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Case Status:    SETTLED
On or around 12/17/1998 (Date of order of final judgment)

Filing Date: February 24, 1997

According to the docket dated December 16, 1998, on December 14, 1998 the Court filed an Order and Final Judgment. Certain Plaintiffs were awarded the sum of $10,500,000.00 in fees, which the Court finds to be fair and reasonable, and $1,558,079.21 in reimbursement of expenses, which shall be paid to Plaintiffs' Counsel from the Gross Settlement Fund with interest from the date such Gross Settlement Fund was funded to the date of payment at the same rate that the Cash Settlement Amount earns. The award of attorneys' fees shall be allocated among counsel for plaintiffs and the Class in a fashion which, in the opinion of Plaintiffs' Co-Lead counsel, fairly compensates counsel for the Plaintiffs and the Class for their respective contributions in the prosecution of the litigation against America Online, Inc., Stephen M. Case, and Lennert J. Leader. The case is closed.

As reported in the firm's 10-K filing dated September 28, 1998, the Company has entered into a preliminary agreement to settle the action, subject to negotiation of final documentation and approval by the court. As part of the settlement, the Company will make $35 million in payments, a substantial portion of which it expects to be covered by insurance. A shareholder derivative suit related to such class action lawsuit has also been filed in Delaware chancery court against certain current and former directors of the Company and remains pending. The Company has entered into a preliminary agreement to settle the shareholder derivative suit, subject to negotiation of final documentation and approval by the Delaware chancery court, on terms that will not have a material adverse effect on the financial condition or results of operations of the Company.

The original complaint, as detailed below, alleges that AOL and certain of its
officers, directors and AOL's outside public accountants violated the federal
securities laws. AOL provides on-line services to personal computer users, in
competition with other on-line service providers and with direct Internet
access and service providers. During AOL's 1996 fiscal year ("F96"), ended June
30, 1996, AOL reported strong growth in net income and earnings per share
("EPS") totaling $29.8 million or $.28 per share with shareholders' equity
increasing to $512 million, based on AOL's largest single asset -- "Deferred
Subscriber Acquisition Costs" -- of $314 million, resulting from AOL's vastly
increasing marketing expenditures to try to attract subscribers to its system.
AOL's interim F96 financial results were reviewed by Ernst & Young ("E&Y") and
represented by AOL as fairly presenting its financial condition and results of
operations in conformity with Generally Accepted Accounting Principles
("GAAP"), as were its F96 results which were certified by E&Y as being fairly
presented in conformity with GAAP, after an audit by E&Y in accordance with
Generally Accepted Auditing Standards ("GAAS"). AOL and E&Y justified AOL's
deferral of hundreds of millions of subscriber acquisition costs (basically
direct response advertising and marketing expenditures) and their amortization
over a 24-month period on the ground that the average AOL subscriber stayed
with AOL for over 40 months and had a lifetime subscription value of over
$700. In addition, AOL represented that its new direct Internet access
service -- Global Network Navigator ("GNN") -- and its Booklink WebBrowser was
very successful and attracting large numbers of subscribers -- thus enabling
AOL to effectively compete in the Internet access market. As a result of its
success, positive momentum and subscriber growth resulting from its increasing
marketing expenditures, AOL forecast increased F97 EPS of $1.00+ and that AOL
would reach 10 million subscribers by June 1997, and AOL's stock soared to an
all-time high of $71 per share in May 1996.

However, during June-Oct.1996, AOL's stock declined sharply, as AOL
revealed that despite its greatly increased marketing expenditures it was
suffering from slowing subscriber growth and increased subscriber
cancellations, such that it could not forecast future subscriber retention
rates, i.e., subscriber life. Thus, AOL had to reduce its marketing
expenditures and concentrate on trying to increase subscriber retention. Then,
on Oct. 29, 1996, just a few weeks after AOL had issued its F96 financial
statements and E&Y had certified its assets, earnings and shareholders' equity,
as well as the appropriateness of AOL's accounting practices, AOL revealed that
it was taking huge write-offs of $460 million, including: (i) a $385 million
write-off of all previously deferred or (capitalized) subscriber acquisition
costs, and would end its practice of not expensing such costs; and (ii) a $75
million "restructuring" write- off which, inter alia, would completely
eliminate AOL's investment in GNN and its WebBrowser, which had failed as an
Internet access product, resulting in the firing of over 300 employees. Thus,
AOL instantly eliminated in its entirety the largest single asset on its
balance sheet, reduced its shareholders' equity by 80% and wiped out by five
times over the total pre-tax net income it had ever reported. It is now clear
that AOL had never earned any profits and, in fact, had been incurring huge
operating losses in prior years rather than the profits it had claimed, AOL
will not reach 10 million subscribers by June 1997 and instead of the
profitable growth forecast by and for it in F97, AOL will suffer huge losses.
During mid-Oct. 1996, AOL stock collapsed to as low as $22-3/8 per share --
70% below its Class Period and all-time high of $71.

However, before the truth about AOL's huge losses, improper accounting
practices, failed Internet access product and inability to reach the 10 million
subscriber mark by June 1997 were revealed, AOL and the 18 insiders named as
defendants took advantage of the artificial inflation in AOL's stock their
false and misleading statements had caused to sell off 4.9 million and 2.1
million shares of AOL stock, respectively, at prices as high as $55-3/8 per
share. This enabled AOL to obtain $139 million in badly needed new capital and
the 18 insiders to pocket over $95 million in insider trading profits. AOL's
co-founder and Chairman Emeritus James V. Kimsey sold 82% of his AOL stock --
651,000 shares at as high as $55-3/8 per share pocketing $24.5 million. AOL's
co-founder, Chairman and CEO Stephen Case sold 76% of his AOL stock -- 575,000
shares at as high as $55 per share pocketing $29.1 million. AOL's Chief
Financial Officer, Lennert Leader, sold 66% of his AOL stock -- 210,800 shares
at as high as $54 per share, pocketing $10 million. Collectively, the 18 AOL
insiders named as defendants unloaded 72% of their AOL holdings during the
Class Period.

COMPANY INFORMATION:

Sector: Technology
Industry: Computer Services
Headquarters: United States

SECURITIES INFORMATION:

Ticker Symbol: AOL
Company Market: NASDAQ
Market Status: Public (Listed)

About the Company & Securities Data


"Company" information provides the industry and sector classification and headquarters state for the primary company-defendant in the litigation. In general, "Securities" information provides the ticker symbol, market, and market status for the underlying securities at issue in the litigation.

In most cases, the primary company-defendant actually issued the securities that are the subject of the litigation, and the securities information and company information relate to the same entity. In a small subset of cases, however, the primary company-defendant is not the issuer (for example, cases against third party brokers/dealers), and the securities information and company information do not relate to the same entity.
COURT: E.D. Virginia
DOCKET #: 97-CV-00264
JUDGE: Hon. T. S. Ellis III
DATE FILED: 02/24/1997
CLASS PERIOD START: 08/10/1995
CLASS PERIOD END: 10/29/1996
PLAINTIFF FIRMS NAMED IN COMPLAINT:
  1. Milberg Weiss Bershad Hynes & Lerach LLP (San Diego, CA)
    600 West Broadway, 1800 One America Plaza, Milberg Weiss Bershad Hynes & Lerach LLP (San Diego, CA), CA 92101
    800.449.4900 · support@milberg.com
  2. Richards, McGettigan, Reilly & West, P.C.
    Suite 700 King Street Station 225 Reinekers Lane, Richards, McGettigan, Reilly & West, P.C., VA 22314-2822
    703.549.5350 ·
No Document Title Filing Date
COURT: E.D. Virginia
DOCKET #: 97-CV-00264
JUDGE: Hon. T. S. Ellis III
DATE FILED: 11/18/1997
CLASS PERIOD START: 08/10/1995
CLASS PERIOD END: 10/29/1996
PLAINTIFF FIRMS NAMED IN COMPLAINT:
  1. Milberg Weiss Bershad Hynes & Lerach LLP (San Diego, CA)
    600 West Broadway, 1800 One America Plaza, Milberg Weiss Bershad Hynes & Lerach LLP (San Diego, CA), CA 92101
    800.449.4900 · support@milberg.com
  2. Morris and Morris LLC (Former Address)
    1105 North Market Street, Suite 1600, Morris and Morris LLC (Former Address), DE 19801
    800.296.0410 · firm@morrisandmorrislaw.com
  3. Richards, McGettigan, Reilly & West, P.C.
    Suite 700 King Street Station 225 Reinekers Lane, Richards, McGettigan, Reilly & West, P.C., VA 22314-2822
    703.549.5350 ·
No Document Title Filing Date