INTERNET AMERICA INC, DEF 14A, 2000-09-29

INTERNET AMERICA INC
DEF 14A, 2000-09-29
PREPACKAGED SOFTWARE

Previous: HELP AT HOME INC, NT 10-K, 2000-09-29

Next: PERICOM SEMICONDUCTOR CORP, 10-K, 2000-09-29

<PAGE> 1
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Section 240.14A-12

Internet America, Inc.
-------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

1) Title of each class of securities to which transaction
applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing is calculated and state how it was
determined):

4) Proposed maximum aggregate value of transaction:

5) Total Fee Paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

<PAGE> 2

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:
<PAGE> 3

[Internet America Logo]

INTERNET AMERICA, INC.
350 NORTH ST. PAUL, SUITE 3000
DALLAS, TEXAS 75201
(214) 861-2500

September 29, 2000

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of
Internet America, Inc., a Texas corporation, to be held at 10:00 a.m., local
time, on November 1, 2000, at the Adam's Mark Hotel, 400 North Olive Street,
Dallas, Texas 75201. All shareholders of record as of September 20, 2000, are
entitled to vote at the Meeting. I urge you to be present in person or
represented by proxy at the Meeting.

The attached Notice of Annual Meeting and Proxy Statement fully describe
the formal business to be transacted at the Meeting, which includes the election
of two directors and approval of amendments to the Internet America 1998
Nonqualified Stock Option Plan. We have also enclosed a copy of our Annual
Report for the fiscal year ended June 30, 2000.

Internet America's Board of Directors believes that a favorable vote on
each of the matters to be considered at the Meeting is in the best interest of
Internet America and its shareholders and unanimously recommends a vote "FOR"
each such matter. Accordingly, we urge you to review the attached material
carefully and to return the enclosed Proxy promptly.

Directors and officers of Internet America will be present to help host the
Meeting and to respond to any questions that our shareholders may have. I hope
that you will be able to attend. Even if you expect to attend the Meeting,
please complete, sign, date and return your proxy in the enclosed envelope
without delay. If you attend the Meeting, you may vote in person even if you
have previously mailed your proxy.

On behalf of your Board of Directors, thank you for your support.

Sincerely,

/s/ JACK T. SMITH

Jack T. Smith
President, Chief Executive Officer
and Director
<PAGE> 4

INTERNET AMERICA, INC.
350 NORTH ST. PAUL, SUITE 3000
DALLAS, TEXAS 75201
(214) 861-2500

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 1, 2000

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Internet America, Inc. ("Internet America") will be held at 10:00
a.m., local time, on November 1, 2000, at the Adam's Mark Hotel, 400 North Olive
Street, Dallas, Texas 75201, for the purpose of considering and acting upon:

(1) The election of two members of the Board of Directors;

(2) A proposal to amend the Internet America, Inc. 1998 Nonqualified
Stock Option Plan to increase by 400,000 the number of shares of Common
Stock available for issuance pursuant to such Plan and to clarify the
mechanism for granting options to Independent Directors under such Plan;
and

(3) Such other matters as may properly come before the Meeting or any
adjournments thereof.

The close of business on September 20, 2000, has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
Meeting or any adjournments thereof. For a period of at least 10 days prior to
the Meeting, a complete list of shareholders entitled to vote at the Meeting
will be open for examination by any shareholder during ordinary business hours
at the offices of Internet America at One Dallas Centre, 350 North St. Paul,
Suite 3000, Dallas, Texas 75201. Information concerning the matters to be acted
upon at the Meeting is set forth in the accompanying Proxy Statement.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE (WHICH
IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES). EVEN IF YOU HAVE GIVEN YOUR
PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. HOWEVER, IF YOUR
SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO
VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN
YOUR NAME.

By Order Of The Board Of Directors

/s/ ELIZABETH PALMER DAANE

Elizabeth Palmer Daane
Secretary

Dallas, Texas
September 29, 2000
<PAGE> 5

INTERNET AMERICA, INC.
350 NORTH ST. PAUL, SUITE 3000
DALLAS, TEXAS 75201
(214) 861-2500

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 1, 2000

This Proxy Statement is being first mailed on or about September 29, 2000,
to shareholders of Internet America, Inc., a Texas corporation, by the Board of
Directors to solicit proxies (the "Proxies") for use at the Annual Meeting of
Shareholders (the "Meeting") to be held at 10:00 a.m., local time, on November
1, 2000 the Adam's Mark Hotel, 400 North Olive Street, Dallas, Texas 75201, or
at such other time and place to which the Meeting may be adjourned (the "Meeting
Date").

The purpose of the Meeting is to consider and act upon: (1) the election of
two directors; (2) the approval of amendments to the Internet America, Inc. 1998
Nonqualified Stock Option Plan (the "1998 Option Plan") to increase by 400,000
the number of shares of Common Stock available for issuance pursuant to the 1998
Option Plan and to clarify the mechanism for granting options to Independent
Directors under the 1998 Option Plan; and (3) such other matters as may properly
come before the Meeting or any adjournments thereof.

All shares represented by valid Proxies, unless the shareholder otherwise
specifies, will be voted: (1) FOR the election of the persons named herein under
"Election of Directors" as nominees for election as directors; (2) FOR the
amendments to the 1998 Option Plan; and (3) at the discretion of the Proxy
holders with regard to any other matter that may properly come before the
Meeting or any adjournments thereof.

Where a shareholder has appropriately specified how a Proxy is to be voted,
it will be voted accordingly. The Proxy may be revoked by providing written
notice of such revocation to our stock transfer agent, ChaseMellon Shareholder
Services, L.L.C., 2323 Bryan Street, Suite 2300, Dallas, Texas 75201, Attention:
Patti Knight, which notice must be received prior to the Meeting. If notice of
revocation is not received by such date, a shareholder may nevertheless revoke a
Proxy by attending the Meeting and voting in person; however, if your shares are
held of record by a broker, bank or other nominee and you wish to vote at the
meeting, you must obtain from the record holder a proxy issued in your name.

RECORD DATE AND VOTING SECURITIES

The record date for determining the shareholders entitled to vote at the
Meeting is the close of business on September 20, 2000 (the "Record Date"), at
which time we had issued and outstanding 9,719,790 shares of Common Stock, par
value $.01 per share (the "Common Stock"). Common Stock is our only class of
outstanding voting securities. Each share of Common Stock is entitled to one
vote on each matter to be voted at the Meeting.

QUORUM AND VOTING

The presence in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Common Stock is necessary to constitute a
quorum to transact business at the meeting. Abstentions and broker non-votes
will be counted as present and entitled to vote for purposes of determining a
quorum. In deciding all questions and other matters, a holder of Common Stock on
the Record Date shall be entitled to cast one vote for each share of Common
Stock registered in such holder's name.

In order to be elected a director, a nominee must receive the affirmative
vote of a plurality of the shares of Common Stock voted in person or by proxy at
the Meeting. Votes may be cast in favor of or withheld with respect to a
director nominee. Votes that are withheld will be counted toward a quorum but
will not be counted for purposes of the election of directors.
1
<PAGE> 6

In order to comply with certain rules promulgated under the Internal
Revenue Code and of the Nasdaq National Market, approval of the amendments to
the 1998 Option Plan requires the affirmative vote of a majority of the shares
of Common Stock present or represented at the Meeting and entitled to vote
thereon. Abstentions on this proposal may be specified and will have the same
effect as a vote against it.

A "broker non-vote" occurs when a broker or nominee holding shares for a
beneficial owner does not vote on a particular proposal because the broker or
nominee does not have discretionary voting power with respect to that item and
has not received voting instructions from the beneficial owner. Broker non-votes
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. However, for purposes of determining the
outcome of any matter in which brokers or nominees have no discretionary power
to vote, broker non-votes will be treated as not present and not entitled to
vote with respect to that matter (even though those shares are considered
entitled to vote for quorum purposes and may be entitled to vote on other
matters). Brokers or nominees have discretionary power to vote on proposal no.
1, but do not have discretionary power to vote on proposal no. 2. Accordingly,
broker non-votes will not be counted in favor of or against proposal no. 2, but
will be counted toward a quorum.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS

The following table sets forth information as of September 1, 2000
regarding the beneficial ownership of Common Stock of (1) each person or group
known by us to beneficially own 5% or more of the outstanding shares of Common
Stock, (2) each director, nominee for director and our Chief Executive Officer
and four other most highly compensated executive officers (the "Named Executive
Officers") and (3) all executive officers and directors as a group. Unless
otherwise noted, the persons named below have sole voting and investment power
with respect to the shares shown as beneficially owned by them.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OR GROUP(1) OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------------------- ----------------------- ----------------
<S> <C> <C>
Jack T. Smith(2)........................................... 441,811(3) 4.5%
President, Chief Executive Officer and Director
William O. Hunt............................................ 777,063(3)(4) 8.0%
Chairman of the Board
William E. Ladin, Jr....................................... 810,805(3) 8.3%
Vice Chairman of the Board
Gary L. Corona............................................. 73,624(3) *
Director
John Palmer................................................ 682,598 7.0%
Director
James T. Chaney............................................ 39,503(3) *
Vice President and Chief Financial Officer
Michael T. Maples(2)....................................... 267,213(3) 2.7%
Former President, Chief Executive Officer and Director
All directors and executive officers as a group (twelve
persons)................................................. 3,296,678(3) 32.3%
</TABLE>

---------------

* Less than one percent.

(1) The address of each officer and director is in care of Internet America at
One Dallas Centre, 350 North St. Paul, Suite 3000, Dallas, Texas 75201. Mr.
W. Ladin was formerly the President and a Director of our wholly owned
subsidiary, PDQ.Net, Inc. Mr. Palmer was formerly Chairman of the Board of
PDQ.

(2) Mr. Maples resigned as President and Chief Executive Officer and as a
director, and Mr. Smith was elected President and Chief Executive Officer,
on September 5, 2000.

2
<PAGE> 7

(3) Includes options to purchase 45,000, 45,000, 68,051, 45,000, 185,625 and
39,375 shares of Common Stock granted to Messrs. Smith, Hunt, W. Ladin,
Corona, Maples and Chaney, respectively, that are exercisable within 60 days
of September 1, 2000.

(4) Includes 268,678 shares of Common Stock owned by B&G Partnership, Ltd., a
limited partnership in which Mr. Hunt and his wife serve as general
partners, and 463,385 shares of Common Stock owned by the William O. Hunt,
Jr. Rollover IRA, of which Mr. Hunt is the beneficiary.

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The Board of Directors is divided into three classes of two directors each
serving staggered three-year terms. All directors of one class hold their
positions until the annual meeting of shareholders at which the terms of such
directors expire and their respective successors are elected and qualified. Our
Bylaws provide that the Board of Directors shall consist of at least one
director. The term of office of directors in Class I will expire at the this
Meeting, the term of office of directors in Class II will expire at the annual
meeting for 2001 and the term of office of directors in Class III will expire at
the annual meeting for 2002. Effective September 5, 2000, Michael T. Maples
resigned as a member of the Board of Directors. John Palmer, a director whose
term expires at this Meeting, has chosen not to be nominated for reelection to
another term. Thus two vacancies will exist on the Board until replacements are
elected in accordance with our Bylaws.

The Board of Directors has approved the submission to the shareholders of
William E. Ladin, Jr. and Gary L. Corona as nominees, each to serve a three-year
term as director expiring at the annual meeting for 2003 and until his successor
is elected and has qualified. Mr. W. Ladin was elected as a director by the
Board of Directors in January 2000. Mr. Corona has served as a member of the
Board of Directors since before the last annual meeting of shareholders. It is
intended that Messrs. W. Ladin and Corona will be placed in nomination and that
the shares represented by Proxies will be voted for their election. Each nominee
has indicated his willingness to serve as a member of the Board of Directors, if
elected; however, if at the time of the Meeting any of the nominees should be
unwilling or unable to serve, the discretionary authority provided in the Proxy
will be exercised to vote for a substitute, as the Board of Directors
recommends. The Board has no reason to believe that any nominee will be
unwilling or unable to serve as a director. The Board unanimously recommends
that shareholders vote "FOR" the election of the nominees.

The following sets forth information as to the nominees for election at the
Meeting and each of the directors whose term of office will continue after the
Meeting:

<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRING
---- --- -------- -------------
<S> <C> <C> <C>
Nominees for three-year terms ending in
2003:
William E. Ladin, Jr. ................... 59 Vice Chairman of the Board 2000(Class I)
Gary L. Corona(1)(2)..................... 49 Director 2000(Class I)
Continuing directors:
William O. Hunt(1)(2).................... 66 Chairman of the Board 2002(Class III)
Jack T. Smith............................ 47 Director 2001(Class II)
</TABLE>

---------------

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

William O. Hunt has served as our Chairman of the Board and as one of our
directors since May 1995. Mr. Hunt is currently Chairman of the Board and
director of Intellicall, Inc., a diversified telecommunications company
providing products and services to pay telephone networks on a worldwide basis.
From December 1992 to May 1998, Mr. Hunt served as Chief Executive Officer of
Intellicall, Inc. From August 1990 to March 1996, Mr. Hunt served as Chairman or
Vice Chairman of the Board and director of Hogan Systems, Inc., a designer of
integrated online application software products for financial institutions. He
is also a director of American Homestar Corporation, Andrew Corporation and
Mobility Electronics, Inc.

3
<PAGE> 8

William E. Ladin, Jr. has served as Vice Chairman of our Board of Directors
since January 2000. Prior to joining us, Mr. Ladin founded PDQ in 1997 and was
its Chief Executive Officer from its inception to its acquisition by us. From
1991 until present, Mr. Ladin served as Chief Executive Officer of Desktop
Solutions, Inc. Mr. Ladin is the father of Marc Ladin, our Vice
President -- Marketing.

Jack T. Smith has served as our President and Chief Executive Officer since
September 2000 and as one of our directors since November 1995. Mr. Smith is
also employed by Carl Westcott LLC, a private capital firm. From March 1997 to
February 1999, Mr. Smith was President and Chief Operating Officer of Jayhawk
Acceptance Corporation, a specialized financial services company. From June 1996
to September 1997, Mr. Smith was employed as an independent business consultant.
From 1989 until its acquisition by Primedia, Inc., in June 1996, Mr. Smith was
President and Chief Operating Officer of Westcott Communications, Inc. He is
also a director of First Extended Service Corporation and FFG Insurance Company.

Gary L. Corona has served as one of our directors since May 1998. Mr.
Corona is currently employed by Carl Westcott LLC, a private capital firm. From
March 1997 to February 1999, Mr. Corona was General Manager of the Automotive
Division of Jayhawk Acceptance Corporation. From July 1996 to August 1997, Mr.
Corona served as a business consultant for Carl Westcott LLC. From July 1990
until its acquisition by Primedia, Inc., in June 1996, Mr. Corona was Vice
President, New Business Development of Westcott Communications, Inc. Mr. Corona
is also a director of First Extended Service Corporation and FFG Insurance
Company.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

Our business is managed under the direction of the Board of Directors. The
Board of Directors meets on a regularly scheduled basis to review significant
developments affecting us and to act on matters requiring approval of the Board
of Directors. It also holds special meetings when an important matter requires
action by the Board of Directors between scheduled meetings. During fiscal 2000,
the Board of Directors met four times and acted by unanimous written consent six
times. During fiscal 2000, each member of the Board of Directors participated in
all Board of Directors and applicable meetings held during the period for which
he was a director.

The Board of Directors has two standing committees: the Audit Committee and
the Compensation Committee. The functions of these committees, their current
members and the number of meetings held during fiscal 2000 are described below.

Audit Committee. The Audit Committee reviews the professional services and
independence of our independent auditors, as well as the adequacy of our
accounting procedures and internal controls. The Audit Committee recommends to
the Board of Directors the appointment of the firm selected to be our
independent public accountants and monitors the performance of such firm;
reviews and approves the results and scope of the annual audit; reviews with
management the status of internal accounting controls; evaluates any problem
areas having a potential financial impact on us that may be brought to its
attention by management, the independent public accountants or the Board of
Directors; and evaluates all of our public financial reporting documents. The
Audit Committee is comprised of Messrs. Hunt and Corona. The Audit Committee met
three times in fiscal 2000.

Compensation Committee. The Compensation Committee recommends compensation
for all executive officers and administers incentive compensation and benefit
plans. The Compensation Committee is comprised of Messrs. Hunt and Corona. The
Compensation Committee acted by unanimous written consent three times in fiscal
2000.

COMPENSATION OF DIRECTORS

Upon consummation of our initial public offering in December 1998,
directors who were not also our employees ("Independent Directors") received an
annual retainer upon election to the Board of $6,000 (pro rata for existing
Independent Directors for the first partial year) and an additional $750 for
each Board meeting attended. All of our directors are reimbursed for travel,
lodging and other out-of-pocket expenses in

4
<PAGE> 9

connection with their attendance at Board and committee meetings. Each
Independent Director, upon election to the Board of Directors will receive a
nonqualified option to purchase 22,500 shares of Common Stock (which will be
immediately exercisable), and following the third anniversary of his election to
the Board of Directors, and each third anniversary thereafter, and only if such
Independent Director continues to be a member of the Board, such director will
receive a nonqualified option to purchase 20,000 shares of Common Stock (with
such options vesting 25% annually, commencing on the date of issuance and
continuing on the first, second and third anniversaries of the date of issuance,
subject to such director's continued status as a member of to the Board of
Directors, and further subject to the terms and provisions of the 1998
Nonqualified Stock Option Plan). Each Independent Director holding office at the
time of consummation of our initial public offering received such options as if
he had been initially elected as of such date.

On April 20, 1999, we entered into a Consulting Agreement with Mr. Corona
as an independent contractor for his services in identifying and contacting
potential acquisition candidates for us, as well as such other advisory and
management services as our Chief Executive Officer may request from
time-to-time. The Consulting Agreement is for a term of four years, but may be
terminated by either party upon thirty days prior written notice. As
compensation under the Consulting Agreement, in November 1999 we granted Mr.
Corona an option to purchase 75,000 shares of our Common Stock at an exercise
price of $10.00 per share. In addition, we agreed to reimburse Mr. Corona for
all reasonable and necessary travel and other expenses incurred by him in
performing his duties under the Consulting Agreement.

Also on April 20, 1999, we entered into a letter agreement with Carl
Westcott LLC by which we retained Carl Westcott LLC as our non-exclusive
financial advisor. Messrs. Smith and Corona are employed by Carl Westcott LLC.
Under the letter agreement, Carl Westcott LLC will assist us in identifying and
contacting potential acquisition or business combination candidates, evaluate
and value such candidate businesses, assist in structuring transaction
proposals, develop strategies for successful consummation of transactions,
analyze the economic effects to us of a transaction, assist in the negotiation
of transaction proposals and preparation of documents, assist in the due
diligence process and complete other matters related to closing such
transactions. As compensation for rendering such services, we will pay Carl
Westcott LLC a fee equal to two percent of the estimated annual revenue, for the
twelve months after a closing, of a company acquired by us due to Carl Westcott
LLC's performance of services under the letter agreement; provided, however,
that in no event shall such fee for any acquisition be less than $25,000 nor
more than $75,000. We also agreed to reimburse Carl Westcott LLC for all
reasonable expenses, and agreed to indemnify Carl Westcott LLC for damages
relating to any transaction contemplated by the engagement of Carl Westcott LLC
under the letter agreement. The letter agreement is effective until terminated
by either party upon thirty days written notice. In fiscal 2000, we paid
Westcott LLC aggregate fees in the amount of $225,000 related to the
acquisitions of NeoSoft, Inc., PDQ.Net, Inc. and subscribers of Pointe
Communications Corporations, Inc., INTX Networking, L.L.C. and Kdi Internet
Solutions.

Mr. W. Ladin, the Vice Chairman of our Board of Directors, is an employee
providing services to us in the areas of developing strategic relationship,
assistance with acquisitions and consultation on consumer marketing. Mr. W.
Ladin is paid $16,666 per month and receives the same benefits offered to our
other employees. In the event Mr. W. Ladin is terminated or resigns, we have
agreed to pay his then current salary for a period of one year and provide him
with an office, telephone and secretary for a period of two years.

5
<PAGE> 10

EXECUTIVE COMPENSATION

The following table sets forth information regarding compensation paid to
the Named Executive Officers for the fiscal periods indicated. No other
executive officers were compensated over $100,000 in fiscal 2000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTION
--------------------------- ---- -------- ------------ ------------
<S> <C> <C> <C> <C>
Michael T. Maples 2000 $125,000 -- --
Former President and 1999 125,000 -- --
Chief Executive Officer(1)...................... 1998 108,333 -- 157,500(2)
James T. Chaney 2000 $114,000 -- 10,000(3)
Vice President and 1999 96,884 -- --
Chief Financial Officer......................... 1998 44,134 -- 78,750(3)
</TABLE>

---------------

(1) Mr. Maples resigned on September 5, 2000.

(2) Mr. Maples was granted an option to purchase 157,500 shares of Common Stock
at an exercise price of $1.67 per share on March 24, 1998. Options to
purchase 118,125 of those shares are vested. The remaining portion vests on
March 24, 2001 or if Mr. Maples' employment is terminated without cause,
whichever is sooner.

(3) Mr. Chaney was granted an option to purchase 10,000 shares of Common Stock
at an exercise price of $9.25 per share on December 15, 1999 and was granted
an option to purchase 78,750 shares of Common Stock at an exercise price of
$1.67 per share on March 24, 1998. All of these options vest one quarter on
each anniversary of the date of grant until fully vested on the fourth
anniversary of the date of grant.

The following table set forth information regarding the grant of stock
options in fiscal 2000 to each of the Named Executive Officers.

OPTION GRANTS IN FISCAL 2000

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE
---- ------------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Michael T. Maples(1)............ -- -- -- --
James T. Chaney................. 10,000 1.8% $9.25 December 15, 2009
</TABLE>

---------------

(1) Mr. Maples resigned on September 5, 2000.

The following table sets forth the information regarding the value of stock
options outstanding at June 30, 2000 held by each of the Named Executive
Officers. No stock options were exercised by the Named Executive Officers in
fiscal 2000.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY END(#) AT FY END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael T. Maples(2).......................... 146,250 78,750 $490,888 $264,324
James T. Chaney............................... 39,374 39,376 $132,159 $132,166
</TABLE>

---------------

(1) The value of the options is based on the difference between the option
exercise price of $1.67 per share for all options and $5.0265 (which was the
closing sales price per share of the Common Stock on June 30,

6
<PAGE> 11

2000 as reported on Nasdaq) multiplied by the number of shares of Common
Stock underlying the option.

(2) Mr. Maples resigned on September 5, 2000.

EMPLOYMENT CONTRACTS

We entered into an agreement with Jack T. Smith dated September 5, 2000
pursuant to which we agreed to (i) employ Mr. Smith as our Chief Executive
Officer on an at will basis at an annual salary of $200,000, (ii) offer Mr.
Smith the same benefits as provided to other senior executive officers and (iii)
pay the costs of Mr. Smith's administrative assistant.

As part of this arrangement, we entered into a Stock Purchase Agreement
dated September 5, 2000 with Mr. Smith, pursuant to which Mr. Smith purchased
200,000 shares of Common Stock from us at the price of $3.4375 per share, which
was the closing market price of the stock on the date of the agreement. Of the
total purchase price of $687,500, Mr. Smith paid $2,000 in cash and entered into
a Promissory Note to the Company for the remaining amount. The Promissory Note
is for the principal amount of $685,500, with interest accruing at the rate of
6.33% annually. Interest is payable each calendar quarter beginning on October
1, 2000 and continuing until July 1, 2007. All unpaid principal and interest is
due and payable on August 29, 2007. The Promissory Note is secured by the
200,000 shares of Common Stock under a Pledge and Security Agreement also dated
September 5, 2000.

Under the Stock Purchase Agreement, we agreed to pay to Mr. Smith as
additional compensation on or before the due date of any interest payment under
the Promissory Note, an amount which after all withholding required by
applicable law equals the next interest installment due on the Promissory Note.
This amount may be paid by a credit to the accrued unpaid interest on the
Promissory Note. No later than January 15 of each calendar year during the term
of Mr. Smith's employment, we will pay to Mr. Smith a cash bonus in an amount
which after all withholding required by applicable law equals the federal income
tax liability of Mr. Smith not previously withheld or paid by us for any such
additional compensation. For a period of seven years after the date of the Stock
Purchase Agreement, Mr. Smith has the right and option to sell all or any
portion of the 200,000 shares to us for the price of $3.4375 per share. In the
event that Mr. Smith's employment with us is terminated for cause prior to the
third anniversary of the Stock Purchase Agreement, for a period of 60 days after
the date of such termination, we have the right and option to purchase from Mr.
Smith, at a purchase price equal to $3.4375 per share, the following number of
shares: (i) on or prior to the first anniversary: 200,000 shares; (ii) after the
first anniversary but on or prior to the second anniversary: 133,333 shares; and
(iii) prior to the third anniversary: 66,666 shares; provided, however, that
this repurchase right will terminate immediately prior to any change in control
of the Company. The purchase price upon exercise of this option shall be applied
to the outstanding balance of unpaid accrued interest and principal upon the
Promissory Note and the balance, if any, shall be paid in cash to Mr. Smith.
Under the Stock Purchase Agreement, Mr. Smith has demand registration rights for
all or any portion of the 200,000 shares of Common Stock.

In connection with Mr. Maples' resignation as President, Chief Executive
Officer and as a director, we entered into an agreement with him dated September
5, 2000, pursuant to which we agreed to employ Mr. Maples as an employee at
will. In addition, we agreed that the vesting of all options held by Mr. Maples
would be accelerated by one year, and if he was terminated without cause all
options would immediately vest.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has a Compensation Committee, which currently is
comprised of Messrs. Hunt, Smith and Corona. None of our executive officers
currently serves on the compensation committee of another entity or any other
committee of the board of directors of another entity performing similar
functions.

7
<PAGE> 12

RELATED PARTY TRANSACTIONS

Our Chairman of the Board of Directors, William O. Hunt, personally
guaranteed payment under a promissory note made by us in the original principal
amount of $350,000 payable to NationsBank, N.A. (the "NationsBank Note"). A
total of $225,000 was borrowed under the NationsBank Note, which bore interest
at the bank's prime rate. The NationsBank Note originally matured on July 15,
1997 and was renewed through December 15, 1998. A guarantee fee would accrue to
Mr. Hunt at 18% minus the bank's prime rate if the NationsBank Note became in
default. The guarantee fee and all principal were payable upon demand of the
guarantor. All advances under the NationsBank Note required the consent of the
guarantor.

In June 1998, we entered into a letter agreement with Mr. Hunt, Jack T.
Smith, a director and our Chief Executive Officer, and Carl Westcott, a
principal shareholder at the time (the "Letter Agreement"). Pursuant to the
Letter Agreement, we made the following promissory notes to refinance notes made
in 1997 to First Extended, Inc. and First Computer Services Corporation,
companies owned by Mr. Westcott: (i) Amended and Restated Promissory Note
payable to Mr. Smith in the principal amount of $229,450, (ii) Amended and
Restated Promissory Note payable to Mr. Smith in the principal amount of
$77,694, (iii) Amended and Restated Promissory Note payable to Mr. Westcott in
the principal amount of $1,538,263 and (iv) Amended and Restated Promissory Note
payable to Mr. Westcott in the principal amount of $172,306 (collectively, the
"Amended Notes"). All of the Amended Notes bore interest per annum at the
NationsBank of Texas, N.A. prime rate. Pursuant to the Letter Agreement, we were
to make a monthly payment of $140,000, which would be applied pro rata to the
repayment of the Amended Notes and the NationsBank Note. In the event of default
under any of the Amended Notes, the outstanding indebtedness of such note was
convertible into shares of Common Stock at the price of $0.44 per share at the
option of the noteholders. Michael T. Maples, our former Chief Executive Officer
and a director at the time, had an interest in the Amended Notes, which he sold
to Mr. Westcott. Under the Amended Notes and the Letter Agreement, in the event
of any offering of our securities pursuant to a registration statement declared
effective by the Securities and Exchange Commission or the sale or issuance of
our securities through which we raise a minimum of $1.0 million, we had to use
all of the proceeds of such offering, sale or issuance to pay off the Amended
Notes and the NationsBank Note until all such debt was extinguished.

We used approximately $2.0 million of the net proceeds of our initial
public offering in December 1998 to prepay the Amended Notes and the NationsBank
Note.

In 1997, Chase Bank made available a stand-by letter of credit in the
original principal amount of $150,000, payment of which was personally
guaranteed by Mr. Hunt. Approximately $66,000 of this letter of credit was
pledged as collateral under a three year capital lease. All amounts outstanding
under the letter of credit were paid with a portion of the proceeds of our
initial public offering in December 1998, and the letter of credit was
terminated.

On April 20, 1999, we entered into a Consulting Agreement with Gary L.
Corona, one of our directors, as an independent contractor for his services in
identifying and contacting potential acquisition candidates for us, as well as
such other advisory and management services as our Chief Executive Officer may
request from time-to-time. The Consulting Agreement is for a term of four years,
but may be terminated by either party upon thirty days prior written notice. As
compensation under the Consulting Agreement, in November 1999 we granted Mr.
Corona an option to purchase 75,000 shares of our Common Stock at an exercise
price of $10.00 per share. We also agreed to reimburse Mr. Corona for all
reasonable and necessary travel and other expenses incurred by him in performing
his duties under the Consulting Agreement.

estimated annual revenue, for the twelve months after a closing, of a company
acquired by us due to Carl Westcott LLC's performance of services under the
letter agreement; provided, however, that in no event shall such fee for any
acquisition be less than $25,000 nor more than $75,000. We also agreed to
reimburse Carl Westcott LLC for all reasonable expenses, and agreed to indemnify
Carl Westcott LLC for damages relating to any transaction contemplated by the
engagement of Carl Westcott LLC under the letter agreement. The letter agreement
is effective until terminated by either party upon thirty days written notice.
In fiscal 2000, we paid Westcott LLC aggregate fees in the amount of $225,000
related to the acquisitions of NeoSoft, Inc., PDQ.Net, Inc. and subscribers of
Pointe Communications Corporations, Inc., INTX Networking,L.L.C. and Kdi
Internet Solutions.

William E. Ladin, Jr., the Vice Chairman of our Board of Directors, is an
employee providing services to us in the areas of developing strategic
relationships, assistance with acquisitions and consultation on consumer
marketing. Mr. W. Ladin is paid $16,666 per month and receives the same benefits
offered to our other employees. In the event Mr. W. Ladin is terminated or
resigns, we have agreed to pay his then current salary for a period of one year
and provide him with an office, telephone and secretary for a period of two
years.

We entered into a Stock Purchase Agreement dated September 5, 2000, in
which Mr. Smith purchased 200,000 shares of Common Stock from us at the price of
$3.4375 per share, which was the closing market price of the stock on the date
of the agreement. Of the total purchase price of $687,500, Mr. Smith paid $2,000
in cash and entered into a Promissory Note to the Company for the remaining
amount. The Promissory Note is for the principal amount of $685,500, with
interest accruing at the rate of 6.33% annually. Interest is payable each
calendar quarter beginning on October 1, 2000 and continuing until July 1, 2007.
All unpaid principal and interest is due and payable on August 29, 2007. The
Promissory Note is secured by the 200,000 shares of Common Stock under a Pledge
and Security Agreement also dated September 5, 2000. Under the Stock Purchase
Agreement, we agreed to pay to Mr. Smith as additional compensation on or before
the due date of any interest payment under the Promissory Note, an amount which
after all withholding required by applicable law equals the next interest
installment due on the Promissory Note. This amount may be paid by a credit to
the accrued unpaid interest on the Promissory Note. No later than January 15 of
each calendar year during the term of Mr. Smith's employment, we will pay to Mr.
Smith a cash bonus in an amount which after all withholding required by
applicable law equals the federal income tax liability of Mr. Smith not
previously withheld or paid by us for any such additional compensation. For a
period of seven years after the date of the Stock Purchase Agreement, Mr. Smith
has the right and option to sell all or any portion of the 200,000 shares to us
for the price of $3.4375 per share. In the event that Mr. Smith's employment
with us is terminated for cause prior to the third anniversary of the Stock
Purchase Agreement, for a period of 60 days after the date of such termination,
we have the right and option to purchase from Mr. Smith, at a purchase price
equal to $3.4375 per share, the following number of shares: (i) on or prior to
the first anniversary: 200,000 shares; (ii) after the first anniversary but on
or prior to the second anniversary: 133,333 shares; and (iii) prior to the third
anniversary: 66,666 shares; provided, however, that this repurchase right will
terminate immediately prior to any change in control of the Company. The
purchase price upon exercise of this option shall be applied to the outstanding
balance of unpaid accrued interest and principal upon the Promissory Note and
the balance, if any, shall be paid in cash to Mr. Smith. Under the Stock
Purchase Agreement, Mr. Smith has demand registration rights for all or any
portion of the 200,000 shares of Common Stock.

We have adopted a policy providing that all transactions between us and
related parties are subject to approval by a majority of all disinterested
directors and must be on terms no less favorable than those that could otherwise
be obtained from unrelated third parties.

9
<PAGE> 14

PROPOSAL NO. 2
APPROVAL OF AMENDMENTS
TO THE 1998 NONQUALIFIED STOCK OPTION PLAN

INTRODUCTION

Our 1998 Nonqualified Stock Option Plan, as amended by the First Amended
1998 Nonqualified Stock Option Plan (the "1998 Option Plan"), was adopted by the
Board of Directors and our shareholders on July 13, 1998. The purpose of the
1998 Option Plan is to promote our growth and general prosperity by permitting
us to grant to our employees, directors and advisors options to purchase Common
Stock. The Board believes that the amendment to increase the number of shares
reserved for issuance under the 1998 Option Plan is necessary to allow
flexibility for additional grants of options. The amendment to revise the
mechanism for granting options to Independent Directors under the 1998 Option
Plan is required to clarify language taking into account the September 13, 1999
amendment to the Bylaws that created a staggered Board. Thus, the Board believes
that approval of the amendments to the 1998 Option Plan is in Internet America's
and our shareholders' best interests and unanimously recommends a vote "FOR"
approval of the amendments.

SUMMARY OF TERMS AND PROVISIONS OF THE 1998 OPTION PLAN

The following summary of the 1998 Option Plan is qualified in its entirety
by the terms of the 1998 Option Plan, as amended, a copy of which is attached as
Appendix A to this Proxy Statement. Capitalized terms used and not otherwise
defined in this portion of this Proxy Statement have the respective meanings
ascribed to such terms in the 1998 Option Plan.

Pursuant to the 1998 Option Plan, we may grant nonstatutory (nonqualified)
stock options to our employees, directors and advisors. A total of 800,000
shares of Common Stock are currently reserved for issuance under the 1998 Option
Plan. One of the amendments would increase this number by 400,000 shares to
1,200,000 shares.

The Compensation Committee has the authority to select the employees,
directors and advisors to whom stock options are granted. Subject to the
limitations set forth in the 1998 Option Plan, the Compensation Committee has
the sole discretion and authority to determine the persons to whom options shall
be granted and the number of shares covered by each option, to interpret the
1998 Option Plan, to establish vesting schedules, to specify the type of
consideration to be paid upon exercise and, subject to certain restrictions, to
specify other terms of the options.

The maximum term of options granted under the 1998 Option Plan is ten
years. Options granted under the 1998 Option Plan are in most cases
nontransferable and generally expire within 30 days after the termination of the
optionee's services, except in cases when the optionee is terminated "for cause"
(as such term is defined therein). In such cases, the option typically expires
automatically on the date of termination. In general, if an optionee is disabled
or dies, such option may be exercised up to 12 months following such disability
or death, unless the Compensation Committee determines to allow a longer period
for exercise. In general, if an optionee retires from his or her service to us,
such option may be exercised up to three months following such retirement,
unless the Compensation Committee determines to allow a longer period for
exercise.

GRANTS UNDER THE 1998 OPTION PLAN

There are currently outstanding options to purchase 343,088 shares of
Common Stock under the 1998 Option Plan, consisting of: (i) an option issued to
Mr. Corona in July 1998 to purchase 22,500 shares of Common Stock at an exercise
price of $8.00 per share; (ii) options issued to each of Messrs. Corona, Hunt
and Smith in December 1998 to purchase 22,500 shares of Common Stock at an
exercise price of $13.00 per share; (iii) options issued to certain of our
employees in December 1998 to purchase an aggregate of 2,000 shares of Common
Stock at an exercise price of $13.00 per share; (iv) options issued to certain
of our employees in August 1999 to purchase an aggregate of 39,000 shares of
Common Stock at an exercise price of $13.75 per share; (v) replacement options
issued to consultants of a subsidiary acquired in November 1999 to
10
<PAGE> 15

purchase 60,588 shares of Common Stock at an exercise price of $1.12 per share;
(vi) options issued to certain of our employees in December 1999 to purchase an
aggregate of 129,000 shares of Common Stock at an exercise price of $9.25 per
share; and (vii) options issued to Mr. W. Ladin in January 2000 to purchase
22,500 shares of Common Stock at an exercise price of $13.19 per share.

AMENDMENTS

Our Board of Directors has unanimously approved the adoption of two
amendments to the 1998 Option Plan. The first amendment is to increase the
number of shares of Common Stock reserved for issuance under the 1998 Option
Plan by 400,000 shares to a total of 1,200,000 shares. The Board of Directors
believes that this amendment is important to allow flexibility to issue
additional options to our officers, directors and employees and to facilitate
acquisitions of targets which may have granted options.

The second amendment is to revise the mechanism for granting options to
Independent Directors under the 1998 Option Plan. The Board of Directors
believes that this amendment is required solely to clarify certain language in
the First Amended 1998 Nonqualified Stock Option Plan taking into account the
September 13, 1999 amendment to the Bylaws that divides the Board into three
classes, as nearly equal in size as possible, with staggered terms.

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE 1998 OPTION PLAN

The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of the grant of an
option under the 1998 Option Plan (an "Option") and does not attempt to describe
all possible federal tax consequences or any foreign, state, local or other tax
consequences or tax consequences based on particular circumstances.

The holder of an Option (an "Optionee") will not recognize taxable income
upon the grant of the Option, and no tax deduction will be available to us
unless the Option has a readily ascertainable value on the date of grant. An
Option that is not publicly traded ordinarily is not considered to have a
readily ascertainable value on the date of grant.

Upon exercise of an Option, the Optionee will recognize ordinary taxable
income equal to the difference between (a) the fair market value, on the date of
exercise, of the Common Stock subject to the Option and (b) the exercise price.
We will be entitled to a corresponding tax deduction. The Optionee's tax basis
in the Common Stock purchased upon exercise of the Option will be the sum of the
exercise price and the amount of ordinary taxable income the Optionee recognized
on the exercise. When the Optionee sells the Common Stock, the Optionee will
recognize capital gain or loss equal to the difference between the amount
realized on the sale and the tax basis of the Common Stock. The capital gain or
loss will be long-term capital gain or loss if the Optionee held the Common
Stock for more than one year. Otherwise the capital gain or loss will be
short-term capital gain or loss. Other rules apply if an Option is exercised by
tendering Common Stock.

Upon an Optionee's exercise of an Option, the excess of the fair market
value of the Common Stock subject to the Option over the exercise price will
constitute "wages" for employment tax and income tax withholding purposes.
Therefore, we will be required to withhold the appropriate amounts from such
wages.

INDEPENDENT AUDITORS

The Board of Directors has selected Deloitte & Touche LLP as our
independent auditors for the year ended June 30, 2000. Representatives of
Deloitte & Touche LLP, who also served as our independent auditors for the year
ended June 30, 1999, will be present at the Annual Meeting of Shareholders and
will have an opportunity to make a statement if they so desire and to answer any
appropriate questions.

11
<PAGE> 16

SECTION 16 REQUIREMENTS

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our officers and directors, and persons who own more
than 10% of a registered class of our equity securities, to file initial reports
of ownership and reports of changes in ownership with the Securities and
Exchange Commission (the "SEC"). Such persons are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. During the fiscal
year ended June 30, 2000, we believe that our officers, directors and persons
who own more than 10% of a registered class of our equity securities have timely
filed all reports required by Section 16(a) of the Exchange Act. In making this
disclosure, we have relied solely on our review of the copies of such forms
received by us with respect to fiscal 2000, or written representations from
certain reporting persons.

SHAREHOLDER PROPOSALS

Shareholders may submit proposals on matters appropriate for shareholder
action at our subsequent annual meetings consistent with Rule 14a-8 promulgated
under the Exchange Act. Any proposal which a shareholder intends to present at
next year's Annual Meeting of Shareholders must be received by us at our
principal executive office not later than May 3, 2001 in order to be included in
the proxy material for such meeting. Such proposals should be sent to Internet
America, Inc., Attention: Secretary, 350 North St. Paul, Suite 3000, Dallas,
Texas 75201.

OTHER MATTERS

As of the date of this Proxy Statement, we know of no other business to be
presented for action at the meeting. As to any business which would properly
come before the meeting, the Proxies confer discretionary authority in the
persons named therein and those persons will vote or act in accordance with
their best judgment with respect thereto.

MISCELLANEOUS

All costs of solicitation of Proxies will be borne by us. In addition to
solicitation by mail, our officers and employees may solicit Proxies by
telephone or personally, without additional compensation. We may also make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares of Common Stock held of record by such persons, and we may
reimburse them for their out-of-pocket expenses incurred in connection
therewith.

Our Annual Report to Shareholders, including financial statements for the
fiscal year ended June 30, 2000, accompanies this Proxy Statement. The Annual
Report is not to be deemed part of this Proxy Statement.

By Order of the Board of Directors

/s/ Elizabeth Palmer Daane

Elizabeth Palmer Daane
Secretary

September 29, 2000
Dallas, Texas

12
<PAGE> 17

APPENDIX A

INTERNET AMERICA, INC.

SECOND AMENDED 1998 NONQUALIFIED STOCK OPTION PLAN

ARTICLE I

THE PLAN

1.1 Name. This Plan shall be known as the "Internet America, Inc. 1998
Nonqualified Stock Option Plan." Capitalized terms used herein are defined in
Article V hereof.

1.2 Purpose. The purpose of the Plan is to promote the growth and general
prosperity of the Company by permitting the Company to grant to its Employees,
Directors, and Advisors Options to purchase Common Stock of the Company. The
Plan is designed to help the Company and its Subsidiaries attract and retain
superior personnel for positions of substantial responsibility and to provide
Employees, Directors, and Advisors with an additional incentive to contribute to
the success of the Company. Options granted under the Plan are not intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Code.

1.3 Effective Date. The Plan shall become effective upon the Effective
Date.

1.4 Eligibility to Participate. Any Employee, Director, or Advisor shall
be eligible to participate in the Plan. Subject to the following provisions, the
Committee may grant Options in accordance with such determinations as the
Committee from time to time in its sole discretion shall make. Any Options
granted shall be in the form approved at such time by the Committee.

1.5 Shares Subject to the Plan. The shares of Common Stock to be issued
pursuant to the Plan shall be either authorized and unissued shares of Common
Stock or shares of Common Stock issued and thereafter acquired by the Company.

1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant to the
provisions of Section 3.2, and subject to any additional restrictions elsewhere
in the Plan, the maximum aggregate number of shares of Common Stock that may be
issued and sold hereunder shall not exceed 1,200,000 shares (which number has
been adjusted to give effect to the Company's 2.25 for 1.00 stock split in July
1998). The maximum aggregate number of shares of Common Stock with respect to
which Options may be granted to any person during the term of the Plan shall not
exceed 150,000 shares.

1.7 Options and Stock Granted Under Plan. Plan Shares with respect to
which an Option has been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to which
such termination relates.

1.8 Conditions Precedent. The Company shall not issue any certificate for
Plan Shares pursuant to the Plan prior to fulfillment of all of the following
conditions:

(a) The admission of the Plan Shares to listing on all stock exchanges
on which the Common Stock is then listed, unless the Committee determines
in its sole discretion that such listing is neither necessary nor
advisable;

(b) The completion of any registration or other qualification of the
offer or sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body that the Committee shall in its sole
discretion deem necessary or advisable; and

(c) The obtaining of any approval or other clearance from any federal
or state governmental agency that the Committee shall in its sole
discretion determine to be necessary or advisable.

A-1
<PAGE> 18

1.9 Reservation of Shares of Common Stock. During the term of the Plan,
the Company shall at all times reserve and keep available such number of shares
of Common Stock as shall be necessary to satisfy the requirements of the Plan as
to the number of Plan Shares. In addition, the Company shall from time to time,
as is necessary to accomplish the purposes of the Plan, seek or obtain from any
regulatory agency having jurisdiction any requisite authority that is necessary
to issue Plan Shares hereunder. The inability of the Company to obtain from any
regulatory agency having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance of any Plan Shares shall relieve
the Company of any liability in respect of the nonissuance of Plan Shares as to
which the requisite authority shall not have been obtained.

1.10 Tax Withholding and Reporting.

(a) Condition Precedent. The issuance of Plan Shares pursuant to the
exercise of any Option is subject to the condition that if at any time the
Committee shall determine, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any federal, state,
or local law is necessary or desirable as a condition of, or in connection
with such issuance, then the issuance shall not be effective unless the
withholding shall have been effected or obtained in a manner acceptable to
the Committee.

(b) Manner of Satisfying Withholding Obligation. When the Committee
requires an Optionee to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with paragraph (a)
above, such payment may be made (i) in cash, (ii) by check, (iii) if
permitted by the Committee, by delivery to the Company of shares of Common
Stock already owned by the Optionee having a Fair Market Value on the Tax
Date equal to the amount required to be withheld, (iv) through the
withholding by the Company of a portion of the Plan Shares acquired upon
the exercise of an Option having a Fair Market Value on the Tax Date equal
to the amount required to be withheld, or (v) in any other form of valid
consideration permitted by the Committee in its discretion.

(c) Tax Reporting. The Company shall file, and shall furnish the
Optionee, a copy of all federal, state, and local tax information returns
that it deems to be required in connection with the grant, exercise, or
vesting of any Option.

1.11 Exercise of Options

(a) Method of Exercise. Each Option shall be exercisable in accordance
with the terms of the Option Agreement pursuant to which the Option was
granted. No Option may be exercised for a fraction of a Plan Share.

(b) Payment of Purchase Price. The purchase price of any Plan Shares
purchased shall be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) if permitted by the
Committee, in shares of Common Stock, (iv) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan Shares
purchased upon exercise of the Option or to pledge them as collateral for a
loan and promptly to deliver to the Company the amount of sale or loan
proceeds necessary to pay such purchase price or (v) in any other form of
valid consideration permitted by the Committee in its discretion. If any
portion of the purchase price or a note given at the time of exercise is
paid in shares of Common Stock, those shares shall be valued at their then
Fair Market Value.

1.12 Acceleration in Certain Events. The Committee may accelerate the
exercisability or other vesting of any Option in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement, the following provisions
shall apply:

(a) Mergers, Consolidation, Etc. In the event that the Company,
pursuant to action by the Board, at any time enters an agreement whereby
the Company will merge into, consolidate with, or sell or otherwise
transfer all or substantially all of its assets to another corporation and
provision is not made pursuant to the terms of such transaction for the
assumption by the surviving, resulting, or acquiring corporation of
outstanding Options, or for the substitution of new Options with
substantially equivalent

A-2
<PAGE> 19

benefit therefor, each outstanding Option shall become fully (100 percent)
vested. The Committee shall advise each Optionee in writing of the manner
and terms under which such fully vested Options shall be exercised, if
applicable.

(b) Change in Control. Anything contained herein to the contrary
notwithstanding, at the sole discretion of the Committee (1) an Optionee
shall become fully (100 percent) vested in each of his Options upon the
occurrence of a change in control (as defined below) or a threatened change
in control (as determined by the Committee in its sole discretion); and (2)
no Option held by an Optionee at the time a change in control or threatened
change in control occurs or at any time thereafter shall terminate for any
reason before the end of the Option's express term (if applicable). For
purposes of this section, "change in control" means one or more of the
following events:

(i) Any person within the meaning of Section 13(d) and 14(d) of the
Exchange Act, other than the Company (including its Subsidiaries,
directors or executive officers) has become the beneficial owner, within
the meaning of Rule 13d-3 under the Exchange Act, of 50 percent or more
of the combined voting power of the Company's then outstanding Common
Stock or equivalent in voting power of any class or classes of the
Company's outstanding securities ordinarily entitled to vote in
elections of directors ("voting securities"); or

(ii) Shares representing 50 percent or more of the combined voting
power of the Company's voting securities are purchased pursuant to a
tender offer or exchange offer (other than an offer by the Company or
its subsidiaries or affiliates); or

(iii) As a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the
Company or of any successor to the Company; or

(iv) Following the effective date of the Plan, the Company is
merged or consolidated with another corporation and as a result of such
merger or consolidation less than 50 percent of the outstanding voting
securities of the surviving or resulting corporation shall then be owned
in the aggregate by the former shareholders of the Company, other than
(A) any party to such merger or consolidation, or (B) any affiliates of
any such party; or

(v) The Company transfers more than 50 percent of its assets, or
the last of a series of transfers results in the transfer of more than
50 percent of the assets of the Company, to another entity that is not
wholly-owned by the Company. For purposes of this subsection (v), the
determination of what constitutes 50 percent of the assets of the
Company shall be made by the Committee, as constituted immediately prior
to the events that would constitute a change of control if 50 percent of
the Company's assets were transferred in connection with such events, in
its sole discretion.

1.13 Written Notice Required. Any Option shall be deemed to be exercised
for purposes of the Plan when written notice of exercise has been received by
the Company at its principal office from the person entitled to exercise the
Option and payment for the Plan Shares with respect to which the Option is
exercised has been received by the Company in accordance with Section 1.11.

1.14 Compliance with Securities Laws. Plan Shares shall not be issued with
respect to any Option unless the issuance and delivery of the Plan Shares (and
the exercise of an Option, if applicable) shall comply with all relevant
provisions of state and federal law (including without limitation (i) the
Securities Act and the rules and regulations promulgated thereunder and (ii) the
requirements of any stock exchange upon which the Plan Shares may then be
listed) and shall be further subject to the approval of counsel for the Company
with respect to such compliance. The Committee may also require an Optionee to
furnish evidence satisfactory to the Company, including without limitation a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the Plan
Shares are being acquired only for investment and without any present intention
to sell or distribute the shares

A-3
<PAGE> 20

in violation of any state or federal law, rule, or regulation. Further, each
Optionee shall consent to the imposition of a legend on the certificate
representing the Plan Shares issued pursuant to an Option, restricting their
transfer as required by law or this section.

1.15 Employment or Service of Optionee. Nothing in the Plan or in any
Option shall confer upon any Employee any right to continued employment by the
Company or any of its Subsidiaries or limit in any way the right of the Company
or any Subsidiary at any time to terminate or alter the terms of that
employment. Nothing in the Plan or in any Option shall confer upon any Director
or Advisor any right to continued service as a Director or Advisor of the
Company or any of its Subsidiaries or limit in any way the right of the Company
or any Subsidiary at any time to terminate or alter the terms of that service.

1.16 Rights of Optionees Upon Termination of Employment or Service. In the
event an Optionee ceases to be an Employee, Director, or Advisor for any reason
other than death, Retirement, Permanent Disability, or Cause or pursuant to a
right of termination under an Employee's employment agreement with the Company,
(i) the Committee shall have the ability to accelerate the vesting of the
Optionee's Options, in its sole discretion, and (ii) any Option held by such
Optionee shall be exercisable (to the extent exercisable on the date of
termination of employment or rendition of services, or, if the vesting of such
Option has been accelerated, to the extent exercisable following such
acceleration) at any time within 30 days after the date of termination of
employment or rendition of services and thereafter shall expire, unless by its
terms the Option expires earlier or unless the Committee agrees, in its sole
discretion, to extend its term further; provided that the term of any such
Option shall not be extended beyond its initial term. In the event an Optionee
ceases to serve as an Employee, Director, or Advisor due to death, Permanent
Disability, Retirement, or Cause or pursuant to a right of termination under an
Employee's employment agreement with the Company, (i) the Committee shall have
the ability to accelerate the vesting of the Optionee's Options, in its sole
discretion, and (ii) the Optionee's Options may be exercised as follows:

(a) Death. Except as otherwise limited by the Committee at the time of
the grant of an Option if an Optionee dies while serving as an Employee,
Director, or Advisor or within three months after ceasing to be an
Employee, Director, or Advisor, his Options shall become fully (100
percent) vested on the date of his death and shall expire twelve months
thereafter, unless by their terms they expire sooner or unless the
Committee agrees, in its sole discretion, to extend its term further;
provided that the term of any such Option shall not be extended beyond its
initial term. During such period, the Option may be fully exercised, to the
extent that it remains unexercised on the date of death, by the Optionee's
personal representative or by the distributees to whom the Optionee's
rights under the Option pass by will or by the laws of descent and
distribution.

(b) Retirement. If an Optionee ceases to serve as an Employee,
Director, or Advisor as a result of Retirement, (i) the Committee shall
have the ability to accelerate the vesting of the Optionee's Options, in
its sole discretion, and (ii) the Optionee's Options shall be exercisable
(to the extent exercisable on the effective date of such Retirement or, if
the vesting of such Options has been accelerated, to the extent exercisable
following such acceleration) at any time within three months after the
effective date of such Retirement and thereafter shall expire, unless by
their terms the Options expire earlier or unless the Committee agrees, in
its sole discretion, to extend its term further; provided that the term of
any such Option shall not be extended beyond its initial term.

(c) Disability. If an Optionee ceases to serve as an Employee,
Director, or Advisor as a result of Permanent Disability, the Optionee's
Options shall become fully (100 percent) vested and shall expire twelve
months thereafter, unless by their terms they expire sooner or unless the
Committee agrees, in its sole discretion, to extend its term; provided that
the term of any such Option shall not be extended beyond its initial term.

(d) Cause. If an Optionee ceases to be employed by the Company or a
Subsidiary or ceases to serve as a Director or Advisor because the
Optionee's employment or service relationship with the Company or a
Subsidiary is terminated for Cause, the Optionee's Options (whether vested
or unvested) shall automatically expire on the date of such termination. If
any facts that would constitute Cause for termination or removal of an
Optionee are discovered after the Optionee's employment or service
A-4
<PAGE> 21

relationship with the Company has ended, any Options then held by the
Optionee may be immediately terminated by the Committee. Notwithstanding
the foregoing, if an Optionee is an Employee employed pursuant to a written
employment agreement with the Company or a Subsidiary, the Optionee's
relationship with the Company or a Subsidiary shall be deemed terminated
for Cause for purposes of the Plan only if the Optionee is considered under
the circumstances to have been terminated "for cause" for purposes of such
written agreement or the Optionee voluntarily ceases to be an Employee in
breach of his employment agreement with the Company or a Subsidiary.

(e) Notice. If an Optionee's employment agreement with the Company or
a Subsidiary is terminated by either the Company, a Subsidiary, or the
Optionee by providing a required or permitted notice of termination
thereunder, the Options that are exercisable as of the date of termination
shall remain exercisable for a period of twelve months after the date of
termination and shall expire at the end of such twelve-month period.

1.17 Transferability of Options. Except as may be agreed upon by the
Committee in accordance with this section, Options shall not be transferable
other than by will or the laws of descent and distribution. The designation by
an Optionee of a beneficiary shall not constitute a transfer of the Option. The
Committee may, in its discretion, provide in an Option Agreement that Options
may be transferred to members of the Optionee's immediate family, trusts for the
benefit of such immediate family members, and partnerships in which such
immediate family members are the only partners, provided that there is no
consideration for the transfer.

1.18 Return of Value of Option. The Committee, in its sole discretion, may
include in any Option Agreement a provision requiring the Optionee to pay to the
Company an amount of money equal to the excess of the value of Common Stock
received upon the exercise of an Option over the exercise price paid for such
Common Stock, if the Optionee terminates his employment with the Company without
the Company's consent, terminates his employment with the Company and thereafter
engages in competition with the Company (as defined in the applicable Option
Agreement), or is discharged by the Company for Cause.

1.19 Other Terms and Conditions of Options. Except as otherwise provided
in the Plan, the terms and conditions of Options may differ from one another as
the Committee shall, in its discretion.

1.20 Duration of Options. Each Option and all rights thereunder shall
expire on the date determined by the Committee, but in no event shall any Option
expire later than ten years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan.

1.21 Purchase Price. The purchase price for the Plan Shares acquired
pursuant to the exercise, in whole or in part, of an Option shall not be less
than the Fair Market Value of the Plan Shares at the time of the grant of the
Option.

1.22 Individual Option Agreements. Each Optionee shall be required to
enter a written Option Agreement with the Company. In such Option Agreement, the
Optionee shall agree to be bound by the terms and conditions of the Plan, the
Options granted pursuant hereto, and such other matters as the Committee deems
appropriate.

1.23 Option Grants to Nonemployee Directors. Upon initial election or
appointment to the Board, each Director who is not an officer or Employee (a
"Nonemployee Director") will receive an Option to purchase 22,500 shares of
Common Stock (which number has been adjusted to give effect to the Company's
2.25 for 1.00 stock split in July 1998), which will be fully exercisable on the
date of grant of such Option. In addition, each Nonemployee Director will
receive an Option to purchase 20,000 shares of Common Stock (which number has
been adjusted to give effect to the Company's 2.25 for 1.00 stock split in July
1998) following the third anniversary of his initial election or appointment to
the Board of Directors (and each third anniversary thereafter), and only if such
Nonemployee Director continues to be a Director. Each of such Options will vest
25% annually, with the initial 25% becoming exercisable on the date of grant of
the Option and an additional 25% becoming exercisable on each of the first three
anniversaries of the grant date. The purchase price of Plan

A-5
<PAGE> 22

Shares acquired pursuant to the exercise, in whole or in part, of any Option
received by Nonemployee Directors will be the Fair Market Value of the Plan
Shares on the date of grant. Each such Option will expire on the day prior to
the tenth anniversary of the date of grant of such Option. At the time the
Company becomes a Reporting Company, the above provisions in this Section 1.23
shall become applicable to existing Nonemployee Directors as if such Nonemployee
Director had been initially elected or appointed to the Board as of the date the
Company became a Reporting Company.

ARTICLE II

ADMINISTRATION

2.1 Committee. The Plan shall be administered by a Committee of not fewer
than two members of the Board. The Committee shall be appointed by the Board.
Each member of the Committee shall be both a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Exchange Act and an "outside director" within
the meaning of Section 162(m) of the Code and the regulations issued pursuant
thereto. Subject to the provisions of the Plan, the Committee shall have the
sole discretion and authority to determine from time to time the persons to whom
Options shall be granted and the number of Plan Shares subject to each Option,
to interpret the Plan, to prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, to
determine and interpret the details and provisions of each Option Agreement, to
modify or amend any Option Agreement or waive any conditions or restrictions
applicable to any Option (or the exercise thereof), and to make all other
determinations necessary or advisable for the administration of the Plan.

2.2 Majority Rule; Unanimous Written Consent. A majority of the members of
the Committee shall constitute a quorum, and any action taken by a majority
present at a meeting at which a quorum is present or any action taken without a
meeting evidenced by a writing executed by all members of the Committee shall
constitute the action of the Committee. Meetings of the Committee may take place
by telephone conference call.

2.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Employees, Directors,
and Advisors, their employment, death, Retirement, Permanent Disability, or
other termination of employment or service, and such other pertinent facts as
the Committee may require. The Company shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.

2.4 Exculpation of Committee. No member of the Committee shall be
personally liable for, and the Company shall indemnify all members of the
Committee and hold them harmless against, any claims resulting directly or
indirectly from any action or inaction by the Committee pursuant to the Plan,
including without limitation any determination by the Committee regarding
whether a "change in control" (within the meaning of Section 1.12) is threatened
and any failure by the Committee to consider such a determination.

ARTICLE III

TERMINATION, AMENDMENT, AND ADJUSTMENT

3.1 Termination and Amendment. The Plan shall terminate on July 7, 2008.
No Option shall be granted under the Plan after that date of termination.
Subject to the limitations contained in this section, the Committee may at any
time amend or revise the terms of the Plan, including the form and substance of
the Option Agreements to be used in connection herewith; provided that no
amendment or revision may be made without the approval of the shareholders of
the Company if such approval is required under the Code, Rule 16b-3, or any
other applicable law or rule. No amendment, suspension, or termination of the
Plan shall, without the consent of the individual who has received an Option
hereunder, alter or impair any of that individual's rights or obligations under
any Option granted prior to that amendment, suspension, or termination.

A-6
<PAGE> 23

3.2 Adjustments. If the outstanding Common Stock is increased, decreased,
changed into, or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split,
or reverse stock split, an appropriate and proportionate adjustment shall be
made in the maximum number and kind of Plan Shares as to which Options may be
granted under the Plan. A corresponding adjustment changing the number or kind
of shares allocated to unexercised Options or portions thereof granted prior to
any such change also shall be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Options but with a corresponding adjustment in the
price for each share covered by the Options. The foregoing adjustments and the
manner of application of the foregoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.

ARTICLE IV

MISCELLANEOUS

4.1 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary or affiliate of the Company, nor shall the Plan
preclude the Company or any Subsidiary or affiliate thereof from establishing
any other forms of incentive or other compensation plans.

4.2 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company and any Subsidiary or affiliate of the
Company that adopts the Plan.

4.3 Number and Gender. Whenever used herein, nouns in the singular shall
include the plural where appropriate, and the masculine pronoun shall include
the feminine gender.

4.4 Headings. Headings of articles and sections hereof are inserted for
convenience of reference and constitute no part of the Plan.

ARTICLE V

DEFINITIONS

As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:

5.1 "Advisor" means any person not employed by the Company and not a
Director, rendering consulting or advisory services to the Company, who is
expected or determined by the Committee to contribute significantly to the
management, growth, or direction of some part or all of the business of the
Company. The power to determine who is and who is not an Advisor for purposes of
the Plan is reserved solely to the Committee.

5.2 The term "affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with such Person.

5.3 "Board" means the Board of Directors of the Company.

5.4 "Cause" means conviction of a crime involving moral turpitude or a
crime providing for a term of imprisonment in a federal or state penitentiary;
failure or refusal to follow reasonable instructions of the Board; failure or
refusal to comply with the reasonable policies, standards and regulations of the
Company, which from time to time may be established; failure or refusal to
faithfully and diligently perform the usual customary duties of his employment
or service; acting in an unprofessional, unethical, immoral or fraudulent
manner; acting in a manner which discredits or is detrimental to the reputation,
character and standing of Company or a Subsidiary; or the commission of any
other act that causes or reasonably may be expected to cause substantial injury
to the Company.

5.5 The term "change of control" has the meaning set forth in Section
1.12(b).
A-7
<PAGE> 24

5.6 "Code" means the Internal Revenue Code of 1986, as amended.

5.7 "Committee" means the Committee appointed in accordance with Section
2.1.

5.8 "Common Stock" means the Common Stock, par value $0.01 per share, of
the Company or, in the event that the outstanding shares of such Common Stock
are hereafter changed into or exchanged for shares of a different stock or
security of the Company or some other corporation, such other stock or security.

5.9 "Company" means Internet America, Inc., a Texas corporation, or one or
more of its Subsidiaries.

5.10 "Director" means a member of the Board.

5.11 "Effective Date" means July 10, 1998.

5.12 "Employee" means an employee (within the meaning of Section 3401(c)
of the Code and the regulations thereunder) of the Company or of any Subsidiary
of the Company that adopts the Plan, including Officers.

5.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.

5.14 "Fair Market Value" means such value as determined by the Committee
on the basis of such factors as it deems appropriate; provided that if the
Common Stock is traded on a national securities exchange or transactions in the
Common Stock are quoted on the Nasdaq National Market System, such value as
shall be determined by the Committee on the basis of the reported sales prices
for the Common Stock on the date for which such determination is relevant, as
reported on the national securities exchange or the Nasdaq National Market
System, as the case may be. If the Common Stock is not listed and traded upon a
recognized securities exchange or on the Nasdaq National Market System, the
Committee shall make a determination of Fair Market Value on a reasonable basis
which may include the mean between the closing bid and asked quotations for such
stock on the date for which such determination is relevant (as reported by a
recognized stock quotation service) or, in the event that there shall be no bid
or asked quotations on the date for which such determination is relevant, then
on the basis of the mean between the closing bid and asked quotations on the
date nearest preceding the date for which such determination is relevant for
which such bid and asked quotations were available.

5.15 "Officer" means an officer of the Company or any Subsidiary of the
Company.

5.16 "Option" means an option to purchase Common Stock pursuant to this
Plan.

5.17 "Optionee" means a person to whom an Option has been granted
hereunder.

5.18 "Option Agreement" means an agreement between the Company and an
Optionee with respect to one or more Options.

5.19 "Permanent Disability" has the meaning provided for that term in
Section 22(e)(3) of the Code.

5.20 "Person" means any individual, corporation, partnership, joint
venture, trust, or unincorporated organization.

5.21 "Plan" means the Internet America, Inc. 1998 Nonqualified Stock
Option Plan, as set forth herein and as amended from time to time.

5.22 "Plan Shares" means shares of Common Stock issuable pursuant to the
Plan.

5.23 "Retirement" occurs when an Optionee terminates his employment or
service relationship with the Company or a Subsidiary on or after the date he
(a) turns 65 years old or (b) turns 55 years old and has completed ten years of
service with the Company or a Subsidiary as otherwise determined by the Board.

5.24 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor rule.

5.25 "Securities Act" means the Securities Act of 1933, as amended.

5.26 "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
A-8
<PAGE> 25

5.27 "Tax Date" means the date on which the amount of tax to be withheld
is determined.

5.28 "Transaction" has the meaning set forth in Section 1.12(b)(iii).

5.29 The term "voting securities" has the meaning set forth in Section
1.12(b)(i).

A-9
<PAGE> 26
INTERNET AMERICA, INC.

REVOCABLE PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2000 ANNUAL MEETING OF SHAREHOLDERS - NOVEMBER 1, 2000

The undersigned hereby appoints Jack T. Smith and Elizabeth Palmer
Daane, each with power to act without the other and full power of substitution,
as proxies of the undersigned and authorizes them to represent and vote, as
designated on the reverse side hereof, all of the shares of common stock of
Internet America, Inc. that the undersigned is entitled to vote at the 2000
Annual Meeting of Shareholders to be held at the Adam's Mark Hotel, 400 North
Olive Street, Dallas, Texas 75201, on November 1, 2000, at 10:00 a.m. central
time, and any adjournment thereof.

THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTORS UNDER PROPOSAL
NO. 1 AND "FOR" PROPOSAL NO. 2 AND WILL GRANT DISCRETIONARY AUTHORITY PURSUANT
TO ITEM 3.

(to be dated and signed on reverse side)

------------------------------------------------------------------------------

<PAGE> 27

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHOLD FOR AGAINST ABSTAIN
all nominees listed AUTHORITY
(except as marked to vote for all 2. Approve amendments to the [ ] [ ] [ ]
to the contrary) nominees 1998 Non-Qualified Stock Option
Plan as Amended (increasing the
1. Election of Directors [ ] [ ] number of authorized shares from
800,000 to 1,200,000, and
modifying language granting
options to Independent Directors).

William E. Ladin, Jr., Gary L. Corona 3. In their discretion, the proxies [ ] [ ] [ ]
are authorized to vote upon such
(Instruction: To withhold authority to vote for any individual nominee, other business as may properly
write that nominee's name on the space provided below) come before the meeting or any
adjournment thereof.
--------------------------------------------------------------

Dated , 2000
---------------------------------- Please sign this proxy as your name appears hereon. When
shares are held by joint tenants, both should sign. When
-------------------------------------------------------------- signing as attorney, executor, administrator, trustee or
Signature guardian, please give full title as such. If a
corporation, please sign in full corporate name by the
-------------------------------------------------------------- president or other authorized officer. If a partnership,
Signature, if held jointly please sign in partnership name by an authorized person.
</TABLE>

Please mark, sign, date and return this proxy promptly using the enclosed
envelope.