Earthlink 2002 Annual Report Download - page 13

but will analyze Sprint's counter-offer in exercising its fiduciary duties to our stockholders.
Sprint has also relinquished its right to appoint two members to our Board of Directors, and its representatives have resigned from their
positions on our Board of Directors. This new governance arrangement terminates in the event that EarthLink consummates a change in control
transaction with a third party, or if Sprint acquires all of the equity of EarthLink pursuant to a counter-
offer that our Board of Directors accepts,
or if Sprint's ownership of common and preferred stock falls below 5% of our total voting equity securities.
Changes in Sprint's Ownership of EarthLink
Pursuant to a "shelf" registration created in August 2001, Sprint sold 18.4 million shares of EarthLink common stock. Of that amount,
approximately 12.5 million shares were shares of EarthLink common stock held by Sprint and approximately 5.9 million shares were obtained
by Sprint upon conversion of approximately 6.2 million shares of Series B convertible preferred stock. Sprint sold all 18.4 million shares in
August 2001.
In November 2001, Sprint obtained 3.0 million shares of EarthLink's common stock upon conversion of 3.1 million shares of EarthLink's
Series A convertible preferred stock. The underlying shares were registered for sale through a Rule 144 filing.
In four separate transactions during the year ended December 31, 2002, Sprint obtained an aggregate of 8.8 million shares of EarthLink's
common stock upon conversion of 9.0 million shares of EarthLink's Series A convertible preferred stock. The underlying shares were
registered for sale through a Rule 144 filing.
At December 31, 2002, Sprint continued to hold approximately 18.0 million shares of EarthLink's convertible preferred stock.
Proprietary Rights
General. We rely on a combination of copyright, trademark, patent and trade secret laws and contractual restrictions to establish and
protect technology and proprietary rights and information. We require employees and consultants and, when possible, suppliers and distributors
to sign confidentiality agreements. However, there can be no assurance that the steps taken to protect technologies and trade secrets will be
sufficient to prevent misappropriation of our technology and our proprietary rights and information or that competitors will not independently
develop technologies that are substantially equivalent or superior to our technologies. From time to time, third parties have alleged that certain
of our trademarks and technologies infringe on their intellectual property rights. None of these claims has had an adverse effect on our ability to
market and sell services. However, there can be no assurance that those claims will not have an adverse effect in the future or that others will
not assert infringement claims against us in the future.
Licenses. We have licenses to distribute and/or use third-party software incorporated into our software. We also have an agreement
with AOL Time Warner under which we distribute a co-branded EarthLink version of AOL Instant Messenger. We intend to maintain or
negotiate renewals of existing software licenses and authorizations as necessary. We may also want or need to license other applications in the
future. Our inability to renew existing software licenses or to license additional applications could materially adversely affect future results of
operations.
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Employees
As of December 31, 2002, EarthLink employed 5,106 permanent and temporary employees, including 1,499 sales and marketing
personnel, 3,192 operations and customer support personnel, and 415 administrative personnel. None of our employees are represented by a
labor union, and we have no collective bargaining agreement.
In January 2003, we announced a comprehensive plan to streamline our call center facilities to increase operational efficiencies and reduce
overall costs. We will execute the plan during the first quarter of 2003, including closing four call center facilities. We expect the
implementation of the plan will result in a net reduction of approximately 920 employees, primarily customer support personnel.
Available Information
EarthLink files annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act. The public may read and copy any materials that EarthLink files with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet web site that contains reports, proxy and
information statements, and other information regarding issuers, including EarthLink, that file electronically with the SEC. The public can
obtain any documents that EarthLink files with the SEC at http://www.sec.gov.