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EARTHLINK INC
FORM 10-K
(Annual Report)
Filed 02/27/09 for the Period Ending 12/31/08
Address 1375 PEACHTREE STREET
SUITE 400
ATLANTA, GA 30309
Telephone 4048150770
CIK 0001102541
Symbol ELNK
SIC Code 7370 - Computer Programming, Data Processing, And
Industry Computer Services
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2009, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ... INC FORM 10-K (Annual Report) Filed 02/27/09 for the Period Ending 12/31/08 Address 1375 PEACHTREE STREET SUITE 400 ATLANTA, GA 30309 4048150770 0001102541 ELNK 7370 - Computer Programming, Data Processing, And Computer Services Technology 12/31 Telephone CIK Symbol SIC Code Industry Sector...

  • Page 2
    ... its charter) Delaware (State of incorporation) 58-2511877 (I.R.S. Employer Identification No.) 1375 Peachtree St., Atlanta, Georgia 30309 (Address of principal executive offices, including zip code) (404) 815-0770 (Registrant's telephone number, including area code) Securities registered pursuant...

  • Page 3
    ... January 30, 2009, 108,872,733 shares of common stock were outstanding. Portions of the Proxy Statement to be filed with the Securities and Exchange Commission and to be used in connection with the Annual Meeting of Stockholders to be held on May 5, 2009 are incorporated by reference in Part III of...

  • Page 4
    ... Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance Executive Compensation Security...

  • Page 5
    ... EarthLink, Inc. is an Internet service provider ("ISP"), providing nationwide Internet access and related value-added services to individual and business customers. Our primary service offerings are dial-up and high-speed Internet access services and related value-added services, such as search...

  • Page 6
    ...support. Broadband access revenues consist of monthly fees charged for high-speed access services; activation fees; early termination fees; equipment fees associated with the sale of modems and other access devices to our subscribers; and shipping and handling fees. VoIP EarthLink DSL and Home Phone...

  • Page 7
    ... of return. We offer our products and services primarily through direct customer contact through our call centers, through affinity marketing partners such as AARP and Dell and through marketing alliances such as Time Warner Cable. Network Infrastructure We provide subscribers with Internet access...

  • Page 8
    ...by technological change. Business Services Segment Service Offerings Private IP-Based Networks Through New Edge, we provide private IP-based networks for small and medium-sized businesses. Customers can choose a blend of access technologies including DSL, T1 lines, fiber-optic and wireless broadband...

  • Page 9
    ...connectivity, business-class features like static IP addresses, multiple email accounts and customer service that is available 24/7. Revenues primarily consist of monthly fees charged to customers for Internet access; installation fees; and usage fees. Wholesale Services Through New Edge, we provide...

  • Page 10
    ...call center support costs and reduced bad debt expense. We provide high-quality customer service, invest in loyalty and retention efforts and continually monitor customer satisfaction for our services. Our customer support is available by chat, email, phone as well as through help sites and Internet...

  • Page 11
    ... Changes to the rules governing dial-up ISP bound traffic could impact our cost of providing this service. Broadband Internet Access The FCC classifies broadband Internet access as a single, commingled information service, whether provided over DSL by telephone companies or over cable modem by cable...

  • Page 12
    ...privacy practices of companies that collect information about individuals on the Internet. The FTC and various state agencies as well as individuals have investigated and asserted claims against, or instituted inquiries into, Internet service providers in connection with marketing, billing, customer...

  • Page 13
    ... affect our VoIP business. In addition, if courts determine that states can regulate fixed line VoIP as a telephone service and, among other requirements, subject these services to the carrier access charge regime, our costs of providing this service would increase and our VoIP business would be...

  • Page 14
    ... funds. In addition, New Edge makes use of the special access services and DSL services of ILECs and other CLECs in order to provide New Edge services to its customers. Proprietary Rights Our EarthLink, PeoplePC and New Edge Networks trademarks are valuable assets to our business, and are registered...

  • Page 15
    ... free up their phone lines and the more reliable and "always on" connection. The pricing for broadband services has been declining, making it a more viable option for consumers that continue to rely on dial-up connections for Internet access. In addition, advanced applications such as online gaming...

  • Page 16
    ...; cable companies providing broadband access, including Time Warner Cable, Comcast, Charter Communications, Inc. and Cox Communications, Inc.; local and regional ISPs; free or value-priced ISPs, such as United Online which provides service under the brands NetZero and Juno; wireless Internet service...

  • Page 17
    ... cable service providers, such as Comcast Corporation, Cox Communications, Inc., Time Warner Cable and Charter Communications, Inc. We believe the primary competitive factors in our business markets include price, availability, reliability of service, network security, variety of service offerings...

  • Page 18
    ... broadband to rural areas. If we fail to use new technologies effectively, to develop our technical expertise and new services, or to enhance existing services on a timely basis, either internally or through arrangements with third parties, our product and service offerings may fail to meet customer...

  • Page 19
    ...limited number of telecommunications service providers. Our principal provider for narrowband services is Level 3. Our largest providers of broadband connectivity are Time Warner Cable, AT&T, Qwest, Verizon and Covad. We also purchase lesser amounts of services from a wide variety of local, regional...

  • Page 20
    ...electronic equipment. These technology centers host and manage Internet content, email, web hosting and authentication applications and services. Despite precautions taken by us and our third party network providers, a natural disaster or other unanticipated problem that impacts one of our locations...

  • Page 21
    ... 2009. Changes to the rules governing dial-up ISP bound traffic could impact our cost of providing this service. Currently, broadband Internet access is classified as an "information service" and, as a result, cable Broadband Internet access. companies and telephone companies that offer a broadband...

  • Page 22
    ... from the state public utility commissions. New Edge also must contribute to state and federal universal service funds. In addition, New Edge makes use of the special access services and DSL services of ILECs and other CLECs in order to provide New Edge services to its customers. VoIP. The current...

  • Page 23
    ..., PeoplePC and New Edge Networks trademarks as valuable assets to our business. In particular, we believe the strength of the EarthLink brand among existing and potential customers is important to the success of our business. Additionally, our EarthLink, PeoplePC and New Edge Networks service marks...

  • Page 24
    ... to respond quickly to problems, our customers may experience service interruptions. In addition, our E911 emergency service for our VoIP service is different in significant respects from the emergency calling services offered by traditional wireline telephone companies. Those differences may cause...

  • Page 25
    ... of new products, services or pricing by us or our competitors; the emergence of new competing technologies; developments in our business strategy; changes in financial estimates and recommendations by securities analysts; the operating and stock price performance of other companies that...

  • Page 26
    ...stock. Item 1B. None. Item 2. Properties. Unresolved Staff Comments. We lease various properties in the United States with expiration dates through 2014. We use these properties for operations, data centers and executive and administrative purposes. Our corporate headquarters is in Atlanta, Georgia...

  • Page 27
    ... Securities. Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "ELNK." The following table sets forth the high and low sale prices for our common stock for the periods indicated, as reported by the Nasdaq Global Market. EarthLink, Inc. High Low Year Ended...

  • Page 28
    Table of Contents Performance Graph The following indexed line graph indicates our total return to stockholders from December 31, 2003 to December 31, 2008, as compared to the total return for the Nasdaq Global Market and the Morgan Stanley Internet Index for the same period. The calculations in the...

  • Page 29
    ...,864 458,664 261,473 (1) Operating costs and expenses for the year ended December 31, 2008 includes a $78.7 million non-cash impairment charge related to goodwill and certain intangible assets of New Edge in the Company's Business Services segment. EarthLink concluded the carrying value of these...

  • Page 30
    ... our results of operations; (9) that our business may suffer if third parties used for customer service and technical support and certain billing services are unable to provide these services or terminate their relationships with us; (10) that service interruptions or impediments could harm our...

  • Page 31
    ... EarthLink, Inc. is an Internet service provider ("ISP"), providing nationwide Internet access and related value-added services to individual and business customers. Our primary service offerings are dial-up and high-speed Internet access services and related value-added services, such as search...

  • Page 32
    ..., email by phone, Internet call waiting and email storage; and revenues from home networking products and services. Narrowband access revenues consist of monthly fees charged to customers for dial-up Internet access. Broadband access revenues consist of fees charged for high-speed access services...

  • Page 33
    ... access subscriber base. However, our consumer broadband access customers also have lower churn rates than our consumer narrowband access customers. As such, we expect to realize benefits from a more tenured subscriber base, such as reduced support costs and lower bad debt expense. Business services...

  • Page 34
    ... 31, 2008 Subscriber Data (a) Consumer Services Narrowband access subscribers Broadband access subscribers Total consumer services subscribers Business Services Narrowband access subscribers Broadband access subscribers Web hosting accounts Total business services subscribers Total subscribers at...

  • Page 35
    ... wholesale high-speed ISP for Embarq's local residential and small business customers. In April 2007, our wholesale contract with Embarq expired. As a result, we removed 753,000 wholesale broadband EarthLink-supported Embarq subscribers from our broadband subscriber count and total subscriber count...

  • Page 36
    ...% -148% -111% -396% * -462% -89% -240% Revenues Operating costs and expenses: Cost of revenues 433,929 442,697 360,920 8,768 Sales and marketing 390,551 291,105 98,212 (99,446) Operations and customer support 243,608 221,443 136,797 (22,165) General and administrative 125,558 128,412 93,878 2,854...

  • Page 37
    ...same lines that our chief executive reviews our operating results in assessing performance and allocating resources. Our Consumer Services segment provides Internet access services and related value-added services to individual customers. These services include dial-up and high-speed Internet access...

  • Page 38
    ... value-priced narrowband access); broadband access services (including high-speed access via DSL and cable; VoIP; and managed private IP-based wide area networks); and web hosting services. We also earn revenues from value-added services, which include search, advertising and ancillary services sold...

  • Page 39
    ... ancillary services sold as add-on features to our Internet access services, such as security products, email by phone, Internet call waiting and email storage; search revenues; advertising revenues; and revenues from home networking products and services. We derive these revenues by paid placements...

  • Page 40
    ... sold to customers for use with our services, depreciation of our network equipment and surcharges due to regulatory agencies. Our principal provider for narrowband telecommunications services is Level 3 Communications, Inc. Our largest providers of broadband connectivity are Time Warner Cable...

  • Page 41
    ... and 2008. Operations and customer support Operations and customer support expenses consist of costs associated with technical support and customer service, maintenance of customer information systems, software development, network operations and compensation and related costs (including stock-based...

  • Page 42
    ... and related costs (including stock-based compensation) associated with our finance, legal, facilities and human resources organizations; fees for professional services; payment processing; credit card fees; collections and bad debt. General and administrative expenses increased $2.9 million, or...

  • Page 43
    ... reportable segment is one reporting unit, while the Business Services reportable segment consists of two reporting units, New Edge and Web Hosting. Each of these reporting units constitutes a business for which discrete financial information is available and segment management regularly reviews...

  • Page 44
    ... operations within and across our functions and businesses. Under the 2007 Plan, we reduced our workforce by approximately 900 employees, consolidated our office facilities in Atlanta, Georgia and Pasadena, California and closed office facilities in Orlando, Florida; Knoxville, Tennessee; Harrisburg...

  • Page 45
    ..., included our proportionate share of HELIO's net losses offset by amortization associated with recognizing the difference between the carrying value and fair value of non-cash assets contributed. HELIO's net loss increased during the year ended December 31, 2007 due to the start-up nature of HELIO...

  • Page 46
    ....9 million recorded during the year ended December 31, 2008. The tax provision consisted of $7.0 million state income and federal and state alternative minimum tax ("AMT") amounts payable due to the net operating loss carryforward limitations associated with the AMT calculation and $16.9 million for...

  • Page 47
    ... Milpitas, CA in exchange for releasing us from our existing network agreements. We also transferred our municipal wireless broadband networks in the city of Philadelphia, PA to a local Philadelphia company. Additionally, we terminated our municipal wireless broadband service in New Orleans, LA and...

  • Page 48
    ... Ended December 31, 2006 2007 2008 (in thousands) Sales and marketing Operations and customer support General and administrative $ 3,280 6,516 4,445 $14,241 $ 3,826 7,007 8,720 $19,553 $ 5,713 9,829 4,591 $20,133 Facility Exit and Restructuring Costs 2007 Plan. We expect to incur future cash...

  • Page 49
    ... 2007. The increase was primarily due to a decrease in costs to acquire and support new customers, a decrease in operating costs resulting from our efforts to reduce our back-office cost structure, benefits realized from the 2007 Plan and a reduction in customer support costs and bad debt expense as...

  • Page 50
    ...require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment. Finally, we may also use cash to invest in or acquire other companies, to repurchase common stock under our existing share repurchase program, to...

  • Page 51
    ... factors, including the pricing of our access services, our ability to maintain our customer base, the costs required to maintain our network infrastructure, the size and types of acquisitions in which we may engage, and the level of resources used for our sales and marketing activities, among...

  • Page 52
    ... 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 share repurchase program does not require us to acquire any specific number of shares and may be terminated by...

  • Page 53
    ... with certain broadband partners in which we provide services to customers using the "last mile" element of the telecommunications providers' networks. The term "last mile" generally refers to the element of telecommunications networks that is directly connected to homes and businesses. In these...

  • Page 54
    ... product offerings including narrowband and broadband access, VoIP and value-added services), New Edge and Web Hosting. The Consumer Services reportable segment is one reporting unit, while the Business Services reportable segment consists of two reporting units, New Edge and Web Hosting. Each...

  • Page 55
    ... $11.6 million related to New Edge customer relationships. Our tests involve critical estimates reflecting management's best assumptions and estimates related to, among other factors, subscriber additions, churn, prices, marketing spending, operating costs and capital spending. Significant judgment...

  • Page 56
    ... of stock options using the Black-Scholes valuation model, and determine the fair value of restricted stock units based on the number of shares granted and the quoted price of EarthLink's common stock on the date of grant. Such value is recognized as expense over the requisite service period, net of...

  • Page 57
    ... in-process research and development, the accounting for acquisition-related restructuring cost accruals subsequent to the acquisition date, and the recognition of changes in the acquirer's income tax valuation allowance. SFAS No. 141R is effective for business combinations or transactions entered...

  • Page 58
    ... securities. A change in prevailing interest rates may cause the fair value of the Company's investments to fluctuate. For example, if the Company holds a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the fair value of...

  • Page 59
    ... price risk as it relates to changes in the market value of our equity investments. We invest in equity instruments of public and private companies for operational and strategic purposes. These securities are subject to significant fluctuations in fair market value due to volatility of the stock...

  • Page 60
    ...of Contents Item 8. Financial Statements And Supplementary Data. EARTHLINK, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2007 and 2008 Consolidated Statements of Operations for the years...

  • Page 61
    ... Public Company Accounting Oversight Board (United States), EarthLink, Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and...

  • Page 62
    ..., stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2008 of EarthLink, Inc. and our report dated February 26, 2009 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Atlanta, Georgia February 26, 2009 58

  • Page 63
    ..., 186,490 and 188,264 shares issued as of December 31, 2007 and 2008, respectively, and 110,547 and 108,516 shares outstanding as of December 31, 2007 and 2008, respectively Additional paid-in capital Accumulated deficit Treasury stock, at cost, 75,943 and 79,748 shares, respectively, as of December...

  • Page 64
    ... of Contents EARTHLINK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2006 2007 2008 (in thousands, except per share data) Revenues Operating costs and expenses: Cost of revenues Sales and marketing Operations and customer support General and administrative Amortization of...

  • Page 65
    ...Net income Total comprehensive income Balance as of December 31, 2006 Cumulative effect of change in accounting principle Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units Issuance of common stock for acquisition of New Edge Issuance of common stock...

  • Page 66
    ...companies, net (377) 5,585 (2,708) Stock-based compensation 14,285 19,599 20,133 Non-cash income taxes 588 (1,516) (42,714) (Increase) decrease in accounts receivable, net (3,098) 9,285 10,929 (Increase) decrease in prepaid expenses and other assets (3,968) 4,546 (3,050) Decrease in accounts payable...

  • Page 67
    ... ("ISP"), providing nationwide Internet access and related value-added services to individual and business customers. The Company's primary service offerings are dial-up and high-speed Internet access services and related value-added services, such as search, advertising and ancillary services sold...

  • Page 68
    ... sold as add-on features to EarthLink's Internet access services, such as security products, email by phone, Internet call waiting and email storage; and revenues from home networking products and services. Narrowband access revenues consist of monthly fees charged to customers for dial-up Internet...

  • Page 69
    ... fees and network operations costs incurred to provide the Company's Internet access services; depreciation of network equipment; fees paid to content providers for information provided on the Company's online properties; the costs of equipment sold to customers for use with the Company's services...

  • Page 70
    ... the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the number of shares granted and the quoted price of EarthLink's common stock on...

  • Page 71
    ...information. As of December 31, 2007, the Company's marketable securities were classified as available-for-sale. As of December 31, 2008, the Company's marketable securities were classified as trading. Available-for-sale securities are carried at fair value, with any unrealized gains and losses, net...

  • Page 72
    ... of EarthLink's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company's allowance for doubtful accounts was $6.4 million and $4.0 million as of December 31, 2007 and 2008, respectively. The Company recorded bad...

  • Page 73
    ... 1.8 million shares of Virgin Mobile common stock. As a result, the Company no longer has an investment in HELIO. Goodwill and Purchased Intangible Assets Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under...

  • Page 74
    ... determined to have definite lives are amortized on a straight-line basis over their estimated useful lives. Subscriber bases acquired directly are valued at cost plus assumed service liabilities, which approximates fair value at the time of purchase. The Company accounts for goodwill and intangible...

  • Page 75
    ... evidence of market value. Regulatory Risk. EarthLink purchases broadband access from incumbent local exchange carriers, competitive local exchange carriers and cable providers. Please refer to "Regulatory Environment" in the Business section of this Annual Report on Form 10-K for a discussion of...

  • Page 76
    ...-term investments in marketable securities consist of available-for-sale and trading securities that are carried at market value. The Company's equity investments in publicly-held companies are stated at fair value, which is based on quoted market prices, with unrealized gains and losses included in...

  • Page 77
    ... functions and businesses. Under the 2007 Plan, the Company reduced its workforce by approximately 900 employees, closed office facilities in Orlando, Florida; Knoxville, Tennessee; Harrisburg, Pennsylvania and San Francisco, California and consolidated its office facilities in Atlanta, Georgia and...

  • Page 78
    ... balances associated with the 2007 Plan for the years ended December 31, 2007 and 2008, including changes during the years attributable to costs incurred and charged to expense and costs paid or otherwise settled: Severance and Benefits Facilities Asset Impairments (in thousands) Other Costs Total...

  • Page 79
    ... CA in exchange for releasing the Company from its existing network agreements. The Company also transferred its municipal wireless broadband networks in the city of Philadelphia, PA to a local Philadelphia company. Additionally, the Company terminated its municipal wireless broadband service in New...

  • Page 80
    ... 31, 2007 were reported at their estimated fair value less costs to sell and depreciation had ceased. 5. Acquisition In April 2006, EarthLink acquired New Edge, a company that provides private IP-based wide area networks and dedicated Internet access for businesses and communications carriers...

  • Page 81
    ... which time the Company would expect to receive the amortized cost basis of the investment based on the underlying contractual arrangement. As of December 31, 2008, the Company's marketable securities were classified as trading and consisted of auction rate securities with a carrying value and fair...

  • Page 82
    ... accrued and unpaid interest. In April 2008, Platinum Equity, LLC acquired all outstanding shares of Covad. Upon closing of the transaction, a change of control of Covad occurred, resulting in Covad's repurchase of all Covad Notes held by EarthLink at a purchase price equal to 100% of the principal...

  • Page 83
    ... policies. The Company had been recording its proportionate share of HELIO's net loss in its Consolidated Statements of Operations and amortizing the difference between the book value and fair value of non-cash assets contributed to HELIO over their estimated useful lives. The amortization increased...

  • Page 84
    ...,539 64,032 Property and equipment is recorded at cost and consisted of the following as of December 31, 2007 and 2008: As of December 31, 2007 2008 (in thousands) Data center and network equipment Office and other equipment Land and buildings Leasehold improvements Construction in progress Less...

  • Page 85
    ... 31, 2006, 2007 and 2008 represents the amortization of definite lived intangible assets. The Company's definite lived intangible assets primarily consist of subscriber bases and customer relationships, acquired software and technology, trade names and other assets acquired in conjunction with the...

  • Page 86
    ... reportable segment is one reporting unit, while the Business Services reportable segment consists of two reporting units, New Edge and Web Hosting. Each of these reporting units constitutes a business for which discrete financial information is available and segment management regularly reviews...

  • Page 87
    ... Long-Term Debt In November 2006, the Company issued $258.8 million aggregate principal amount of Convertible Senior Notes due November 15, 2026 (the "Notes") in a registered offering. The Company received net proceeds of $251.6 million after transaction fees of $7.2 million. The Notes bear interest...

  • Page 88
    ... rights plan (the "Rights Plan"). 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...

  • Page 89
    ... as an increase to additional paid-in capital, and the Company did not recognize subsequent changes in fair value of the agreements in its financial statements. In September 2008, the Company terminated its convertible note hedge and warrant agreements. The Company received an aggregate payment from...

  • Page 90
    ... stock options until December 31, 2008. This date represents the exercise period if Mr. Betty had terminated employment after serving the full term of his employment agreement, which was set to expire in July 2008. During the year ended December 31, 2007, EarthLink recorded stock-based compensation...

  • Page 91
    ...of the Company's common stock on December 31, 2008 in excess of the exercise price, multiplied by the number of stock options outstanding or exercisable, when the closing price is greater than the exercise price. This represents the amount that would have been received by the stock option holders if...

  • Page 92
    .... The total fair value of shares vested during the years ended December 31, 2006, 2007 and 2008 was $1.2 million, $2.7 million and $7.0 million, respectively, which represents the closing price of the Company's common stock on the vesting date multiplied by the number of restricted stock units that...

  • Page 93
    ... losses ("NOLs") and $78.1 million of state NOLs to offset taxable income. Of the federal NOLs utilized during the year ended December 31, 2008, $46.5 million had been acquired in connection with the Company's acquisitions of OneMain.com, Inc., Cidco Incorporated and PeoplePC Inc. in 2000, 2001 and...

  • Page 94
    ..., in conjunction with the acquisition of New Edge in April 2006. These additional deferred tax assets and liabilities impact the net change to the valuation allowance. During the year ended December 31, 2008, the Company maintained its effective state tax rate, net of federal taxes, at 3.5%. During...

  • Page 95
    ... 31, 2007 and 2008, the Company had NOLs for state income tax purposes totaling approximately $290.8 million and $165.9 million, respectively, which started to expire in 2008. Under the Tax Reform Act of 1986, the Company's ability to use its federal and state NOLs and federal and state tax credit...

  • Page 96
    ... acquisitions or sales of shares by certain holders of our shares, including persons who have held, currently hold, or may accumulate in the future five percent or more of our outstanding stock. Many of these transactions are beyond our control. As of December 31, 2008, the Company has alternative...

  • Page 97
    ...network capacity from a number of third-party providers such as Level 3 Communications, Inc. EarthLink is, in effect, buying this capacity in bulk at a discount, and providing access to EarthLink's customer base. The Company has commitments to purchase these telecommunications services and equipment...

  • Page 98
    ... these securities changed from Level 1 to Level 3 within SFAS No. 157's hierarchy since the Company's initial adoption of SFAS No. 157 on January 1, 2008. In October 2008, EarthLink entered into an agreement with the broker that sold the Company its auction rate securities that gives the Company the...

  • Page 99
    ... HELIO billing and other support services in exchange for management fees. The management fees were determined based on EarthLink's costs to provide the services, and management believed such fees were reasonable. Fees for services provided to HELIO were reflected as reductions to the associated...

  • Page 100
    ... resources. The Company operates two reportable segments, Consumer Services and Business Services. The Company's Consumer Services segment provides Internet access services and related value-added services to individual customers. These services include dial-up and high-speed Internet access...

  • Page 101
    ... monthly fees charged to customers for dial-up Internet access; monthly fees charged for high-speed access services including; fees charged for IP-based voice services; usage fees; installation fees; termination fees; and fees for equipment. Consumer value-added services revenues consist of search...

  • Page 102
    ... IP-based networks; fees charged for business Internet access and dedicated circuit services; installation fees; termination fees; fees for equipment; regulatory surcharges billed to customers; and fees charged for leasing server space and providing web services to customers wishing to have a web...

  • Page 103
    ... an income tax benefit in the Statement of Operations and $9.5 million related to acquired net operating losses and reduced goodwill. In November 2007, management concluded that the municipal wireless broadband operations were no longer consistent with EarthLink's strategic direction and the Company...

  • Page 104
    ... 8-K during the three months ended December 31, 2008 covered by this Annual Report on Form 10-K that was not reported. PART III Item 10. Directors, Executive Officers and Corporate Governance. Information relating to the directors and nominees for directors of EarthLink will be set forth under the...

  • Page 105
    ...-Corporate Governance Matters" in the above-referenced Proxy Statement or in a subsequent amendment to this Annual Report on Form 10-K. Such information is incorporated herein by reference. Item 11. Executive Compensation. Information relating to compensation of our directors and executive officers...

  • Page 106
    ... Edge employees received options under this plan. Certain Relationships and Related Transactions, and Director Independence. Item 13. Information regarding certain relationships and transactions between EarthLink and certain of our affiliates is set forth under the caption "Executive Compensation...

  • Page 107
    ...dated November 13, 2006-File No. 001-15605). Agreement and Plan of Merger, dated December 12, 2005, by and among EarthLink, Inc., New Edge Holding Company and New Edge Merger Corporation (incorporated by reference to Exhibit 2.1 to EarthLink, Inc.'s Report on Form 8-K dated December 12, 2005-File No...

  • Page 108
    ... dated May 5, 2006). EarthLink, Inc. Stock Option Plan for Inducement Awards Relating to the Acquisition of New Edge Holding Company (incorporated by reference to Exhibit 10.1 to EarthLink, Inc.'s Report on Form 8-K dated April 14, 2006). 1995 Stock Option Plan (incorporated by reference to Exhibit...

  • Page 109
    ...Form 10-Q for the quarterly period ended June 30, 2008-File No. 001-15605). 10.20#- Form of Award Agreement under EarthLink, Inc. Stock Option Plan for Inducement Awards Relating to the Acquisition of New Edge Holding Company (incorporated by reference to Exhibit 4.4 to the Registration Statement of...

  • Page 110
    ... Bonus Plan. Form of Restricted Stock Unit Agreement Awarded in Connection with 2008 Incentive Bonus Plan. High-Speed Service Agreement between EarthLink, Inc. and Time Warner Cable Inc. Subsidiaries of the Registrant. Consent of Ernst & Young LLP, an independent registered public accounting firm...

  • Page 111
    ... Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated. Date: February 27, 2009 By: /s/ ROLLA P. HUFF Rolla P. Huff, Chairman of the Board and Chief Executive Officer (principal executive officer...

  • Page 112
    107

  • Page 113

  • Page 114
    ...and business customers throughout the States of the United States; and 2. The Company previously determined that, in view of Your knowledge, expertise and experience in the integrated communication services and related value-added services industries, Your services as the Chief Executive Officer and...

  • Page 115
    ...etc.), annual and long range business plans, product and service plans, marketing plans and methods, employee lists and information, in whatever form and whether or not computer or electronically accessible. (g) policies. (h) " Good Reason " means, with respect to Your Termination of Employment, any...

  • Page 116
    ...of, or any relocation of the Company's principal executive office outside of, the metropolitan area of Atlanta, Georgia; or (3) any breach by the Company of any other material provision of this Agreement. A termination by You shall not constitute termination for Good Reason unless You resign within...

  • Page 117
    ... the Business of the Company that qualifies as a trade secret as defined by the laws of the State of Georgia on the date of this Agreement and as such laws are amended from time to time thereafter. 2. Employment; Duties . (a) The Company agrees to employ You as Chief Executive Officer and President...

  • Page 118
    ... Company's executive officers, as soon as administratively practicable but no later than 2 ½ months after the end of the year in which You incur the reimbursable expense. (d) Pursuant to this Section 4(d), You shall participate in the Change-In-Control Accelerated Vesting and Severance Plan amended...

  • Page 119
    ... month period, any remaining accrued vacation shall be subject to the carryover restrictions applicable in the Company's normal vacation policies. 5. Equity Rights . (a) Upon execution of the Previous Agreement, You received 100,000 RSUs which shall vest in accordance with the terms of the EarthLink...

  • Page 120
    ... In the event of such Termination of Employment, You shall become immediately vested in all Your outstanding Stock Options and RSUs, and for eighteen (18) months following Termination of Employment the Company shall pay, no less frequently than monthly, all costs of health care continuation coverage...

  • Page 121
    ... (18) calendar months following Termination of Employment, You shall not perform within the 50 states of the United States of America any services which are in competition with the Business of the Company during Your employment, or following Your Termination of Employment any services which are in...

  • Page 122
    ... Affiliates. As used herein, "Restricted Employee" means any employee of the Company or its Affiliates with whom You had material business-related contact while performing services under this Agreement, and who is: (1) a member of executive management; (2) a corporate officer of the Company or any...

  • Page 123
    ... installments, starting with the first payroll payment date following Your Termination of Employment other than on account of Your death or Total Disability or by the Company for "Cause" or by You for reasons other than "Good Reason," and continuing thereafter for the eighteen (18) month restriction...

  • Page 124
    ... personally delivered or mailed to that recipient by certified mail, return receipt requested, addressed to the appropriate recipient at the address set forth under the signature of the Executive Vice President of the Company or his designee on this Agreement or at such other address as the Company...

  • Page 125
    ... payable or provided under this Agreement. If You will receive the Capped Payments or some other amount lesser than the total Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount of any noncash benefits under this Agreement or any other plan, agreement...

  • Page 126
    ... accounting firm engaged by the Company in the Company's (ii) "Net After Tax Amount" means the amount of any Parachute Payments, Capped Payments or other payments described in this Section 18, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income...

  • Page 127
    ... Section 409A . Any payments or benefits that You receive pursuant to this Agreement shall be subject to reduction for any applicable employment or withholding taxes. Notwithstanding any other provision of this Plan, if You are a Specified Employee as of Your Termination of Employment, and if the...

  • Page 128
    ... Company have executed and delivered this Agreement as of the date first shown above. YOU: ROLLA HUFF /s/ Rolla Huff Address: 1375 Peachtree Street Atlanta, GA 30309 THE COMPANY: EARTHLINK, INC. By: /s/ Susan D. Bowick Name: Susan D. Bowick Title: Chairperson - Leadership and Compensation Committee...

  • Page 129
    ... Employment Agreement between the Company and you dated August 27, 2007 (the "Previous Agreement"). RECITALS 1. The Company is engaged in the business of providing integrated communication services and related value added services to individual consumers and business customers throughout the States...

  • Page 130
    ... of the Company " means the business of providing integrated communication services and related value added services to individual consumers and business customers. (e) " Cause " means (i) Your commission of any act of fraud or dishonesty relating to and adversely affecting the business affairs of...

  • Page 131
    ... revenues, assets, net income, etc.), annual and long range business plans, product and service plans, marketing plans and methods, employee lists and information, in whatever form and whether or not computer or electronically accessible. (j) " Eligible Earnings " has the same meaning given to that...

  • Page 132
    ...of, or any relocation of the Company's principal executive office outside of, the metropolitan area of Atlanta, Georgia; or (3) any breach by the Company of any other material provision of this Agreement. A termination by You shall not constitute termination for Good Reason unless You resign within...

  • Page 133
    ... " means the termination of Your employment and service with the Company and all Affiliates. You will not be considered as having had a Termination of Employment if (i) You continue to provide services to the Company or any Affiliate as an employee or independent contractor at an annual rate that...

  • Page 134
    ... its Affiliates and/or the Business of the Company that qualifies as a trade secret as defined by the laws of the State of Georgia on the date of this Agreement and as such laws are amended from time to time thereafter. (t) " Voting Stock " means the then outstanding securities of an entity entitled...

  • Page 135
    ... Company's executive officers, as soon as administratively practicable but no later than 2 ½ months after the end of the year in which You incur the reimbursable expense. (d) Pursuant to this Section 4(d), You shall participate in the Change-In-Control Accelerated Vesting and Severance Plan amended...

  • Page 136
    ...6. Upon execution of the Previous Agreement, You also received 150,000 stock options which vest over a period of four years in accordance with the terms of the EarthLink, Inc. 2006 Equity and Cash Incentive Plan and the Company's standard vesting schedule for stock options. (b) The stock options and...

  • Page 137
    ... Section 6(d) if you have received payments under Section 6(c) above. (e) If You have a Termination of Employment by the Company for Cause, Your death or Your Total Disability or by You for reasons other than for "Good Reason," the Company will have no obligations to pay You any amount beyond the...

  • Page 138
    ... Your Termination of Employment any services which are in competition with a Material line of Business engaged in by the Company at the time of Your Termination of Employment, and which are the same as or similar to those services You performed for the Company under this Agreement; provided, however...

  • Page 139
    ... Affiliates. As used herein, "Restricted Employee" means any employee of the Company or its Affiliates with whom You had material business-related contact while performing services under this Agreement, and who is: (1) a member of executive management; (2) a corporate officer of the Company or any...

  • Page 140
    ... personally delivered or mailed to that recipient by certified mail, return receipt requested, addressed to the appropriate recipient at the address set forth under the signature of the Chief Executive Officer of the Company or his designee on this Agreement or at such other address as the Company...

  • Page 141
    ... of the parties hereto relating to Your employment by the Company in the capacity herein stated and, except as specifically provided herein, no provisions of any employee manual, personnel policies, Company directives or other agreement or document shall be deemed to modify the terms of this...

  • Page 142
    ... the Company in the Company's (i) sole discretion. (ii) "Net After Tax Amount" means the amount of any Parachute Payments, Capped Payments or other payments described in this Section 18, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes...

  • Page 143
    ... Section 409A . Any payments or benefits that you receive pursuant to this Agreement shall be subject to reduction for any applicable employment or withholding taxes. Notwithstanding any other provision of this Plan, if You are a Specified Employee as of Your Termination of Employment, and if the...

  • Page 144
    ...Section 409A of the Code. This Agreement is intended to comply with the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance therewith. The Company may at any time amend, suspend or terminate this Agreement, or any payments to be made hereunder, as...

  • Page 145
    ... You and the Company have executed and delivered this Agreement as of the date first shown above. YOU: JOSEPH M. WETZEL /s/ Joseph M. Wetzel Address: 1375 Peachtree Street Atlanta, GA 30309 THE COMPANY: EARTHLINK, INC. By: /s/ Rolla Huff Name: Rolla Huff Title: Chief Executive Officer Address: 1375...

  • Page 146
    ... at that time, and upon vesting may be received in shares of stock or may be deferred into a deferred compensation plan. i. Note: Each RSU is equal to one share of EarthLink stock. Upon vesting, the RSUs may be received in shares of stock (in which case the recipient has taxable income equal to...

  • Page 147
    ... directors for their expenses incurred in attending Board of Directors and Committee meetings. 5. Education Expenses a. EarthLink will pay reasonable program fees and associated travel expenses for each director to participate in one or more additional relevant director education programs. In...

  • Page 148
    ... as that term is used in Rule 13d-3 promulgated under the Exchange Act. (c) " Beneficiary " shall mean the person or entity an Employee designates, by written instrument delivered to the Employer or an Affiliate, to receive the benefits payable under this Plan after the Employee's death. If an...

  • Page 149
    ... mean the annual incentive bonus payable to the Employee at the greater of the rate in effect on (1) the date the Change in Control of the Employer occurs or (2) the date of the Employee's Termination of Employment under the circumstances described in Section 2(a). (g) " Business Combination " means...

  • Page 150
    ...cases, finding that in the good faith opinion of the applicable executive officer or person in charge of the Human Resources function or a direct report to the Chief Executive Officer to whom such responsibility was delegated, that the Employee committed the conduct set forth above in clauses (1) or...

  • Page 151
    ... of the power to direct or cause the direction of the management and policies of the Employer (a) through the ownership of securities which provide the holder with such power excluding voting rights attendant with such securities or (b) by contract. (m) " Employee " shall mean a full-time common-law...

  • Page 152
    ... the EarthLink, Inc. Accelerated Vesting and Compensation Continuation Plan. (n) " Exchange Act " means the Securities Exchange Act of 1934, including amendments, or successor statutes of similar intent. (o) " For Good Reason " means the Employee's Termination of Employment is by the Employee other...

  • Page 153
    ... retirement or compensation plan, performance share plan, stock option plan, life insurance plan, health and accident plan, disability plan or another benefit plan in which the Employee is participating immediately prior to a Change in Control of the Employer (or provide plans providing him or...

  • Page 154
    ... agreement between employee representatives and the Employer (except as otherwise provided in regulations issued under the Code) shall be excluded for purposes of determining the number of officers. For purposes of this Section, the term "five-percent owner" ("one-percent owner") means any person...

  • Page 155
    ... (ii) the Employee voluntarily has a Termination of Employment for Good Reason: (1) Employer or an Affiliate shall pay Employee Cash Severance in one lump sum payment, subject to all applicable withholdings and employment taxes and subject to reductions pursuant to Sections 4 and 16 of this Plan, as...

  • Page 156
    ... participates at the date of the Employee's Termination of Employment, shall receive any and all benefits accrued under any such Retirement Plan, Welfare Plan or other plan or program to the date of the Employee's Termination of Employment, the amount, form and time of payment of such benefits to be...

  • Page 157
    ...-four (24) months after the Change in Control of the Employer occurs, if not then already exercisable to such extent. (iii) It is deemed under this Plan that the Employer or an Affiliate consistent with the plans and agreements governing the applicable stock options accelerated the exercisability of...

  • Page 158
    ...or expiration dates of the applicable stock options. (iv) Notwithstanding any of the foregoing, for purposes of this Section 3 only, an Employee in the Bronze Benefit Category who previously participated in the EarthLink, Inc. Accelerated Vesting and Compensation Continuation Plan and who elected to...

  • Page 159
    ... after the date of the Change in Control. (iii) It is deemed under this Plan that the Employer or an Affiliate consistent with the plans and agreements governing the applicable restricted stock units accelerated such restricted stock units becoming earned and payable at such time and on such basis...

  • Page 160
    ... this Plan, no payments shall be made or benefits provided pursuant to this Plan during the first 30 days (60 days in the event of a group termination) after the Employee's Termination of Employment and any payments or benefits that are to be provided in that period shall be accumulated and paid (or...

  • Page 161
    ... for benefits. The claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant's claim for benefits. The Employer's review will take into account all such written comments, documents, records...

  • Page 162
    ... member or agent or representative within the time, if any, required by Section 409A of the Code. The Employer also may employ such accountants, counsel, specialists and other advisory clerical persons as it deems necessary or desirable in connection with administration of the Plan. The Employer...

  • Page 163
    ... or change of this Plan or any payment hereunder does not give any person a non-statutory legal or equitable right against the Employer or an Affiliate to remain employed by the Employer or an Affiliate. This Plan does not modify the terms of any Employee's employment. 12. Severability. In...

  • Page 164
    ... Suite 7 North Atlanta, Georgia 30309-2935 Attention: Chief People Officer If to an Employee: The address last indicated on the records of Employer. 16. Excise Tax. Despite any other provisions of this Plan to the contrary, if the receipt of any payments or benefits under this Plan would subject an...

  • Page 165
    ... may specify from time to time in any employee handbook or in any other agreement between the Employee and the Employer or an Affiliate. Additionally, the benefits that this Plan provides shall not be reduced or offset by any other payments or benefits that the Employee may receive from any other...

  • Page 166
    ... benefits become payable under the Plan, the Employer and its Affiliates shall have the right to withhold such amounts as are sufficient to satisfy any applicable federal, state or local withholding, tax, excise tax or similar requirements. (d) The terms of an Employee's benefits are as set forth in...

  • Page 167
    IN WITNESS WHEREOF, Employer has caused this instrument to be executed in its name by its duly authorized officer, all as of the day and year first above written. EARTHLINK, INC. By: Title: 20

  • Page 168
    ... AND SEVERANCE PLAN SUMMARY PLAN DESCRIPTION NAME OF PLAN: EarthLink, Inc. Change-in-Control Accelerated Vesting and Severance Plan NAME, ADDRESS, AND TELEPHONE NUMBER OF SPONSOR AND PLAN ADMINISTRATOR: EarthLink, Inc. ("Employer") 1375 Peachtree Street, N.W. Suite 7 North Atlanta, Georgia 30309...

  • Page 169
    ... the severance pay from the Plan. PROCEDURES FOR PRESENTING CLAIMS AND REDRESS OF DENIED CLAIMS: Section 6 provides detailed instructions for filing a claim and redress of a denied claim. AGENT FOR SERVICE OF PROCESS: EarthLink, Inc. 1375 Peachtree Street, N.W. Suite 7 North Atlanta, Georgia 30309...

  • Page 170
    ...decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees. If you have any questions about your Plan, you should contact the Employer. If you have...

  • Page 171
    ... cash payment of 1.5 times the sum of employee's salary plus bonus target, if within 18 months after a change in control the company terminates employee's employment without cause or employee voluntarily terminates his or her employment for good reason; no cash severance if termination of employment...

  • Page 172
    ... will not vest if the date for attainment of those criteria has passed.. remained employed for 24 months after the change in control occurs, if not already vested to such extent; provided that restricted stock units that contain performance criteria will not vest if the date for attainment of those...

  • Page 173
    Exhibit 10.30 EARTHLINK, INC. EXECUTIVES' POSITION ELIMINATION AND SEVERANCE PLAN AND SUMMARY PLAN DESCRIPTION (As Amended and Restated Effective as of December 15, 2008)

  • Page 174
    ... than those plans, programs or policies the terms of which specifically provide that they cannot be superseded or terminated. Eligible Employees The Plan applies to regular employees of the Company and its Affiliates who are employed in positions at the Vice President Level or the Executive Level of...

  • Page 175
    ...Elimination and Severance Plan for Eligible Employees Whose Current Employment Started on or after January 1, 2008, the EarthLink, Inc. Change-in-Control Accelerated Vesting and Severance Plan, the EarthLink Network, Inc. Key Employee Compensation Continuation Plan, the EarthLink Accelerated Vesting...

  • Page 176
    ... as stated below. Severance Pay and Benefits In exchange for providing the Company with an enforceable Waiver and Release Agreement in a form acceptable to the Company, and for not later revoking that Waiver and Release Agreement, each eligible employee shall be entitled to receive severance pay and...

  • Page 177
    ... months of outplacement services provided by a vendor selected by the Company, with a value of up to $4,800, beginning immediately following the termination of employee's employment with the Company and all Affiliates. No cash payment is available in lieu of the outplacement services. • Employees...

  • Page 178
    ...bonus otherwise payable under the EarthLink Executive Bonus Plan for that year. The consideration for the voluntary Waiver and Release Agreement shall be the severance pay and benefits provided under this Plan that the eligible employee would otherwise not be eligible to receive. The Company may, in...

  • Page 179
    ... number of officers. For purposes of this Section, the term "five- percent owner" ("one-percent owner") means any person who owns more than five percent (One percent) of the outstanding stock of the Company or stock possessing more than five percent (one percent) of the total combined voting power...

  • Page 180
    ... and Release Agreement In order to receive the severance pay and benefits available under the Plan, an eligible employee must submit a signed Waiver and Release Agreement, in a form acceptable to the Company, to the Plan Administrator on or within 21 days (45 days in the event of a group termination...

  • Page 181
    ... required to return the aggregate amount of severance pay and benefits received previously under the Plan. Confidential Information/Cooperation In order to receive severance pay and benefits under the Plan, eligible employees shall be required to confirm in the Waiver and Release Agreement the terms...

  • Page 182
    ... and Release Agreement to such other terms relating to the protection and return of the Company's or Affiliate's confidential and proprietary business information and other Company or Affiliate property as the Company or Affiliate deems appropriate. After an employee's termination of employment with...

  • Page 183
    ... on behalf of the Company in connection with the administration of the Plan, except expenses, claims and liabilities arising out of such person's own gross negligence or bad faith or for which applicable law does not permit such indemnification. Claim Procedures Employees do not need to complete...

  • Page 184
    ... for benefits. The claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant's claim for benefits. The Plan Administrator's review will take into account all such written comments, documents...

  • Page 185
    ... or terminate the Plan at any time by written action of its Chief Executive Officer, Chief Financial Officer or Chief People Officer or any of their designees or by such other action as the Company may determine. No Representations Contrary to the Plan The terms of an employee's severance pay and...

  • Page 186
    ...for receiving severance pay and benefits under this Plan and if the period of leave (i) ends or (ii) exceeds six months and the employee's right to reemployment is not provided either by statute or by contract, then the eligible employee will be considered to have had a termination of employment and...

  • Page 187
    ... 15, 2008) Plan Sponsor EarthLink, Inc. 1375 Peachtree Street Atlanta, GA 30309 (404) 815-0770 Employer Identification Number (BIN 58-2511877 Plan Number 506 Plan Type The Plan is a welfare benefit plan that pays severance benefits. Plan Administrator Plan Administrator, EarthLink, Inc. Executives...

  • Page 188
    ...bargaining agreements and copies of the latest Annual Report (Form 5500 series), if any, and an updated summary plan description, by making a written request to the Plan Administrator and paying a reasonable charge for the copies. • receive a summary of the Plan's annual financial report. The Plan...

  • Page 189
    ... from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of...

  • Page 190
    ... value. 2. DEFINITIONS 2.1 Definitions . Capitalized terms used in the Plan shall have the following meanings: " Adjusted EBITDA " means EBITDA excluding stock-based compensation expense under SFAS No. 123(R), facility exit and restructuring costs, net losses of equity affiliates, gain (loss) on...

  • Page 191
    ... have occurred if such power was acquired (x) directly from the Company in a transaction approved by the Incumbent Board, (y) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Employer or (z) by any person pursuant to a Business Combination that would not...

  • Page 192
    ... employs the Employee in effect at the applicable time. " Distribution " means the payment of cash under the Plan. " Distribution Date " means the date on which the Distribution occurs. " EBITDA " means income (loss) from continuing operations before interest income (expense) and other, net, income...

  • Page 193
    ... the Employer that such person is an independent contractor, whether or not a court, the Internal Revenue Service or any other authority ultimately determines such classification to be correct or incorrect as a matter of law. " Employer " means EarthLink, Inc. (also referred to as the "Company") and...

  • Page 194
    ... means revenues as reported on the Company's financial statements filed with the Securities and Exchange Commission. " Target Aggregate Bonus " means the Bonus Award that would be earned if the Participant's Performance Bonus Multiplier were one hundred percent (100%). " Target Bonus Percent " means...

  • Page 195
    ...Objectives may be stated with respect to the Company's, an Affiliate's, a product's, and/or a business unit's Revenue, Adjusted EBITDA and/or any combination of the foregoing as the Committee may designate. The Corporate Performance Conditions may, but need not, be based upon an increase or positive...

  • Page 196
    ... by the Federal and any state or local government or other applicable laws. 7. CHANGE IN CONTROL 7.1 Payment After a Change in Control . If at any time after a Change in Control occurs the Participant's employment with all Employers is terminated by an Employer for any reason other than Cause...

  • Page 197
    ...of the Employer. The Employer's obligation under the Plan shall be that of an unfunded and unsecured promise to pay money or shares of Common Stock in the future, and there shall be no obligation to establish any fund, any security or any other restricted asset in order to provide for the payment of...

  • Page 198
    ... any other agreements or arrangements relating to the Participant's employment that provide for payments of any bonuses under this Plan on termination of employment, this Plan shall be construed and interpreted so that the Bonus Awards and Distributions payable under the Plan are only paid once; it...

  • Page 199
    ... Bonus Period in which such termination takes place, the Employer will pay to each Participant the Participant's Bonus Award, if any, for such Bonus Period, less any applicable withholdings, only to the extent the Committee provides for any such payments on termination of the Plan (in which case all...

  • Page 200
    ... be made at any time within thirty (30) days after the Participant receives written notice from the Committee of the denial of the claim. In connection therewith, the Participant or his duly authorized representative may request a review of the denied claim, may review pertinent documents and may...

  • Page 201
    ... of the Plan, each Restricted Stock Unit represents an unsecured promise of the Company to deliver, and the right of the Participant to receive, one share of the Common Stock of the Company at the time and on the terms and conditions set forth herein. As a holder of Restricted Stock Units, the...

  • Page 202
    ... has been continuously employed by, or providing services to, the Company or an Affiliate from the Date of Grant until the time of such termination of employment. Vesting Date . Outstanding Restricted Stock Units shall be forfeitable until they become earned and (ii) payable as described above...

  • Page 203
    ...United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses: If to the Company: EarthLink, Inc. 1375 Peachtree Street - Level A Atlanta, Georgia 30309 Attention: General Counsel If to the Participant: No Right to Continued Employment or Service...

  • Page 204
    ... and personal representatives of the Participant and the successors of the Company. 13. Conflicts . In the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of the Plan shall govern. All references herein to the Plan shall mean the Plan as...

  • Page 205
    IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized officer, and the Participant has affixed his signature hereto. COMPANY: EARTHLINK, INC. By: Name: Title: PARTICIPANT: [Participant's Name] 5

  • Page 206
    ... AGREEMENT This HIGH-SPEED SERVICE AGREEMENT (the "Agreement" ), executed on June 30, 2006 (the "Execution Date" ), is made and entered into by and between EARTHLINK, INC. , a Delaware corporation, with offices at 1375 Peachtree Street, Atlanta, Georgia 30309 ( "EarthLink" ), and TIME WARNER CABLE...

  • Page 207
    ... subscribers through any other EarthLink-branded high-speed Internet access service, including but, not limited to, all such associated links, content, services, features, functionality, issuance and use of EarthLink email addresses and features related thereto available to residential customers...

  • Page 208
    ... time to repair, installations and responding to customer service calls) determined in TWC's reasonable business judgment. TWC's customer support shall not be determined based upon whether a particular high-speed service customer is a Service Subscriber or a customer of another Online Provider...

  • Page 209
    ...Service Level(s); (iii) cancel any Service Level(s); and (iv) establish, in a manner consistent with applicable law, requirements regarding the terms on which any Online Provider, including EarthLink, may offer any Service Level(s) (e.g., limiting access to a given Service Level to promotional uses...

  • Page 210
    ...to provide its customers with at least 30 days' written notice. In the event TWC terminates any Service Level, TWC and EarthLink agree to work in good faith to create and implement a transition plan for those Service Subscribers impacted by such termination. (e) TWC shall make available to EarthLink...

  • Page 211
    ... in the Service Subscriber's home. To the extent any TWC Division provides multiple public IP addresses for residential high-speed service customers, TWC shall consider supplying multiple public IP addresses for residential Service Subscribers and will make such determination in good faith without...

  • Page 212
    ...Levels established by TWC) (the "Retail Price(s)" ) as sold by it, including the right to establish different prices to Service Subscribers in different TWC Cable Systems. EarthLink shall have the right to set the retail price for any Premium EarthLink High-Speed Service in connection with its sales...

  • Page 213
    ... any, per Service Level 2 Service Subscription (the "SL2 EarthLink Monthly Fee" ). Such amount will be paid to EarthLink by TWC as such Service Subscribers will be billed by TWC. The "SL2 Excess Amount" shall be the amount by which the Retail Price for the EarthLink High-Speed Service exceeds [_____...

  • Page 214
    ... any, per Service Level 3 Subscription (the "SL3 EarthLink Monthly Fee" ). Such amount will be paid to EarthLink by TWC as such Service Subscribers will be billed by TWC. The "SL3 Excess Amount" shall be the amount by which the Retail Price for the EarthLink High-Speed Service exceeds _____ dollars...

  • Page 215
    month, if any. 10

  • Page 216
    ... use commercially reasonable efforts to develop and implement a "saves" program to retain Service Subscribers who indicate they wish to terminate the EarthLink High-Speed Service. In the case of TWC, any such program must be approved by a senior vice president (or above) based in TWC's corporate...

  • Page 217
    ... end of the relevant month) (the "Revenue Share") . 2.4 Outage Credit; Service Subscriber Default. To the extent a billing Party issues a credit or refund to Service Subscriber(s) in respect of any period(s) of any unscheduled (a) outage of the EarthLink High-Speed Service, the adjustment (if any...

  • Page 218
    ... for billing and collecting from the Service Subscriber and remitting to the appropriate taxing authorities all applicable sales, use, excise, import or export, value added or similar taxes and fees arising by law from the purchase by such Service Subscriber of the EarthLink High-Speed Service...

  • Page 219
    ... to receive the EarthLink High-Speed Service for as long as is reasonably necessary to permit transition of such Service Subscribers off the EarthLink High-Speed Service. In the event that the transferee of such TWC Cable System does not accept TWC's rights and obligations under this Agreement...

  • Page 220
    ...Adjacent to an Operating Area of a then-existing TWC Cable System carrying the EarthLink High-Speed Service; (y) shall add such new TWC Cable System to the scope of this Agreement if such TWC Cable System has more than 300,000 residential homes passed (as that term is commonly used in the television...

  • Page 221
    ...to any Operating Area, by notice in writing to EarthLink, if TWC ceases to provide its cable television services in such Operating Area. 4. PROMOTION FOR TWC SITE 4.1 Link To TWC Site. EarthLink will create, host, operate and maintain a Service Subscriber customizable "Personal Start Page" with TWC...

  • Page 222
    ... of any Premium EarthLink High-Speed Service), provided that with respect to any individual Premium EarthLink High-Speed Service, bundling and/or order entry is practical and technically feasible; that EarthLink's systems support such bundling and order entry and, if billing rights are requested...

  • Page 223
    ... Time Warner Cable's corporate office. (v) The TWC Division will retain customer-billing responsibility for the Bundled Package. Nothing contained herein shall change or modify EarthLink's rights, as set forth in the Agreement, to set the retail price for the a la carte EarthLink High-Speed Service...

  • Page 224
    ... to handle common, simple subscriber issues related to service availability, service features and charges, basic troubleshooting plan, and billing issues. TWC and EarthLink will coordinate to reasonably provide information to each other and handle handoff of issues where problem resolution is the...

  • Page 225
    21

  • Page 226
    ... or remain in full force and effect) (iii) the side letter between Time Warner Entertainment Company, L.P. ( "TWE" ) and EarthLink, dated as of July 2, 2001, shall terminate; and (iv) the Agreement for Internet Transit Services between EarthLink and TWE, dated as of July 2, 2001, as amended, shall...

  • Page 227
    ... and resources to address, coordinate and resolve back-end issues, particularly with respect to provisioning, authentication, billing, customer service and technical support for the EarthLink High-Speed Service. EarthLink and TWC will cooperate to ensure that the EarthLink High-Speed Service, the...

  • Page 228
    ... advance notice of any scheduled outages of the System Facilities within the TWC Divisions where the EarthLink High-Speed Service is offered. To the extent then available, EarthLink shall receive a monthly report of each TWC Division's EarthLink Service Subscriber billing activity (which may include...

  • Page 229
    ... provide TWC with monthly reports, in a detailed format reasonably satisfactory to TWC, setting forth (a) the total number of Service Subscribers for which EarthLink completed the sale during the preceding month, and (b) the total number of Service Subscribers to the EarthLink High-Speed Service...

  • Page 230
    ..., features and functions that are available to subscribers independent of the EarthLink High-Speed Service only by paying a one-time or subscription fee (e.g., Premium EarthLink HighSpeed Services); (b) revenues from advertising and other promotional and paid for placements generated in connection...

  • Page 231
    (w) fees charged to Service Subscribers solely for the provision of additional e-mail "boxes" ; (x) fees charged for Web site hosting services; or (y) fees charged for home installation or customer technical support. A-1

  • Page 232
    ... accounting purposes as "cost of goods sold", "cost of revenues", "revenue share" or other terms of similar import. For example, (1) in the event a Service Subscriber purchases a wireless device such as a Palm Pilot or a Blackberry over the EarthLink High-Speed Service and EarthLink is paid a fee...

  • Page 233
    ... meaning set forth in Section 5.4. "EarthLink Entities" means EarthLink, EarthLink Operations, Inc. and their direct and indirect subsidiaries. "EarthLink High-Speed Service" means any and all IP services, as such services may change from time to time, that is (are) offered by EarthLink to end-users...

  • Page 234
    ...outside the home, (b) the connection and installation of all CPE (including, with regard to a modem, the related software) in or to the Service Subscriber's Device, (c) installation of the EarthLink Software necessary to allow the Service Subscriber to access and use the EarthLink High-Speed Service...

  • Page 235
    ...-per-use/view services and including IP telephony that is not part of the Basic EarthLink High-Speed Service, provided, however, that Premium EarthLink High-Speed Services shall not include the provision of additional e-mail "boxes" or Web site hosting services. "Press Release" has the meaning set...

  • Page 236
    ... points), ATD Network, connecting the Internet to the cable modem or other device in which the network termination is located at the location of each Service Subscriber; provided, however , that System Facilities shall not include any EarthLink Software. "Term" has the meaning set forth in Section...

  • Page 237
    ... Level 2 Service Subscribers" means those Service Subscriptions or those Service Subscribers for whom Service Subscriptions are provided on TWC Cable Systems other than Bright House Cable Systems. "TWC Site" means those Internet sites that are linked, by one or more links, to the Personal Start...

  • Page 238
    EXHIBIT B BUSINESS POLICIES HANDBOOK The Parties will confer and agree upon business policies to be incorporated into this Agreement. Until such business policies are formally incorporated herein, the Parties shall continue to apply existing business policies as they may be modified by the Parties ...

  • Page 239
    ... Affiliates shall be entitled to use the following trade names, trademarks and service marks of TWC: Time Warner Cable, Time Warner Communications and the eye/ear logo, and in connection therewith, EarthLink shall comply with the TWC style guide to be provided to EarthLink prior to the first Launch...

  • Page 240
    ... and promotional spaces within the EarthLink High-Speed Service). TWC owns all right, title and interest in all aspects of the TWC Site (including all advertising and promotional spaces within the TWC Site) except for content provided by EarthLink for use, placement or incorporation therein...

  • Page 241
    ... Party that the execution and performance of this Agreement does not interfere with any third party rights arising under any of the representing Party's agreements. TWC DOES NOT WARRANT THAT THE TWC HSS OR EARTHLINK HIGHSPEED SERVICE WILL BE PROVIDED OR DELIVERED ERROR-FREE OR WITHOUT INTERRUPTION...

  • Page 242
    ... to the extent such content is distributed as part of the EarthLink High-Speed Service, (i) violates any applicable law or regulation, (ii) infringes or violates any copyright, trademark, U.S. patent, rights of publicity or privacy, moral rights or any other third party proprietary right, or (iii...

  • Page 243
    ...for a minimum of five (5) years following termination of the Agreement. For the sole purpose of ensuring compliance with the Agreement, each Party shall have the right, at its expense, to direct an independent certified public accounting firm subject to strict confidentiality restrictions to conduct...

  • Page 244
    ... of another Online Provider; provided that the foregoing will not restrict TWC from engaging in any solicitation or marketing activities that are not specifically targeted to Service Subscribers. 12.2 Collection, Use and Disclosure of Service Subscriber Information . TWC and EarthLink shall each...

  • Page 245
    ... information in a manner that identifies such Service Subscriber as an end user of the EarthLink High-Speed Service, or (iii) subject to exceptions specified in its published privacy policy or with respect to which necessary consents and waivers will have been obtained in the subscriber agreement...

  • Page 246
    ... this Agreement shall remain in full force and effect only with regard to persons who are Service Subscribers immediately prior to, or within six (6) months after, the Change in Control of EarthLink, and EarthLink shall not have the right to sell any further subscriptions to the EarthLink High-Speed...

  • Page 247
    ... satellite provider that provides such services in the United States, or any entity which derives at least forty percent (40%) of its annual revenue or $1 billion dollars in annual revenue from wireless high-speed data services for desktop or laptop personal computers. (e) "Voting Stock" means...

  • Page 248
    ... court having jurisdiction in New York City, New York; and (b) all actions brought by TWC or a TWC Division against EarthLink shall be brought in the appropriate state or federal court having jurisdiction in Atlanta, Georgia. The Parties hereby consent to the personal jurisdiction of such courts...

  • Page 249
    ... TWC to develop a new "Lite" service offering. This offering will be rebranded and will be targeted at the remaining EarthLink dial-up subscribers. As part of this effort, EarthLink shall create new direct marketing materials substantially different from and incremental to those used for standard...

  • Page 250
    ...Level A, Atlanta, Georgia 30309; and the Division of Time Warner Cable ( "TWC" ), at [insert division address], agree as follows with respect to the inclusion and marketing of the EarthLink High-Speed Service as part of one or more Bundled Package(s) that includes TWC products, features and services...

  • Page 251
    ... receive, upon request, a copy of any monthly and quarterly report of total EarthLink connects and disconnects that are associated with the EarthLink Bundled Packages. EarthLink agrees to make use of existing TWC Division reports rather than require standard reporting across TWC Divisions. Billing...

  • Page 252
    ...the SL3 TWC Monthly Fee, as long as there are incremental $___ customers attributable to this period in the rate calculation. If there are no $___ customers attributable to this period (i.e., if the number of EarthLink-sold Service Level 3 Service Subscribers on the date of such termination is lower...

  • Page 253
    ...Date. If there are no $_____ customers attributable to the period between the first and second anniversaries of the Effective Date (i.e., the number of EarthLink-sold Service Level 3 Service Subscribers at the time of such termination is lower than the number that existed at the first anniversary of...

  • Page 254
    Exhibit 21.1 Subsidiaries of the Registrant Name Jurisdiction of Incorporation EarthLink/OneMain, Inc. PeoplePC Inc. Cidco Incorporated New Edge Holding Company Delaware Delaware Delaware Delaware

  • Page 255
    ... REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference...EarthLink, Inc. and the effectiveness of internal control over financial reporting of EarthLink, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2008. /s/ Ernst & Young LLP Atlanta, Georgia...

  • Page 256
    ...INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in EarthLink, Inc...report dated February 26, 2008, with respect to the combined financial statements of HELIO, Inc. and affiliate included in this Annual Report (Form 10-K) for the year ended December 31, 2008...

  • Page 257
    ...P. Huff, certify that: 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2008 of EarthLink, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in...

  • Page 258
    ... Dotts, certify that: 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2008 of EarthLink, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in...

  • Page 259
    ...ACT OF 2002 In connection with the Annual Report on Form 10-K of EarthLink, Inc. (the "Company") for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rolla P. Huff, Chief Executive Officer of the Company, certify, pursuant to...

  • Page 260
    ... OF 2002 In connection with the Annual Report on Form 10-K of EarthLink, Inc. (the "Company") for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin M. Dotts, Chief Financial Officer of the Company, certify, pursuant to...

  • Page 261
    Exhibit 99.1 HELIO, INC. and HELIO LLC INDEX TO COMBINED FINANCIAL STATEMENTS Page Report of Independent Auditors Combined Balance Sheets as of December 31, 2006 and 2007 Combined Statements of Operations for the period inception (January 27, 2005) to ...

  • Page 262
    ... the combined financial statements, effective January 1, 2006, the Company changed its accounting for stock-based compensation in connection with the adoption of Statement of Financial Accounting Standards No. 123 (R), "Share-Based Payment." /s/ Ernst & Young LLP Los Angeles, California February 26...

  • Page 263
    ...; 2 shares authorized, issued and outstanding at December 31, 2006 and 2007) Class A common stock ($0.01 par value; 230,000,002 shares authorized; 5,337,900, and 5,561,272 shares issued and outstanding at December 31, 2006 and 2007, respectively) Additional paid-in capital Accumulated deficit Total...

  • Page 264
    ...equipment sales Total cost of sales Gross (loss) margin Operating expenses: Operations and member service Sales and marketing General and administrative Stock compensation Impairment charge on intangible assets Restructuring charges Total operating expenses Operating loss before other expense/income...

  • Page 265
    ... Partners in March 2005 Warrant issued in 2005 to a Partner to purchase 1,995,000 shares of the Company's Class A Common Stock at $1.71 per share Supplemental compensation paid on behalf of certain employees by a Partner Net loss Balance at December 31, 2005 Funding received from the Partners under...

  • Page 266
    ... (See Note 9) Cancellation of member units from Partner (See Note 10) Exercise of employee stock options during 2007 Stock expense pertaining to vested portion of a warrant issued in 2005 to a Partner to purchase 1,995,000 shares of the Company's Class A Common Stock at $1.71 per share Stock expense...

  • Page 267
    ...Partner cash contributions in HELIO LLC in exchange for convertible preferred membership units Exercise of employee common stock options Proceeds from the issuance of notes payable Issuance of common stock Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents...

  • Page 268
    ... by a Partner in conjunction with the Company's formation Accrued property and equipment purchases Non-cash financing activities Warrants issued to a Partner to purchase common stock in exchange for services Exchange of Partner convertible notes payable in the aggregate principal amount of $70...

  • Page 269
    ...-time, for validly issued, fully paid and non-assessable shares of HELIO, Inc.'s Class A Common Stock. The number of shares of Class A Common Stock obtained from such an exchange of Membership Units is determined by multiplying the number of Membership Units to be exchanged by the Unit Exchange Rate...

  • Page 270
    ...from SKT and EarthLink pursuant to various related party agreements. As more fully discussed in Note 17, these expenses are considered to be a reasonable reflection of the value of services provided for and/or the benefits received by the Company. 2. Summary of Significant Accounting Policies Use of...

  • Page 271
    ... sales, net of any related device price subsidies offered to members at the point of sale, and inventory return reserves. Devices and accessories are sold to members through (i) direct sales channels, including but not limited to direct sales to end-members over the Company's website, telesales...

  • Page 272
    ... most cases, direct channel device sales occur at the same time a member activates the Company's wireless services. For indirect channels, device and accessory revenues are recognized upon shipment, net of any upfront price subsidy, taking into account individual member rights of returns, historical...

  • Page 273
    ... costs of external sales commissions, co-op advertising, general marketing and media advertising expenses, lease expenses associated with Company owned retail locations, amortization of certain intangible assets and website development expenses (accounted for under the provisions of Emerging Issues...

  • Page 274
    ... and or no longer continue to make payments on amounts when due, the Company offsets these accounts with the related member's deposit or credit fee, as applicable. Non-refundable credit fees are recognized as a reduction of bad debt expense upon a member remaining in good credit standing through...

  • Page 275
    ... Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use and Emerging Issues Task Force No. 00-2, Website Development Costs . Capitalized costs include direct development costs associated with internal use software...

  • Page 276
    ...Board issued SFAS No. 123(R), Share Based Payment ("SFAS 123(R)") , which replaced SFAS No. 123, Stock Based Compensation ("SFAS 123") and superseded Accounting Principles Board ("APB") Opinion No. 25, Employee Based Stock Compensation. Prior to the adoption of SFAS 123(R), the Company accounted for...

  • Page 277
    ... expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for the Company's 2008 fiscal year, although...

  • Page 278
    ... 75,847 (35,291) 40,556 Estimated useful lives for property and equipment range from three to five years. Depreciation expense, which is included in operations and member service, sales and marketing and general and administrative expenses in the Company's statement of operations, depending on the...

  • Page 279
    ... it was restructuring and would no longer be providing funding to the Company. At such time and based upon discussions with EarthLink's management, the probability of Earthlink honoring its remaining commitments related to certain future Subscribers was considered low. Accordingly, this circumstance...

  • Page 280
    ... a per unit exchange rate as defined by the agreements). In connection with any such exchange, such holder shall also have the right to receive a payment, at the time of exchange, of any accrued and unpaid interest with respect to the outstanding principal amount of the Convertible Note Payable (or...

  • Page 281
    ... was no Preferred Stock issued or outstanding. Rights of Common Stock Holders Except as provided in the Certificate of Incorporation, the holders of Common Stock vote together as one class on all matters submitted to a vote of the stockholders of the Company. All shares of Common Stock are identical...

  • Page 282
    ... SKT Contribution Right) by June 30, 2008 will result in the cancellation of 9,090,909 Preferred Membership Units outstanding and issued to EarthLink (the "Trigger Event"), and (ii) the Operating Company may not issue Preferred Membership Units at a price per share less than $3.00 per unit, unless...

  • Page 283
    ..., 2007, the following Membership Units were issued and outstanding by the Operating Company (in thousands, except for Membership Units): Membership Units Issued and Outstanding (including EarthLink Cancelled Shares as a result of the Trigger Event) Member Cash Contributions Conversion of Secured...

  • Page 284
    ... basis. Upon completion of a public offering of shares of the Company's Common Stock, the Company will receive a number of Membership Units determined by the Unit Exchange Rate then effect based upon the number of shares of Class A Common Stock sold in such a public offering. 11. Stock Compensation

  • Page 285
    ...the voting power of all classes of stock of the Company, shall have an exercise price equal to no less than 110% of the fair market per share on the date of grant. The vesting period for NSOs is generally four years from the date of grant, however, certain employees were issued stock options subject...

  • Page 286
    ...and post-vesting employment termination behavior of its employees. The use of the shortcut method is permitted through December 31, 2007. The Company plans to convert to company-specific experience on January 1, 2008. The expected stock price volatility for the Company's stock options was determined...

  • Page 287
    ... Black-Scholes option-pricing model using the same weighted average assumptions in the above table accordance with the requirements of FAS 123(R) and SAB No. 107, Share-Based Payment . Put Option The Company provides each employee who was granted stock options (an "Optionee") a put option (the "Put...

  • Page 288
    ...") at an exercise price of $1.71 per share and (ii) an aggregate 1,800,000 shares of the Company's Class A Common Stock (the "Performance Warrant") at an exercise price of $1.71 per share. The November 2005 Warrant vests over the term of the four year SKTI Service Agreement at the rate of 25% each...

  • Page 289
    ... of two million five hundred thousand (2,500,000) members; and, The remaining one-third (1/3) of the Performance Warrant Shares may be purchased upon the attainment by the Operating Company of two million five hundred thousand (2,500,000) members and at least two (2) consecutive quarters of positive...

  • Page 290
    ... agreement (the "Amended Wireless Network Services Agreement"). In exchange for the Amended Wireless Network Services Agreement, the Company issued a ten-year warrant to an outside service provider to purchase 2,348,883 fully vested shares of the Company's Class A Common Stock at an exercise price...

  • Page 291
    ... in its members federal and state income tax returns based upon their respective ownership interests. The Company's information below is prepared based on HELIO, Inc.'s effective ownership interest in HELIO LLC and to the extent that certain states impose income taxes upon non-corporate legal...

  • Page 292
    ... options. The total amount of rental payments, net of allowances and incentives, is being charged to expense using the straight-line method over the terms of the leases. In addition to the rental payments, the Company generally pays a monthly allocation of the buildings' operating expenses. Total...

  • Page 293
    ...outstanding and due to EarthLink. In March 2005, SKT and the Company entered into a Master Software Development, Software License and Services Agreement (the "Master Agreement") pursuant to which SKT provides the Company various software development, software license and support services in exchange...

  • Page 294
    ..., respectively, associated with the CCBS Order and CCBS Agreement were reflected in property and equipment on the Company's balance sheets. Effective May 2006, the Operating Company entered into a technical system support and services agreement with SKT whereby SKT would provide technical and system...

  • Page 295
    ... with SKT to provide various professional services and operational support activities covering the period October 2005 through December 2006 (the "SKT Services Agreement"). In exchange for the SKT Services Agreement, the Company issued SKT 650,000 shares of the Company's Class A Common Stock in the...

  • Page 296
    ... terminal services agreement whereby SKT agreed to provide certain software development, delivery and support pertaining to device-specific services to be marketed or otherwise sold to the Company's end members (the "Terminal Services Agreement"). Aggregate fees under the Terminal Services Agreement...

  • Page 297
    ... to purchase stock in a third party. The value of the Sale Agreement was accounted for under Accounting Principle Board No. 29, Non-monetary Exchanges and deemed to be approximately $0.5 million . In January 2008, the Company's Chief Executive Officer, who also is a board member of EarthLink and the...

  • Page 298
    ...20,306 - 20,306 203,641 $ $ $ $ 223,997 $ (50)(a) $ - $ 223,947 (42,023) (41,973) $ (50) $ (a) Adjustments represent the elimination of costs incurred by HELIO, Inc., which are largely for Delaware state franchise taxes that was subsequently paid for by HELIO LLC on behalf of HELIO, Inc. 37

  • Page 299
    ...,228 264,970 (191,755) $ $ $ $ 265,167 $ (9,324)(b) $ - $ (191,558) $ (197) $ (a) Adjustments represent the elimination of costs incurred by HELIO, Inc., which are largely for Delaware state franchise taxes that was subsequently paid for by HELIO LLC on behalf of HELIO, Inc. (b) Adjustment...

  • Page 300
    ... for Delaware state franchise taxes that was subsequently paid for by HELIO LLC on behalf of HELIO, Inc. (d) Adjustment represents the elimination of HELIO, Inc.'s investment in HELIO LLC. (e) Adjustment represents the elimination of cash received for Partner convertible notes payable by HELIO...