Earthlink 2000 Annual Report Download

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FORM 10-K405
EARTHLINK INC
(Annual Report (Regulation S-K, item 405))
Filed 3/9/2001 For Period Ending 12/31/2000
Address 1375 PEACHTREE STREET SUITE 400
ATLANTA, Georgia 30309
Telephone 404-815-0770
CIK 0001102541
Industry Computer Services
Sector Technology
Fiscal Year 12/31

Table of contents

  • Page 1
    EARTHLINK INC FORM 10-K405 (Annual Report (Regulation S-K, item 405)) Filed 3/9/2001 For Period Ending 12/31/2000 Address Telephone CIK Industry Sector Fiscal Year 1375 PEACHTREE STREET SUITE 400 ATLANTA, Georgia 30309 404-815-0770 0001102541 Computer Services Technology 12/31

  • Page 2
    ... 31, 2000 COMMISSION FILE NUMBER 001-15605 EARTHLINK, INC. (Exact name of Registrant as specified in its charter) DELAWARE (State of Incorporation) 58-2511877 (I.R.S. Employer Identification Number) 1375 PEACHTREE ST., ATLANTA, GEORGIA 30309 (Address of principal executive offices, including...

  • Page 3
    EARTHLINK, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS PART I Item 1. Item 2. Item 3. Item 4. Business...Properties...Legal Proceedings...Submission of Matters to a Vote of Security-Holders...PART II Item 5. Market for Registrant's Common Equity and Related...

  • Page 4
    ... reliable access to the Internet, (2) superior customer service and technical support, and (3) customer education and support. Our corporate offices are located at 1375 Peachtree St., Atlanta, Georgia 30309 and our telephone number at that address is (404) 815-0770. AMENDED RELATIONSHIP WITH SPRINT...

  • Page 5
    ...'s broadband services, and some of its web hosting services. EarthLink does this through a wholesale arrangement with Sprint. Sprint continues to sell EarthLink-branded dial up Internet access service, though Sprint may now, at its election create a Sprint-branded dial-up service, using EarthLink or...

  • Page 6
    ...our Internet access software with their own goods or services to create a package that promotes EarthLink to potential customers. MEMBER REFERRAL PROGRAM. We believe that our existing customers are among our most important marketing tools. We currently waive one month of standard access service fees...

  • Page 7
    ... Dial-up Internet access, - High speed access via DSL, cable modem, fixed wireless or dedicated circuits, - Web hosting, and - Content, commerce and advertising. These services are offered in various competitively priced plans designed to meet the needs of our customers. Our Internet access software...

  • Page 8
    ... services consist of: - Web hosting, the business of maintaining a customer's Internet Web site, - Web page design, - domain name registration, and - e-commerce solutions. In December 1999, we debuted our new access software and online interface, EarthLink 5.0. EarthLink 5.0 is designed to provide...

  • Page 9
    .... We also regularly update and expand the online services provided through the EarthLink Web site, organize Web content and develop online guides, help screens and other user services and resources. POPS AND NETWORK INFRASTRUCTURE We provide our customers with Internet access primarily through both...

  • Page 10
    ... United States for general corporate purposes, including technology centers, customer call centers, office space and our corporate headquarters. Our principal executive offices are in Atlanta, Georgia. We lease approximately 323,000 square feet in our headquarters building at a current monthly rent...

  • Page 11
    ..., we maintain leased space for customer support call centers and office purposes in Atlanta, Georgia, Harrisburg, Pennsylvania, Pasadena, California, Phoenix, Arizona, Sacramento, California, San Jose, California, Rocklin, California, and Dallas, Texas. All of the above leases include scheduled...

  • Page 12
    ... "ELNK," and MindSpring common stock was listed and traded on the Nasdaq National Market under the symbol "MSPG". This table sets forth for the indicated periods the high and low sales prices per share, as reported as composite transactions in THE WALL STREET JOURNAL. Neither EarthLink Network nor...

  • Page 13
    ...in the net loss per share computation. (3) Represents earnings (loss) before depreciation and amortization, interest income and expense and income tax expense. EBITDA is not determined in accordance with accounting principles generally accepted in the United States, is not indicative of cash used by...

  • Page 14
    ...leading Internet service provider, ("ISP"), providing reliable nationwide Internet access and related value-added services to our individual and business customers. The Company was formed in February 2000 by the merger of EarthLink Network and MindSpring. The word "Network" was dropped from the name...

  • Page 15
    ...one time set up fees; - WEB HOSTING REVENUES which we earn by providing web services to companies and individuals wishing to have a web or e-Commerce presence - BROADBAND ACCESS REVENUES which consists of fees charged for high-speed, high capacity access services including DSL, cable, fixed wireless...

  • Page 16
    ...DATA: Revenues: Narrowband access...Web hosting...Broadband access...Content, commerce and advertising...Total revenues...Operating costs and expenses: Cost of revenues...Sales and marketing...Operations and member support...General and administrative...Merger-related charges(1)...Acquistion-related...

  • Page 17
    ... OneMain, the Company hosted approximately 169,000 Web sites, compared to approximately 109,000 as of December 31, 1999. BROADBAND ACCESS REVENUES Broadband access revenues represent fees charged for high-speed, high-capacity access services including digital subscriber line (DSL), cable, dedicated...

  • Page 18
    ... primarily of advertising, direct response mailings, sales compensation, bounties, communications costs related to trial customers, salaries, promotional material, and the cost of consumer premise equipment and installation for broadband customers, net of reimbursements from our providers. Sales and...

  • Page 19
    ... in credit card processing fees and bad debt were primarily due to the increase in our customer base. MERGER AND RELATED CHARGES During the three months ended March 31, 2000, the Company recorded a charge of $34.0 million related to the merger of EarthLink Network and MindSpring. Substantially...

  • Page 20
    ... to: (a) more effective management of our network, (b) the addition of lower cost POP providers such as Sprint and Level 3, and (c) our increasing ability to negotiate more favorable commercial arrangements with our telecommunications service providers as we leveraged our growing customer base. 17

  • Page 21
    ... to 3.1 million, (2) the opening of additional call centers in 1999 and (3) management's focus on retaining existing customers by providing superior service and devoting significant resources to expanding technical support capabilities. GENERAL AND ADMINISTRATIVE General and administrative expenses...

  • Page 22
    ...deliver services to customers of Apple in the U.S. Under the terms of the partnership, Apple purchased 7.1 million shares of EarthLink's Series C convertible preferred stock. Net proceeds were $199.5 million. In February 2000, Sprint exercised its preemptive rights to maintain its ownership level in...

  • Page 23
    .... In May 2000, Sprint exercised its preemptive rights to maintain its ownership level in the Company after the merger of EarthLink Network and MindSpring. Accordingly, Sprint purchased approximately 26.0 million shares consisting of approximately 6.0 million shares of common stock and approximately...

  • Page 24
    ... in a subsequent section of this Report. (See Item 14(a)(1) and (2)). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 29, 2000, EarthLink dismissed PricewaterhouseCoopers LLP as the Company's independent accountants and engaged Ernst & Young LLP...

  • Page 25
    ...PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement...report on the financial statements for such years. None of the "reportable events" described in Item 304(a)(1)(v) of Regulation S-K under the Securities...set forth in Item 304(a)(2) of Regulation S-K. 22

  • Page 26
    ... Committee Report on Executive Compensation" and "Stock Performance Graph," which specifically is not so incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding ownership of the Company's securities by certain persons is set forth...

  • Page 27
    ... Stock. Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.6 of EarthLink, Inc.'s Report on Form 10-K for the fiscal year ended December 31, 1999--File No. 001-15605). Specimen Common Stock Certificate (incorporated...

  • Page 28
    Exhibit 4.4 of EarthLink, Inc.'s Registration Statement on Form S-8--No. 333-39456). 24

  • Page 29
    ... on Form S-8--File No. 333-30024). MindSpring Enterprises, Inc. 1995 Directors Stock Option Plan, as amended (incorporated by reference to Exhibit 4.6 of EarthLink, Inc.'s Registration Statement on Form S-8--File No. 333-30024). (a) Netscape Communications Corporation Internet Service Provider...

  • Page 30
    related instructions or are inapplicable. 25

  • Page 31
    ...of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EARTHLINK, INC. By: /s/ CHARLES G. BETTY Charles G. Betty, CHIEF EXECUTIVE OFFICER Date: March 8, 2001 Each person whose signature appears below...

  • Page 32
    SIGNATURE --------Date: March 8, 2001 TITLE ----/s/ ROBERT M. KAVNER -------------------------------------Robert M. Kavner, Director /s/ LINWOOD A. LACY, JR. -------------------------------------Linwood A. Lacy Jr., Director /s/ MICHAEL S. MCQUARY -------------------------------------Michael S. ...

  • Page 33
    EARTHLINK, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE -------F-2 Report of Ernst & Young LLP, Independent Auditors...Report of PricewaterhouseCoopers LLP, Independent Accountants...Report of Arthur Andersen LLP, Independent Public Accountants...Consolidated Balance Sheets as of December ...

  • Page 34
    ... financial position of EarthLink, Inc. at December 31, 2000, and the consolidated results of their operations and their cash flows for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Atlanta, Georgia January 29...

  • Page 35
    ... the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Century City, California March...

  • Page 36
    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To EarthLink, Inc.: We have audited the balance sheet of MINDSPRING ENTERPRISES, INC. (a Delaware corporation) as of December 31, 1999 and the related statements of operations, stockholders equity, and cash flows for the two years ended December 31, 1998 and ...

  • Page 37
    ... portion of capital lease obligations...Total liabilities...Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 100,000 shares authorized, Series A convertible, 6,626 shares issued and outstanding at December 31, 1999 and 2000, respectively...Series B convertible...

  • Page 38
    F-5

  • Page 39
    ... SHARE DATA) Revenues: Narrowband access...Web hosting...Broadband access...Content, commerce and advertising...Total revenues...Operating costs and expenses: Cost of revenues...Sales and marketing...Operations and customer support...General and administrative...Merger-related charges...Acquisition...

  • Page 40
    ... pursuant to top-up agreement with Sprint...Issuance of common stock pursuant to exercise of stock options...Issuance of common stock pursuant to exercise of warrants...Issuance of options and warrants in OneMain acquisition...Net loss...Balance at December 31, 2000...-6,626 6,626 979 7,605 22,072...

  • Page 41
    ... to top-up agreement with Sprint...Issuance of common stock pursuant to exercise of stock options...Issuance of common stock pursuant to exercise of warrants...Issuance of options and warrants in OneMain acquisition...Net loss...Balance at December 31, 2000... -----(647) 91 60 -------597 -----(120...

  • Page 42
    ......Net cash provided by (used in) operating activities...Cash flows from investing activities: Purchase of property and equipment...Sale of property and equipment...Purchase of intangible assets...Acquisition of business, net of cash acquired...Transaction costs...Cash acquired from acquisition...

  • Page 43
    ...POLICIES ORGANIZATION EarthLink, Inc. (or the "Company"), is a leading Internet service provider, or ISP, providing reliable nationwide Internet access and related value-added services to our individual and business customers. The Company was formed in February 2000 by way of the merger of EarthLink...

  • Page 44
    ...customers for dial-up Internet access and one-time set-up fees. Web hosting revenues consist of fees earned by leasing server space and providing web services to companies and individuals wishing to present a web or ecommerce presence. Broadband access revenues consist of fees charged for high-speed...

  • Page 45
    ... estimated bargain purchase options, or the fair value of the assets under lease. Assets under capital lease are amortized over the lesser of their estimated useful lives of three to five years or the term of the lease. INTANGIBLES Intangible assets consist primarily of acquired customer bases, long...

  • Page 46
    ... FOR STOCK-BASED COMPENSATION ("SFAS 123"), sets forth accounting and reporting standards for stock-based employee compensation plans. As permitted by SFAS 123, the Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO...

  • Page 47
    ... provider of consumer Internet access services for at least ten years and the right to use Sprint's brand and distribution network for at least ten years. Sprint also provided EarthLink Network with a credit facility of up to $50 million (increasing to $100 million over three years) in the form...

  • Page 48
    ... purchase price for these assets was $32 million. In February 1999, MindSpring completed its acquisition of certain assets used in connection with the United States Internet access and Web hosting business operated by NETCOM On-Line Communication Services Inc., which subsequently changed its name...

  • Page 49
    ... million related to the merger of EarthLink Network and MindSpring. Substantially all of this amount has been paid as of December 31, 2000. On September 12, 2000, EarthLink assumed OneMain's restructuring liabilities of $5.4 million. OneMain had acquired 27 Internet service providers and was working...

  • Page 50
    ... at December 31, 2000 is expected to be paid within 12 months. MERGER AND RELATED COSTS ---------Costs incurred to effect the merger of EarthLink Network and MindSpring: Investment banking fees...Printing, filing, mailing, proxy solicitation, legal, accounting and advisory fees...Acceleration of...

  • Page 51
    ...,585 151,435 $ 277,399 Data center equipment...Office and other equipment...Land and buildings...Leasehold improvements...Construction-in-progress... Less accumulated depreciation and amortization... Property under capital lease, primarily data communications equipment included above, aggregated...

  • Page 52
    ... shelf registration statement with the Securities and Exchange Commission for the public offering from time to time of up to $800 million of debt and equity securities. In April 1999, MindSpring sold $180.0 million aggregate principal amount of 5% Convertible Subordinated Notes due 2006, raising net...

  • Page 53
    ... shares by Apple Computer Corporation. Accordingly, Sprint purchased 2.7 million shares of which 682,000 were common stock and 2.0 million were Series B convertible preferred stock. In May 2000, Sprint exercised its preemptive rights to maintain its level of ownership in the Company after the merger...

  • Page 54
    ... rights of the holders of the Series A and B convertible preferred stock as a class. In conjunction with its multi-year partnership with Apple Computer Corporation, EarthLink issued 7,083,333 shares of Series C convertible preferred stock to Apple for $200 million in January 2000. EarthLink has not...

  • Page 55
    ... the right to name a member to the Company's Board of Directors. Apple's director designation rights exist generally for so long as Apple maintains a certain percentage of its ownership in EarthLink and EarthLink is Apple's exclusive default Internet Service Provider in the setup software of certain...

  • Page 56
    ...and others warrants to purchase shares of the Company's common stock. In connection with the acquisition of OneMain, the Company issued two warrants to purchase a total of 164,388 shares of the Company's common stock. The warrants have an exercise price of $18.25 per share and expire on September 12...

  • Page 57
    EARTHLINK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. STOCK OPTIONS AND WARRANTS (CONTINUED) Following is a summary of stock option and warrant activity during the three years ended December 31, 2000: NUMBER OF SHARES OF COMMON STOCK STOCK OPTIONS...-AVERAGE EXERCISE PRICE 2.05 $...

  • Page 58
    EARTHLINK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. STOCK OPTIONS AND WARRANTS (CONTINUED) Following is a summary of stock options and warrants outstanding as of December 31, 2000: OPTIONS AND WARRANTS OUTSTANDING WEIGHTEDAVERAGE WEIGHTEDREMAINING AVERAGE NUMBER CONTRACTUAL ...

  • Page 59
    ... future income may be limited. At December 31, 1999 and 2000, the net operating loss includes $64.0 million and $65.3 million related to the exercise of employee stock options and warrants. Any benefit resulting from the utilization of this portion of the net operating loss will be credited directly...

  • Page 60
    ... to the Internet for customers outside of the Company's California regional base is provided through points of presence ("POP") capacity leased from a number of third party providers such as UUNET, PSINet, Level 3, Sprint, GTE Internetworking Incorporated and ICG Netahead, among others. EarthLink is...

  • Page 61
    ... non-cancelable network service agreements totaled $67.9 million, $150.7 million and $179.5 million for 1998, 1999 and 2000, respectively. EarthLink licenses Netscape Communicator software ("Netscape Communicator") from Netscape Communications Corporation, and Microsoft Internet Explorer software...

  • Page 62
    ... 31, 2000. 16. SUBSEQUENT EVENTS (UNAUDITED) In February of 2001, the Company renegotiated its commercial and governance arrangements with Sprint Corporation. The Company continues to provide dial-up Internet, web hosting and other Internet services to Sprint for resell to their customers. However...

  • Page 63
    ... stock of EarthLink and each outstanding share of MindSpring common stock was exchanged for one share of the common stock of the EarthLink. See note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of weighted average shares outstanding in the net...

  • Page 64
    ..., Inc.'s Registration Statement on Form S-8--File No. 333-39456). 1995 Stock Option Plan and Form of Stock Option Agreement (incorporated by reference to Exhibit 4.4 of EarthLink, Inc.'s Registration Statement on Form S-8--File No. 333-30024). MindSpring Enterprises, Inc. 1995 Stock Option Plan, as...

  • Page 65
    ... Rights Agreement, dated as of February 8, 2001, with Sprint Corporation and Sprint Communications Company L.P. Letter re: Change in Certifying Accountant (incorporated by reference to Exhibit 99 of EarthLink, Inc.'s Report on Form 8-K, date July 6, 2000--File No. 001-15605). Subsidiaries of the...

  • Page 66
    ... provisions thereof, the Corporation's Certificate of A Designations filed with the Delaware Secretary of State on February 4, 2000 shall be amended, to provide for a change in voting rights and certain additional protective provisions for the benefit of holders of the Series A Stock, in accordance...

  • Page 67
    IN WITNESS WHEREOF, the Corporation executed this Certificate of Amendment as of the _____ day of February, 2001. EARTHLINK, INC. By: /s/ CHARLES G. BETTY Charles G. Betty Chief Executive Officer 2

  • Page 68
    ... Amended and Restated Certificate of Incorporation, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, its Board of Directors has adopted the following resolution creating a series of the Preferred Stock, $.01 par value, designated as Series...

  • Page 69
    ... of the applicable shares of Series A Preferred Stock. The Board of Directors shall declare and pay such accrued dividends on each Dividend Payment Date and the Corporation shall take all further actions necessary to cause such dividend to be paid to the Holders in the form and manner prescribed...

  • Page 70
    ... of Directors shall declare and pay such accrued dividends at such time and to the extent permitted by law. (iii) GENERAL PROVISIONS. Each distribution in the form of a cash dividend shall be payable to Holders of record as they appear on the stock books of the Corporation on such record date, not...

  • Page 71
    ... to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock and other Junior Securities by reason of their ownership thereof, an amount per share equal to the sum of (i) $260,837,114, (ii) the amount of all Liquidation Accretion...

  • Page 72
    ... Rights"): (a) OPTIONAL CONVERSION RIGHTS AND AUTOMATIC CONVERSION. (i) Each share of Series A Preferred Stock shall be convertible, at the option of the Holder thereof, at any time, at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into such number of validly...

  • Page 73
    ... or agency maintained by the Corporation for such purpose, such Holder's certificate or certificates evidencing such Conversion Shares. The Conversion Notice shall also contain a statement of the name or names (with addresses) in which the certificate or certificates for Common Stock shall be issued...

  • Page 74
    ...(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. (i) If the Corporation should at any time or from time to time after the Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled...

  • Page 75
    such holders to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of the Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, then, and in each such case, the number of shares of ...

  • Page 76
    ... in the issuance and delivery of shares in any name other than that of the Holder of such shares of Series A Preferred Stock converted, and the Corporation shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issuance thereof...

  • Page 77
    ...by personal delivery, U.S. certified mail, return receipt requested, or by a nationally recognized overnight delivery service (e.g., United Parcel Service or Federal Express), delivery or postage prepaid and addressed to each Holder of record at his address appearing on the books of this Corporation...

  • Page 78
    ...of the Series A Preferred Stock at such Holder's address as the same appears on the stock register of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series A Preferred Stock to be...

  • Page 79
    ... Stock to the Corporation, duly endorsed, in the manner and at the place designated in the Redemption Notice and on the Redemption Date. The full redemption price for such shares of Series A Preferred Stock shall be payable in cash to the Person whose name appears on such certificate or certificates...

  • Page 80
    ... the rights of Holders of any other securities other than the Series A Preferred Stock. (c) TOLLING OF AUTOMATIC CONVERSION AND OTHER TIME PERIODS FOR HSR COMPLIANCE. Notwithstanding any other provision of this Certificate of Designation, until such time as the filing and waiting period requirements...

  • Page 81
    ... any shares of Series A Preferred Stock shall use commercially reasonable efforts to cause such filing to be made as soon as practicable after such Holder has provided notice of its intention to convert such shares of Series A Preferred Stock and to diligently and in good faith pursue expiration or...

  • Page 82
    ... market maker making a market in the Common Stock selected by the Board of Directors. If the Common Stock is not publicly held or so listed or publicly traded, "Closing Price" shall mean the Fair Market Value per share as determined in good faith by the Board of Directors of the Corporation. 15

  • Page 83
    ... Entity. (viii) "Current Market Price" per share of Common Stock on any date shall be deemed to be the Closing Price per share of Common Stock on the Trading Day immediately prior to such date. (ix) "Discriminatory Transaction" shall mean any transaction or other corporate action (other than those...

  • Page 84
    ...Act of 1976, as amended, and the regulations promulgated thereunder. (xvi) "Issue Date" means February 4, 2000. (xvii) "Person" means any individual, firm, corporation, partnership, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. 17

  • Page 85
    ...open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close...

  • Page 86
    ... thereof, the Corporation's Certificate of B Designations filed with the Delaware Secretary of State on February 4, 2000 and amended on February 28, 2000 shall be further amended, to provide for certain additional protective provisions for the benefit of the holders of Series B Stock, in accordance...

  • Page 87
    In Witness Whereof, the Corporation executed this Certificate of Amendment as of the _____ day of February, 2001. EARTHLINK, INC. By: /s/ CHARLES G. BETTY Charles G. Betty Chief Executive Officer 2

  • Page 88
    ..., adopts, approves and such Certificate of Designation, and further authorizes and directs the Company's officers to execute and file same with the Secretary of State of Delaware, as follows: 1. DESIGNATION AND AMOUNT. The Preferred Stock of the Corporation created and authorized for issuance hereby...

  • Page 89
    ... after the Issue Date of the applicable shares of Series B Preferred Stock. The Board of Directors shall declare and pay such accrued dividends on each Dividend Payment Date and the Corporation shall take all further actions necessary to cause such dividend to be paid to the Holders in the form and...

  • Page 90
    ... of Directors shall declare and pay such accrued dividends at such time and to the extent permitted by law. (iii) GENERAL PROVISIONS. Each distribution in the form of a cash dividend shall be payable to Holders of record as they appear on the stock books of the Corporation on such record date, not...

  • Page 91
    ... of the assets of the Corporation to the holders of Common Stock and other Junior Securities by reason of their ownership thereof, an amount for each share of Series B Preferred Stock equal to the sum of (i) the Purchase Consideration of such share of Series B Preferred Stock, (ii) the amount of all...

  • Page 92
    ... among the holders of Junior Securities in accordance with their respective rights thereto. (c) Neither the consolidation, merger, Business Combination or any other form of business combination of the Corporation with or into any other Person or entity, nor the sale, lease, exchange, conveyance...

  • Page 93
    option of the Holder thereof, at any time, at the office of the Corporation or any transfer agent for the Series B Preferred Stock, into such number of validly issued, fully paid and nonassessable shares of Common Stock, free and clear of all pledges, claims, liens, charges, encumbrances and ...

  • Page 94
    ...(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. (i) If the Corporation should at any time or from time to time after the Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled...

  • Page 95
    ...) If the Corporation shall at any time and from time to time after the Issue Date issue rights or warrants to all holders of the Common Stock entitling such holders to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of the Common Stock on the...

  • Page 96
    ... in the issuance and delivery of shares in any name other than that of the Holder of such shares of Series B Preferred Stock converted, and the Corporation shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issuance thereof...

  • Page 97
    ...by personal delivery, U.S. certified mail, return receipt requested, or by a nationally recognized overnight delivery service (e.g., United Parcel Service or Federal Express), delivery or postage prepaid and addressed to each Holder of record at his address appearing on the books of this Corporation...

  • Page 98
    ...of the Series B Preferred Stock at such Holder's address as the same appears on the stock register of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series B Preferred Stock to be...

  • Page 99
    ... Stock to the Corporation, duly endorsed, in the manner and at the place designated in the Redemption Notice and on the Redemption Date. The full redemption price for such shares of Series B Preferred Stock shall be payable in cash to the Person whose name appears on such certificate or certificates...

  • Page 100
    ... the rights of holders of any other securities other than the Series B Preferred Stock. (c) TOLLING OF AUTOMATIC CONVERSION AND OTHER TIME PERIODS FOR HSR COMPLIANCE. Notwithstanding any other provision of this Certificate of Designation, until such time as the filing and waiting period requirements...

  • Page 101
    ... any shares of Series B Preferred Stock shall use commercially reasonable efforts to cause such filing to be made as soon as practicable after such Holder has provided notice of its intention to convert such shares of Series B Preferred Stock and to diligently and in good faith pursue expiration or...

  • Page 102
    ... held or so listed or publicly traded, "Closing Price" shall mean the Fair Market Value per share as determined in good faith by the Board of Directors of the Corporation. (v) "Common Stock" shall mean the Corporation's authorized Common Stock, $.01 par value, as constituted on the Issue Date, and...

  • Page 103
    ... Entity. (vii) "Current Market Price" per share of Common Stock on any date shall be deemed to be the Closing Price per share of Common Stock on the Trading Day immediately prior to such date. (viii) "Discriminatory Transaction" shall mean any transaction or other corporate action (other than those...

  • Page 104
    ...) "Person" means any individual, firm, corporation, partnership, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. (xvii) "Purchase Consideration" means, with respect to each issuance of Series B Preferred Stock, the per share amount...

  • Page 105
    ...open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close...

  • Page 106
    ... cause the direction of the management and policies of such Person through ownership of securities. "ANCILLARY AGREEMENT" shall mean any and all of the following documents to which Sprint and EarthLink are a party: (i) the Governance Agreement, (ii) the Certificates of Designation (as defined in the...

  • Page 107
    ... Company's wholly owned subsidiary EarthLink Operations, Inc., a Delaware corporation. "HOLDER" means Sprint, so long as it holds any Registrable Securities, and any Person owning Registrable Securities who is a permitted transferee or assignee of rights under Article 11 of this Agreement. "INITIAL...

  • Page 108
    ... such Holder's rights under this Agreement are not, or cannot be, assigned, or (iv) for which the registration rights provided under this Agreement have expired pursuant to Article 14 of this Agreement. "REGISTRATION COMMON SHARES" shall mean all shares of Common Stock owned or acquired by Sprint or...

  • Page 109
    ...as filed upon request by the Initiating Holders with the SEC pursuant to Rule 424 under the Securities Act. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder as in effect at the time...

  • Page 110
    ... pursuant to Rule 415 of the Securities Act for the number of Registrable Securities specified in a notice to be provided to the Company by Sprint (the "Initial Shelf Registration"). (b) If specified in a written Demand request by the Holders pursuant to Article 3 and otherwise permitted by this...

  • Page 111
    ... to be included in such registration; PROVIDED, that there shall be no reduction in the number of shares included in such Demand registration by Holders of Registrable Securities until all shares (including (i) shares proposed to be sold by other holders of Shares of capital stock of the Company who...

  • Page 112
    ...reflect stock splits, reverse stock splits, stock dividends and similar actions). ARTICLE 4. INCIDENTAL REGISTRATION If at any time (but without obligation to do so) the Company proposes to register (including a registration effected by the Company for shareholders other than the Holders) any shares...

  • Page 113
    ...that would permit the registration of Registrable Securities (other than a registration: (i) relating solely to the sale of securities to participants in a the Company stock or stock option plan, (ii) pursuant to a Registration Statement on Form S-8 (or any successor forms) or any form that does not...

  • Page 114
    ... offering, provided that no Holder shall be obligated to sell any Registrable Securities in such offering and may be withdrawn at any time for any reason, including a disagreement with respect to the timing, pricing and other matters related to the offering. ARTICLE 5. REGISTRATION PROCEDURE Section...

  • Page 115
    ...to consummate the disposition in such jurisdictions of the securities to be sold by such Holders; PROVIDED, however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions where it would not otherwise be...

  • Page 116
    ... has agreed to provide indemnity under Section 9.2. (x) Promptly notify each Holder of Registrable Securities covered by a Registration Statement (A) upon discovery that, or upon the happening of any event as a result of which, the prospectus forming a part of such Registration Statement, as then...

  • Page 117
    ... Securities being registered. (xvi) Furnish to the Holders, at the request of any Holder participating in a registration pursuant to this Agreement, (A) an opinion of counsel representing the Company for the purposes of such registration addressed to such Holder and dated the date of the closing...

  • Page 118
    ... registration; PROVIDED, HOWEVER, that such representatives, underwriters, attorneys or accountants enter into a confidentiality agreement, in form and substance reasonably satisfactory to the Company, prior to the release or disclosure of any such information. (xviii) Promptly notify the Holders...

  • Page 119
    ... by the Company that a new Registration Statement covering the reoffer of Registrable Securities has become effective under the Securities Act, or (ii) such Holder receives copies of a supplemented or amended prospectus contemplated by Article 5 which addresses any additional information, including...

  • Page 120
    ... managers participating in the distribution, each Person who "controls" such Persons (within the meaning of the Securities Act or the Exchange Act), and their respective officers, directors, employees and agents to the same extent as provided above with respect to the indemnification of the Holders...

  • Page 121
    .... The Holder will also indemnify underwriters and dealer managers participating in the distribution and each Person who "controls" such Persons (within the meaning of the Securities Act or the Exchange Act), their officers, directors, employees and agents to the same extent as provided herein with...

  • Page 122
    ... or omission, PROVIDED, however, that the obligations of each of the Holders hereunder shall be limited to an amount equal to the net proceeds to such Holder of Registrable Securities sold as contemplated herein. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11...

  • Page 123
    ... such Holder (within the meaning of the Securities Act or the Exchange Act) and their respective directors, officers, employees and agents receive protection at least as extensively and are subject to obligations that are no more extensive, than those set forth in this Article 9. ARTICLE 10. REPORTS...

  • Page 124
    ... appropriate Person to execute a signature page to, and become bound by, this Agreement, and (iii) a Holder transferring less than all of its Registrable Securities (or Securities convertible into Registrable Securities) hereunder shall retain registration rights as to its remaining shares. Such...

  • Page 125
    ... and after the expiration of any applicable "top up rights" as set forth in Section 3.01 of the Governance Agreement, represents less than three percent (3%) of the Company's total issued and outstanding shares of Common Stock at such time, then all of such Holder's registration rights under this...

  • Page 126
    ...: EarthLink, Inc. 1430 West Peachtree St. Atlanta, GA 30309 Attn: Chief Executive Officer Telecopy No.: (404) 287-4908 Hunton & Williams Bank of America Plaza, Suite 4100 600 Peachtree Street, N.E. Atlanta, Georgia 30308-2216 Attn: Scott M. Hobby, Esq. Telecopy No.: (404) 888-4190 Sprint Corporation...

  • Page 127
    ...personally delivered, when physically delivered by the U.S. Postal Service at the proper address, the next day when delivered during business hours to an overnight delivery service properly addressed... unless set forth in a writing signed by ... Sprint an agreement executed by a duly authorized officer...

  • Page 128
    ...good faith a substitute provision which comes as close...securities which is inconsistent with the rights granted to the Holders of Registrable Securities...any action ...provided herein. Section 15.12. INTERPRETATION. Each Party is a sophisticated legal entity that was advised by experienced counsel...

  • Page 129
    ... appellate courts) in any such Action. Any and all service of process and any other notice in any such Action shall be effective against such Party... MAY HAVE TO A TRIAL BY JURY IN ANY ACTION INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY...

  • Page 130
    ... duly authorized officers to execute this Agreement as of the day and year first above written. EARTHLINK, INC. By: /s Name Title SPRINT CORPORATION By: /s Name Title SPRINT COMMUNICATIONS COMPANY L.P. By: U. S. Telecom, Inc., General Partner By: /s Name Title [SIGNATURE PAGE FOR...

  • Page 131
    Exhibit 21.1 Subsidiaries of the Registrant 1) EarthLink Operations, Inc., a Delaware corporation. 2) EarthLink/OneMain, Inc., a Delaware corporation.

  • Page 132
    ... 10, 2000 of EarthLink, Inc. and in the related Prospectuses of our report dated January 29, 2001, with respect to the consolidated financial statements of EarthLink, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ Ernst & Young LLP Atlanta, Georgia March...

  • Page 133
    ... 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-48100) and Form S-8 (Nos. 33334810, 333-39456, and 333-30024) of EarthLink, Inc. and its subsidiary of our report dated March 28, 2000 relating to the...

  • Page 134
    ...our reports dated February 7, 2000 on the financial statements of MindSpring Enterprises, Inc. included in this Form 10-K of EarthLink, Inc.'s into EarthLink Inc.'s previously filed Registration Statements (No. 333-39456, 333-48100, 333-30024, and 333-34810). /s/ Arthur Andersen LLP Atlanta, Georgia...