Earthlink 2002 Annual Report Download - page 66

9. Common Stock
Shareholder Rights Plan
On August 6, 2002, the Board of Directors adopted a shareholder rights plan (the "Rights Plan"). On August 6, 2002, in connection with
the Rights Plan, the Board of Directors also declared a dividend of one right for each outstanding share of EarthLink's common stock for
stockholders of record at the close of business on August 5, 2002.
Each right entitles the holder to purchase one one-thousandth (
1
/ 1,000 ) of a share (a "Unit") of EarthLink's newly created Series D Junior
Preferred Stock at a price of $60.00 per Unit upon certain events. Generally, in the event a person or entity acquires, or initiates a tender offer
to acquire, at least
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15% of EarthLink's then outstanding common stock, the rights will become exercisable for common stock having a value equal to two times
the exercise price of the right, or effectively at one-half of EarthLink's then-current stock price. The rights are redeemable under certain
circumstances at $0.01 per right and will expire, unless earlier redeemed, on August 6, 2012.
Shares Sold Under Preemptive Rights Agreements
In February 2000, Sprint exercised its right to maintain its level of ownership in the Company after Apple's purchase of Series C
convertible preferred stock. Accordingly, Sprint purchased approximately 0.7 million shares of common stock and approximately 2.0 million
shares of Series B convertible preferred stock for aggregate consideration of approximately $76.9 million.
In May 2000, Sprint exercised its right to maintain its level of ownership in the Company after the merger of EarthLink Network and
MindSpring. Accordingly, Sprint purchased approximately 6.0 million shares of common stock and approximately 20.0 million shares of
Series B convertible preferred stock for aggregate consideration of approximately $431.4 million.
Common Stock Issuances for Other Than Cash
In March 2001, EarthLink agreed to issue 250,000 shares of its common stock to acquire software licenses and development services from
certain individuals over a period of nine months. Under the agreement, the shares were issued as certain milestones were met. During the year
ended December 31, 2001, the Company issued 140,000 shares of its common stock valued at $1.9 million based on the fair value of
EarthLink's common stock on the dates of issuance. During the year ended December 31, 2002, the Company issued 110,000 shares of its
common stock valued at $1.3 million based on the fair value of EarthLink's common stock on the dates of issuance.
Share Repurchase Program
On August 6, 2002, the Board of Directors approved a share repurchase program (the "Repurchase Program") and authorized an initial
repurchase of up to $25.0 million of the Company's common stock. The Company may repurchase its common stock from time to time in
compliance with the Securities and Exchange Commission's regulations and other legal requirements, and subject to market conditions and
other factors. The Repurchase Program does not require the Company to acquire any specific number of shares and may be terminated at any
time. As of December 31, 2002, the Company had repurchased 2.6 million shares of its common stock for an aggregate purchase price of
$14.2 million, which has been recorded as treasury stock in the accompanying Consolidated Balance Sheet as of December 31, 2002.
10. Convertible Preferred Stock
All issued and outstanding shares of Series A and B convertible preferred stock are held by Sprint. The following table summarizes the
number of shares of Series A and B convertible preferred stock
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outstanding at December 31, 2002 and the liquidation value and conversion value per share for each series as of December 31, 2002:
Shares
Outstanding
Liquidation
Value
per Share
Aggregate
Liquidation
Value
Conversion
Value
per Share
Conversion
Ratio
(in thousands, except ratio and per share amounts)