print -- Remove ALL Red Items Please mark your
votes as indicated [X]
- --------------------------------------------- in this example
NO TEXT PRINTING IN THIS AREA
- ---------------------------------------------
MapQuest.com,Inc. [Your Control Number is:]
3710 Hempland Road, Mountville, PA 17554 [ ]
To Our Stockholders:
The formal notice of the special meeting is in the enclosed proxy
statement/prospectus. Please read the proxy statement/prospectus and when
finished, promptly vote either by telephone, fax, the Internet or mail.
For this special meeting, we are pleased to provide telephone, fax and Internet
voting options. Telephone or Internet votes must be received by 5:00 p.m.
Eastern time on _____________, _______________, 2000 to be counted in the final
tabulation. Do not mail the proxy card if you elect to vote by telephone, fax or
the Internet.
For your convenience, we have consolidated your holdings except for the shares
that you may hold at a banking institution or brokerage house.
Vote 24 hours a day, 7 days a week!
Vote by Telephone Have your proxy card available when you call the toll-free
number [insert telephone] using a touch-tone phone. You
will be prompted to enter your Control Number and then you
can follow the simple prompts that will be presented to
you to record your vote.
Vote by Fax Please mark, sign and date your proxy card and fax this
side of your proxy card only to [insert fax telephone
number].
Vote by the Internet Have your proxy card available when you access the website
[insert website]. You will be prompted to enter your
Control Number and then you can follow the simple prompts
that will be presented to you to record your vote.
Vote by Mail Please mark, sign and date your proxy card and return it
to [insert address] in the enclosed postage-paid envelope.
Do not mail your proxy card if you have elected to vote by
telephone, fax or the Internet.
- ------------------------------------------------------------------------------
NO TEXT PRINT IN THIS
ADDRESS AREA
- ------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" THE PROPOSAL
To adopt the Agreement and Plan of Merger among FOR AGAINST ABSTAIN
America Online, Inc., MQ Acquisition, Inc., [_] [_] [_]
and MapQuest.com, Inc. dated as of December 21,
1999, as the same may be amended from time to time.
To transact such other business related to matters
as may properly come before the special meeting or
any adjournments or postponements thereof.
If you wish to vote as the Board of Directors recommends, you need not mark this
card. Just sign and date this card and return it promptly in the enclosed
envelope.
YOUR VOTE IS IMPORTANT -- PLEASE VOTE TODAY.
Signature(s): Date:
------------------------------------------ -----------------
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE>
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF MAPQUEST.COM, INC.
SPECIAL MEETING OF STOCKHOLDERS ON _________________, 2000
I or we authorize Michael J. Mulligan and James W. Thomas and any one or both of
them, as proxies, to vote all stock of mine or ours in MapQuest.com, Inc. on any
matters that come before the Special Meeting of Stockholders of MapQuest.com,
Inc., or any adjournments or postponements of the meeting, to be held on
____________, 2000, or at a later time if the Special Meeting is adjourned or
postponed. Each proxy may substitute another to act for him. The proposal set
forth above is described in the Proxy Statement/Prospectus.
The proxies will vote:
(1) as you specified on this card;
(2) as the Board of Directors recommends where no choice is specified; and
(3) as the proxies decide on any other matter.
For Participants in MapQuest's Employee Stock Ownership Plan: As to those shares
of MapQuest.com, Inc., if any, that are held for me, I instruct the Trustee of
the applicable Program to sign a proxy for me in substantially the form set
forth on the reverse side. The trustee shall mark the proxy as I instruct. If
the trustee does not receive this proxy, my shares will be voted in the same
proportion as the trustee votes the shares for which it receives instructions.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
