The new plan was adopted to reflect the significant increase in the company's stock price and long-term value since its former rights plan was adopted in 1993. Since 1993, AOL stock has split four times.
A $100 investment in AOL at the end of its fiscal year in 1992 would have appreciated to $3,296 by the end of fiscal 1997, according to AOL's proxy filing with the Securities and Exchange Commission. That same $100 invested in the Nasdaq would have grown to $264, the government document said.
The company stated that it was not adopting the new plan in response to any known effort to acquire the company. Rather, it said that the plan is designed to assure equity among shareholders should there be any future acquisition attempts.
"[Updating the shareholder plan] is pretty routine," company spokeswoman Tricia Primrose said. "This is done to make sure that shareholders are all treated equally in any unsolicited [bid for the company]."
The board ordered the redemption of all rights granted under its current shareholder rights plan. The new plan increases the exercise price of the rights to $900. According to AOL, this means that, if an individual or group were to make an unsolicited purchase of more than 15 percent of the company's stock, shareholders will have the right to buy $1,800 worth of stock for $900, in essence diluting the stock so that the person or group attempting the takeover will then only have about 7.5 percent of the company.
Once exercisable, the new rights plan allows shareholders (other than the acquirer) to purchase common stock in the online giant at a substantial discount.
Ultimately, the new plan is an attempt by AOL to require the person or group seeking to acquire the company to negotiate through AOL's board of directors.
The new plan was implemented by declaring a dividend distribution of one preferred share purchase right for each outstanding share of America Online's common stock.
The dividend will be distributed to shareholders of record on June 1, 1998, and will be payable as of the close of business on that date. The new rights will expire on May 12, 2008, unless redeemed prior to that date.
The rights will be exercisable only if a person or group acquires 15 percent or more of the company's common stock, or announces a tender offer, the consummation of which would result in ownership of 15 percent or more of the common stock by that person or group.