MINDSPRING ENTERPRISES INC, 424B1, 1996-10-11

MINDSPRING ENTERPRISES INC
424B1, 1996-10-11
BUSINESS SERVICES, NEC

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<PAGE> 1

PROSPECTUS

2,250,000 SHARES

[MINDSPRING LOGO]

COMMON STOCK

The 2,250,000 shares of Common Stock offered hereby (the "Offering") are
being sold by MindSpring Enterprises, Inc. ("MindSpring" or the "Company"). The
Common Stock is traded on The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "MSPG." On October 9, 1996, the last reported
sale price of the Common Stock on the Nasdaq National Market was $9.50 per
share. See "Price Range of Common Stock and Dividend Policy."

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A SIGNIFICANT
DEGREE OF RISK. SEE "RISK FACTORS" APPEARING ON PAGES 6 THROUGH 18 OF THIS
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $9.125 $0.525 $8.60
- ------------------------------------------------------------------------------------------------------
Total(3)............................... $20,531,250 $1,180,547 $19,350,703
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 337,500 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $23,610,938, the total
Underwriting Discount will be $1,357,629, and the total Proceeds to Company
will be $22,253,309. See "Underwriting."

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

The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about October 16, 1996.

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

J.C. BRADFORD & CO.
WHEAT FIRST BUTCHER SINGER
THE ROBINSON-HUMPHREY
COMPANY, INC.

October 10, 1996
<PAGE> 2
[A color map of the continental United States appears on the inside front
cover, representing MindSpring's service area. MindSpring's corporate
headquarters is represented by a star; each MindSpring POP location is
represented by a solid dot; each PSINet POP is represented by a solid triangle.
Below the map is a key to the aforementioned symbols.]

AS OF JUNE 30, 1996, THERE WERE 40 MINDSPRING POPS IN NINE STATES AND THE
DISTRICT OF COLUMBIA, AND OVER 200 PSINET POPS IN 46 STATES AND THE DISTRICT OF
COLUMBIA. SEE "GLOSSARY OF TECHNICAL TERMS" FOR THE DEFINITION OF "POP" AS USED
HEREIN. THE COMPANY HAS OBTAINED ACCESS TO THE PSINET POPS PURSUANT TO A NETWORK
SERVICES AGREEMENT, WHICH MAY BE TERMINATED UNDER SPECIFIED CIRCUMSTANCES. SEE
"RISK FACTORS -- DEPENDENCE ON PSINET" AND "RECENT TRANSACTIONS."
-------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
-------------------

This Prospectus includes product names and trademarks of the Company and of
other organizations.

2
<PAGE> 3

PROSPECTUS SUMMARY

The following information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Prospective investors should carefully consider the factors set forth herein
under the caption "Risk Factors" and are urged to read this Prospectus in its
entirety. Unless otherwise indicated, the information in this Prospectus: (i)
assumes and gives effect to the Acquisition (as defined below), except for the
historical financial information; and (ii) assumes no exercise of the
Underwriters' over-allotment option. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in "Risk
Factors" and elsewhere in this Prospectus. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The "Glossary of Technical Terms" appearing
elsewhere in this Prospectus contains definitions of certain technical terms
used herein.

THE COMPANY

MindSpring Enterprises, Inc. ("MindSpring" or the "Company") is an Internet
access provider that focuses on serving individual subscribers, including
individuals with little or no prior on-line experience. MindSpring provides
easy-to-use Internet access by offering customized software, reliable network
facilities and responsive customer service. MindSpring believes that there is a
growing and unsatisfied demand for high quality Internet access for individuals.
Trends contributing to this growth in demand include the heightened consumer
awareness of the Internet, the increasing number of individuals who have
computers with modems and the expanding diversity of information, entertainment
and commercial offerings available on the Internet. Management believes that
few, if any, of the Company's major competitors have developed a comparable
level of service quality and customer support for individual subscribers and
that by targeting individual subscribers, rather than attempting to serve all
segments of the Internet access market, MindSpring can continue to increase its
subscriber base rapidly while maintaining superior quality service.

In June 1996, the Company announced its plans to become a nationwide
Internet access provider through agreements with PSINet Inc. ("PSINet") to
purchase up to 100,000 consumer dial-up subscriber accounts, a customer service
facility and certain other related assets, and to obtain access to PSINet's
national network of over 200 POPs (the "PSINet Transaction"). Prior to the
PSINet Transaction, MindSpring was a regional Internet access provider that
offered its services through 40 POPs in the southeastern United States and had
grown to approximately 34,500 subscribers from approximately 12,400 subscribers
as of December 31, 1995. On a pro forma basis as of June 30, 1996, MindSpring
would have had access to approximately 230 POPs (excluding PSINet POPs located
in areas served by MindSpring POPs) and would have had approximately 100,500
subscribers, assuming the acquisition of 66,000 subscriber accounts from PSINet.

MindSpring's objective is to become a leading national provider of high
quality Internet access to individuals by: (i) leveraging the opportunities
afforded by the PSINet Transaction and expanding its subscriber base; (ii)
maintaining superior service and customer support and providing easy-to-use
software and reliable Internet access; (iii) expanding marketing and
distribution activities and pursuing strategic alliances with complementary
businesses; (iv) focusing on individual subscribers; and (v) engaging in
selected acquisitions.

Management believes that the PSINet Transaction will enhance the Company's
ability to achieve its strategic objectives on a cost-effective and accelerated
basis and to realize economies of scale. Management believes that the PSINet
Transaction will establish MindSpring as a leading Internet access provider with
nationwide coverage, create opportunities for the Company to pursue national
marketing and strategic alliances and reduce the need for significant up-front
capital expenditures to establish Company-owned POPs. The Company intends,
however, to maintain the flexibility to expand, open or close its own POPs or
make other capital investments as and where subscriber demand or strategic
considerations warrant.

The Company was incorporated in Georgia in February 1994 and was
reincorporated in Delaware in December 1995. The Company's executive offices are
located at 1430 West Peachtree, Suite 400, Atlanta, Georgia 30309. The Company's
telephone number is (404) 815-0770.

3
<PAGE> 4

RECENT DEVELOPMENTS

On June 28, 1996, the Company entered into a Purchase Agreement with PSINet
(as amended, the "Purchase Agreement") pursuant to which the Company agreed to
acquire up to 100,000 subscriber accounts and other assets from PSINet (the
"Acquisition"). The maximum aggregate purchase price for the Acquisition is
$21,129,000 (excluding accrued interest and increases in principal amounts under
promissory notes issued to PSINet), assuming the acquisition of 100,000
subscriber accounts. The actual aggregate purchase price will depend on the
number of acquired subscriber accounts that remain MindSpring subscriber
accounts for a specified period. Management currently expects that approximately
66,000 subscriber accounts will actually be purchased. The Company acquired
15,000 of these subscriber accounts for $1,000,000 in cash and a $2,000,000
one-year promissory note on June 28, 1996. The Company acquired substantially
all of the remaining subscriber accounts and related assets as of September 1,
1996, at which time the Company issued an additional one-year promissory note in
the amount of $9,929,000. The Company will be required to apply a certain
percentage of the net proceeds from the Offering to pay amounts due to PSINet in
connection with the Acquisition, depending on the amount of the net proceeds
from the Offering.

In connection with the Acquisition, the Company and PSINet also entered
into a Network Services Agreement (as amended, the "Services Agreement"), which
will enable MindSpring to offer nationwide Internet access through PSINet's
network of over 200 POPs. Pursuant to the Services Agreement, PSINet agreed,
among other things, to provide to the Company: (i) Internet connection services
which meet reasonable commercial standards, including with respect to access and
reliability; and (ii) access to PSINet's network monitoring systems and
subscriber log-in and accounting information.

On August 6, 1996, the Company and The News and Observer Publishing Company
("N&O") entered into a definitive agreement, which was amended and restated on
September 11, 1996, pursuant to which the Company agreed to acquire certain
individual dial-up subscriber accounts in North Carolina (currently expected to
number between 4,000 and 6,000) in connection with N&O's Nando.net Internet
access business (the "Nando.net Transaction"). The Nando.net Transaction was
consummated as of September 30, 1996. See "Recent Transactions."

THE OFFERING

Common Stock offered by the
Company.................... 2,250,000 shares

Common Stock to be outstanding
after the Offering (1)..... 7,475,793 shares

Use of proceeds............... Payments in connection with the Acquisition,
the Nando.net Transaction and other
subscriber purchases; capital expenditures
through the end of 1996 and working capital
and general corporate purposes, funding of
operating deficits and possible additional
strategic acquisitions of subscriber accounts
and complementary businesses. See "Use of
Proceeds" and "Recent Transactions."

Nasdaq National Market
Symbol........................ MSPG
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1996 plus 100,000 shares of Common Stock issued on September 19, 1996 upon
conversion of the Company's Class C Preferred Stock, par value $0.01 per
share (the "Class C Preferred"). Does not include: (a) 439,213 shares of
Common Stock issuable upon exercise of stock options granted to directors,
officers and employees of the Company as of June 30, 1996 at prices ranging
from $0.64 to $12.38 per share; or (b) 337,500 shares of Common Stock
issuable upon exercise of the Underwriters' over-allotment option.

RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors should consider carefully a number of factors that could
affect the Company's business, financial condition and results of operations.
Such factors are discussed elsewhere in this Prospectus under the heading "Risk
Factors."

4
<PAGE> 5

SUMMARY FINANCIAL AND OPERATING DATA

(IN THOUSANDS EXCEPT PER SHARE AND OPERATING DATA)

The summary historical and pro forma financial and operating data set forth
below should be read in conjunction with "Use of Proceeds," "Selected Financial
and Operating Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's financial statements and
notes thereto and other financial and operating data included elsewhere in this
Prospectus. The pro forma financial information does not purport to represent
what the Company's results of operations would have been if the PSINet
Transaction had in fact occurred on such dates, nor does it purport to indicate
the future financial position or results of future operations of the Company.
The pro forma adjustments are based on currently available information and
certain assumptions that management believes to be reasonable.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
---------------------- -----------------------------------
INCEPTION PRO FORMA PRO FORMA
PERIOD(1) 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................................... $ 103 $ 2,227 $ 9,013 $ 511 $ 4,307 $ 12,262
Costs and expenses:
Selling, general and administrative.......... 121 2,230 9,001 504 4,342 12,362
Cost of revenues............................. 52 966 4,359 223 1,912 5,890
Depreciation................................. 5 265 797 48 596 929
Amortization................................. 0 0 4,644 0 0 2,322
--------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses................. 178 3,461 18,801 775 6,850 21,503
--------- ---------- ---------- ---------- ---------- ----------
Operating loss................................... (75) (1,234) (9,788) (264) (2,543) (9,241)
Interest income (expense), net................... 0 (725) (725) 2 44 44
--------- ---------- ---------- ---------- ---------- ----------
Net loss......................................... $ (75) $ (1,959) $ (10,513) $ (262) $ (2,499) $ (9,197)
======= ========== ========== ========== ========== ==========
PER SHARE DATA:
Net loss per share(2)............................ $ (0.62) $ (1.94) $ (0.09) $ (0.58) $ (1.38)
Weighted average common shares outstanding(2).... 3,175,376 5,425,376 2,857,119 4,309,859 6,659,859
OTHER OPERATING DATA:
Approximate number of subscribers at end of
period(3)...................................... 1,000 12,410 78,410 4,370 34,460 100,460
Approximate number of POPs at end of period(3)... 1 17 207 2 40 230
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING(4) PRO FORMA(5)
------- ------------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................... $ 2,154 $20,445 $ 7,029
Property and equipment, net................................................... 6,874 6,874 9,518
Total assets.................................................................. 17,215 33,666 33,666
Total liabilities............................................................. 5,082 3,082 3,082
Accumulated deficit........................................................... (4,533) (4,533) (4,533)
Total stockholders' equity.................................................... 12,133 30,584 30,584
</TABLE>

- ---------------
(1) The Inception Period is the period from February 24, 1994 (inception) to
December 31, 1994.
(2) Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock and dilutive Common Stock equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). For 1996, the Class C Preferred
and stock options are excluded from the calculations as their effect is
antidilutive. For 1995, Common Stock and Common Stock equivalent shares
issued at prices below the initial public offering price ($8.00 per share)
during the twelve-month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding
for all periods prior to the initial public offering, regardless of whether
they are dilutive. Accordingly, all stock options granted and the Class C
Preferred are included in the earnings per share calculations for all 1995
periods presented, even though the effect on net loss is antidilutive. For
1995, the Company's Class A Preferred Stock and Class B Preferred Stock
(which converted into shares of Common Stock on a one-for-one basis at the
time of the Company's initial public offering) have been included for the
respective weighted average periods for which such shares were outstanding,
even though their effect is antidilutive. For purposes of the pro forma
presentations, includes 2,250,000 shares of Common Stock offered hereby and,
for pro forma 1996, 100,000 shares issued upon the conversion of the Class C
Preferred on September 19, 1996.
(3) The pro forma presentations assume the acquisition by the Company of 66,000
subscriber accounts and access to 190 PSINet POPs that are not located in
areas served by a MindSpring POP. The historical number of POPs and
subscribers at end of period for the six months ended June 30, 1996 excludes
the effects of the PSINet Transaction.
(4) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
hereby at a price to the public of $9.13 per share. Assumes an increase to
working capital equal to the aggregate estimated net proceeds of the
Offering less repayment of the First PSINet Note (as defined herein)
(including accrued interest and increases in principal amount through early
October 1996), estimated to be $2,160,000 upon completion of the Offering.
See "Use of Proceeds" for a description of the Company's specific plans for
application of the net proceeds from the Offering.
(5) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
hereby at a price to the public of $9.13 per share. Assumes an increase to
working capital equal to the aggregate estimated net proceeds of the
Offering less repayment of indebtedness to PSINet, which is assumed to be
$13,599,000 (including accrued interest and increases in principal amounts
through early October 1996), based on an assumed acquisition of 66,000
subscriber accounts from PSINet. Assumes that an additional $462,000 of net
proceeds from the Offering will be used to pay certain one-time license fees
and starter kit costs associated with the transfer of PSINet subscriber
accounts to MindSpring.

5
<PAGE> 6

RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
purchasing any of the Common Stock offered hereby.

LIMITED OPERATING HISTORY; OPERATING LOSSES. The Company was incorporated
on February 24, 1994 and commenced offering Internet access in June 1994. The
Company has had net losses in each quarter since it commenced operations and had
net losses of approximately $75,000, $1,959,000 and $2,499,000 for the years
ended December 31, 1994 and 1995 and the six months ended June 30, 1996,
respectively. As of June 30, 1996, the Company had an accumulated deficit of
approximately $4,533,000. The Company expects that it will continue to incur net
losses at least through the third quarter of 1997. Amortization charges in
connection with the Company's acquisition of assets related to PSINet's consumer
dial-up Internet access services will be first incurred in the third quarter of
1996 and are expected to adversely affect the Company's results of operations
through the second quarter of 1999. The Company's ability to achieve and
maintain profitability and positive cash flow is dependent upon a number of
factors, including the Company's ability to increase revenues while reducing per
subscriber costs by achieving economies of scale. There can be no assurance that
the Company will be successful in increasing or maintaining revenues or
achieving or sustaining economies of scale or positive cash flow in the future,
and any such failure could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Competition,"
"-- Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results" and "-- Need for Additional Capital to Finance Growth and Capital
Requirements."

PSINET TRANSACTION. The PSINet Transaction involves numerous risks. Such
risks include, among others: the difficulty of integrating the Company's network
and systems with PSINet's network; the potential disruption of the Company's
ongoing business; the potential inability of management to successfully
assimilate and retain subscriber accounts acquired from PSINet and convert such
subscriber accounts to the Company's billing system; potential problems that
transferring subscribers may experience with the process of converting to
MindSpring software and the potential dissatisfaction of subscribers who are
required to change their e-mail or domain address; the difficulty of
assimilating the operations and personnel of the customer service facility
acquired from PSINet (the "Harrisburg Facility"); the difficulty of
incorporating acquired technology and rights into the Company's service
offerings and maintaining uniform standards, controls, procedures and policies
in conjunction with a dramatically expanded subscriber base; the risks of
entering markets in which the Company has little or no direct prior experience;
and the possible impairment of relationships with former PSINet employees and
subscribers as a result of changes in management. There can be no assurance that
the Company will be successful in overcoming these risks or any other problems
encountered in connection with the PSINet Transaction. In addition, the Purchase
Agreement requires the Company to pay PSINet $200 for each subscriber whose
account is acquired by MindSpring and who remains a MindSpring subscriber on
certain measurement dates, the first of which is November 15, 1996 and the last
of which is January 15, 1997, and required MindSpring to pay PSINet $11,800,000
(represented by cash paid at the First Closing, the First PSINet Note and the
Second PSINet Note, all as defined under the heading "Recent Transactions") with
respect to acquired subscriber accounts prior to any measurement date. There can
be no assurance as to the number of subscriber accounts which the Company will
actually acquire from PSINet, and any such subscribers may cancel their accounts
at any time, with the cancellation taking effect as of the first day of the
following month. The Company's effective per subscriber acquisition cost may
vary depending on the number of subscriber accounts actually acquired and
retained by the Company. In addition, if any acquired subscriber remains a
MindSpring subscriber past the applicable measurement date but cancels
MindSpring service thereafter, the Company could receive significantly less
revenue from such subscriber than the amount it pays to PSINet for the
subscriber account. The Company intends to pay the balance of the purchase price
due in connection with the Acquisition ($13,599,000, assuming acquisition of
66,000 subscriber accounts) from the net proceeds from the Offering. Provided
the Company receives between $10,000,000 and $20,000,000 in net proceeds from
the Offering, the Purchase Agreement requires the Company, promptly after the
Offering, to apply 50% of such net proceeds to pay outstanding amounts under the
PSINet Notes (as defined under the heading "Recent Transactions") and, if such
allocated net proceeds are greater than the amounts then outstanding under the
PSINet Notes, to thereafter pay the balance of such allocated net proceeds to
PSINet in cash, in lieu of issuing any additional PSINet Notes. Assuming net
proceeds of $18,451,000 from the

6
<PAGE> 7

Offering, the Company would be required to pay all amounts outstanding under the
First PSINet Note, and all but $2,971,000 of amounts outstanding under the
Second PSINet Note from the net proceeds from the Offering promptly after the
Offering. In addition, assuming the acquisition of 66,000 subscriber accounts,
an aggregate of approximately $1,403,000 would be payable pursuant to the Third
PSINet Note. If the net proceeds of the Offering exceed $20,000,000 but are less
than $30,000,000, as would be the case if the Underwriters' over-allotment
option is exercised in full, the Purchase Agreement requires the Company to
apply 75% of such net proceeds to the payment of the balance of the Purchase
Price (as defined under the heading "Recent Transactions") promptly after
completion of the Offering. The Company will be required to pay PSINet $200 for
each additional subscriber account acquired in excess of 66,000 up to a maximum
of 100,000. Although the Company currently estimates that it will acquire
approximately 66,000 subscriber accounts pursuant to the Acquisition, the
Company could acquire materially more or fewer subscriber accounts, and there
can be no assurance that the Company will retain the subscriber accounts
acquired from PSINet, successfully integrate the assets or subscriber accounts
acquired from PSINet or be able to pay all principal and accrued interest
outstanding under the PSINet Notes when due. Any failure to retain subscriber
accounts, successfully integrate the assets or subscriber accounts acquired from
PSINet or pay the PSINet Notes when due could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"-- Risks Associated With Additional Acquisitions and Purchases of Subscriber
Accounts," "-- Need for Additional Capital to Finance Growth and Capital
Requirements," "-- Control of Company" and "Recent Transactions."

DEPENDENCE ON PSINET. The Services Agreement with PSINet expires on June
28, 2001, and automatically renews for additional one-year terms, but may be
terminated earlier at any time by either party upon 365 days prior written
notice. The Services Agreement does not require PSINet to continue to operate
any POP that is not serving as a primary dial-in POP for any MindSpring
subscriber. PSINet's inability or unwillingness to provide POP access to
MindSpring's subscribers, or the Company's inability to secure alternative POP
arrangements upon partial or complete termination of the Services Agreement or
other loss of access to PSINet POPs, could significantly limit the Company's
ability to provide Internet access to its subscribers and limit the Company's
ability to expand nationally, which could, in turn, have a material adverse
effect on the Company's business, financial condition and results of operations.
Other than its intention to retain the flexibility to open new MindSpring POPs
on an as-needed basis, the Company does not currently have any plans or
commitments with respect to such alternative POP arrangements. There can be no
assurance that any such alternative arrangements will be available if and when
the Company requires them or, if available, that such arrangements will be on
terms acceptable to the Company.

Pursuant to the Services Agreement, the Company expects to rely
increasingly on PSINet to provide connectivity to MindSpring subscribers through
PSINet's nationwide network of over 200 POPs. The future success of the
Company's business will depend, in part, on the capacity, reliability and
security of PSINet's network infrastructure, over which the Company has no
control. In the event of disruptions in PSINet's network, the Company may have
no means of replacing these services on a timely basis or at all in the event of
such disruption. Any accident, incident, system failure or discontinuance of
operations involving PSINet's network that causes interruptions in the Company's
operations could have a material adverse effect on the Company's ability to
provide Internet services to its subscribers, and, in turn, on the Company's
business, financial condition and results of operations. See "-- Dependence on
Network Infrastructure; Capacity; Risk of System Failure," "-- Dependence on
Telecommunications Carriers and Other Suppliers" and "-- Security Risks."

COMPETITION. The market for the provision of Internet access to
individuals is extremely competitive and highly fragmented. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company believes that the primary competitive factors
determining success in this market are a reputation for reliability and service,
effective customer support, pricing, easy-to-use software and geographic
coverage. Other important factors include the timing of introductions of new
products and services and industry and general economic trends. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not materially adversely affect its business, financial condition and results of
operations.

7
<PAGE> 8

As a result of increased competition in the industry, the Company has
encountered and expects to continue to encounter significant pricing pressure.
In May 1996, in response to a changing competitive environment, the Company
introduced five different pricing plans for dial-up access (one of which was
discontinued in September 1996 due to low subscriber interest), compared to two
prior plan offerings. These plan changes generally represent a reduction from
the previous rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." Further reductions in rates
charged by the Company's competitors could require the Company to further reduce
prices charged to its subscribers, which could cause a decrease in total
revenues and revenue per subscriber and reduce the likelihood of the Company
achieving positive cash flow or profitability in the future. Any such reductions
in prices could materially adversely affect the Company's business, financial
condition and results of operations. In addition, telecommunications companies
may be able to offer customers reduced communications costs in connection with
their Internet access services, reducing the overall cost of their Internet
access services and significantly increasing price pressures on the Company.
Competition could also result in increased selling and marketing expenses,
related subscriber acquisition costs, and subscriber attrition, all of which
could materially adversely affect the Company's business, financial condition
and results of operations. There can be no assurance that the Company will be
able to offset the effects of any such increased costs or reductions in the
Company's prices through an increase in the number of its subscribers, higher
revenues from enhanced services, cost reductions or otherwise, or that the
Company will have the resources to continue to compete successfully.

The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. In addition, every
local market the Company has entered or intends to enter is served by multiple
local Internet access providers. The Company currently competes or expects to
compete with the following types of Internet access providers: (i) national
commercial Internet access providers, such as NETCOM On-Line Communications,
Inc. ("NETCOM"); (ii) numerous regional and local commercial Internet access
providers which vary widely in quality, service offerings and pricing; (iii)
established on-line commercial information service providers, such as America
Online, Inc. ("America Online") and CompuServe Incorporated ("CompuServe"); (iv)
computer hardware and software and other technology companies, such as
International Business Machines Corporation ("IBM") and Microsoft Corp.
("Microsoft"); (v) national long distance carriers, such as AT&T Corp. ("AT&T"),
MCI Communications Corporation ("MCI"), MFS Communications Company, Inc.
("MFS"), Sprint Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"); (vi)
regional telephone companies; (vii) cable operators, such as Comcast
Corporation, Tele-Communications, Inc. and Time Warner, Inc.; and (viii)
nonprofit or educational Internet access providers.

Congress recently enacted, and President Clinton signed, the
Telecommunications Act of 1996, P.L. 104-104 (the "1996 Telecommunications
Act"), which contains certain provisions lifting, or establishing procedures for
lifting, restrictions on Bell Operating Companies and other companies which may
permit them to engage directly in the Internet access business. In addition, the
1996 Telecommunications Act makes it easier for national long distance carriers
such as AT&T to offer local telephone service. The Company cannot predict the
extent to which the 1996 Telecommunications Act, or strategic alliances or
consolidation among Internet access providers, may result in additional
competitive pressures on the Company or have a material adverse effect on the
Company's business, financial condition and results of operations.

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<PAGE> 9

will obtain access to the Internet through UUNet's communications network. In
addition, WorldCom has recently announced its agreement to acquire MFS. The
ability of these competitors or others to enter into strategic alliances or
joint ventures or to bundle services and products with Internet access could put
the Company at a significant competitive disadvantage.

Moreover, the Company expects to face competition in the future from
companies that provide connections to consumers' homes, including local and long
distance telephone companies, cable companies, electric utility companies and
wireless communications companies. See "-- Risks of Technology Trends and
Evolving Industry Standards." Such companies could include Internet access in
their basic bundle of services or offer such access for a nominal additional
charge and could prevent the Company from delivering Internet access through the
wire and cable connections that such companies own. Any such developments could
materially adversely affect the Company's business, financial condition and
results of operations.

The Company does not currently compete internationally. To the extent that
the ability to provide Internet access internationally becomes a competitive
advantage in the Internet access industry, the Company may be at a competitive
disadvantage relative to other competitors. See "Business -- Competition."

FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS. The Company's future success depends on a number of factors, many of
which are beyond the Company's control. These factors include: the rates of and
costs associated with new subscriber acquisition, subscriber retention, capital
expenditures and other costs relating to the expansion of operations; the
ability of the Company to successfully assimilate the assets purchased in the
Acquisition (including, but not limited to, the Harrisburg Facility and
subscriber accounts); the timing of new product and service announcements;
changes in the Company's pricing policies and those of its competitors; market
acceptance of new and enhanced versions of the Company's products and services;
changes in operating expenses; changes in the Company's strategy; personnel
changes; the introduction of alternative technologies; the viability of the
Company's arrangement with PSINet under the Services Agreement; and the effect
of potential acquisitions, increased competition in the Company's markets and
other general economic factors.

The Company's operating results, cash flows and liquidity may fluctuate
significantly in the future. The Company's revenues depend on its ability to
attract and retain subscribers who purchase access on a month-to-month basis.
MindSpring generally offers its new subscribers a 30-day money-back satisfaction
guarantee and MindSpring subscribers have the option of discontinuing their
service at the end of any given month for any reason. The Company's expense
levels are based, in part, on its expectations as to future revenues. To the
extent that revenues are below expectations, the Company may be unable or
unwilling to reduce expenses proportionately, and operating results, cash flows
and liquidity are likely to be adversely affected. Due to all of the foregoing
factors, it is likely that in some future quarter the Company's operating
results and/or growth rate will be below the expectations of public market
analysts and investors. In such event, the price of the Common Stock will likely
be materially adversely affected.

RISKS ASSOCIATED WITH ADDITIONAL ACQUISITIONS AND PURCHASES OF SUBSCRIBER
ACCOUNTS. As part of its business strategy, the Company has undertaken the
PSINet Transaction and the Nando.net Transaction and will continue to evaluate
additional strategic acquisitions of businesses and subscriber accounts
principally relating to its current operations. Such transactions commonly
involve certain risks including, among others: the difficulty of assimilating
the acquired operations and personnel; the potential disruption of the Company's
ongoing business; the possible inability of management to maximize the financial
and strategic position of the Company by the successful incorporation of
acquired technology and rights into the Company's service offerings and the
maintenance of uniform standards, controls, procedures and policies; the risks
of entering markets in which the Company has little or no direct prior
experience; and the potential impairment of relationships with employees and
subscribers as a result of changes in management. There can be no assurance that
the Company will be successful in overcoming these risks or any other problems
encountered in connection with the PSINet Transaction, the Nando.net Transaction
or other future transactions. In addition, any such transactions could
materially adversely affect the Company's operating results due to dilutive
issuances of equity securities, the incurrence of additional debt, and the
amortization of expenses related to goodwill and other intangible assets, if
any. Except as described in this Prospectus, the Company is not

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<PAGE> 10

currently engaged in any negotiations with respect to specific additional
significant acquisitions, although from time to time it has had discussions with
several companies and is continuing to assess these and other acquisition
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- MindSpring Strategy."

MANAGEMENT'S DISCRETION REGARDING USE OF PROCEEDS. The Company intends to
use approximately $14,339,000 of the estimated net proceeds from the Offering to
pay: (i) the balance of the Purchase Price in connection with the Acquisition,
including repayment of all amounts outstanding under the PSINet Notes (assuming
the Company acquires 66,000 subscribers pursuant to the Purchase Agreement);
(ii) the balance of the amounts payable in the Nando.net Transaction; and (iii)
all amounts payable in connection with certain other purchases of subscriber
accounts. Pursuant to the terms of the Purchase Agreement, the Company may be
required to purchase up to 100,000 subscriber accounts. The Company currently
expects to acquire approximately 66,000 subscriber accounts. To the extent that
more than 66,000 subscriber accounts are actually acquired, the aggregate
purchase price will be increased by the product of $200 and the difference
between 66,000 and the number of subscriber accounts actually acquired, and the
amount of net proceeds allocated to working capital and general corporate
purposes will be decreased by a like amount. The Company does not anticipate
repaying any amounts due under any of the PSINet Notes prior to completion of
the Offering. The First PSINet Note and the Second PSINote are, and each of the
other PSINet Notes will be, due and payable in full (including accrued interest)
on the first anniversary of the date of such PSINet Note. In the event that any
PSINet Note is not paid in full within 90 days after the date of such PSINet
Note, the principal amount thereof will increase by 5.0% of the principal then
outstanding, compounding at the rate of 5.0% each 90 days thereafter until such
PSINet Note is redeemed in full. Pursuant to the terms of the First PSINet Note,
principal amounts thereunder increased by 5.0% on September 26, 1996. Principal
and interest payable on the First PSINet Note are expected to be approximately
$2,100,000 and $60,000, respectively, and principal and interest payable on the
Second PSINet Note are expected to be $9,929,000 and $110,000, respectively,
upon completion of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Assuming that all of the subscriber accounts acquired in connection
with the Nando.net Transaction continue to be current MindSpring subscriber
accounts on December 1, 1996 or January 1, 1997, depending on when such
subscriber accounts were first acquired, the outstanding balance of the amounts
payable (including fees for certain transition and advertising services to be
provided to the Company) in the Nando.net Transaction is expected to be
approximately $600,000 (excluding $100,000 paid as of the closing of the
Nando.net Transaction). The amount payable in connection with certain other
purchases of subscriber accounts is expected to be approximately $140,000. See
"Recent Transactions -- Other Recent Transactions."

After paying all such amounts payable in connection with the Acquisition,
the Nando.net Transaction and the purchase of certain other subscriber accounts,
through the end of 1996 the Company expects to use the remaining estimated net
proceeds from the Offering of approximately $4,112,000 for capital expenditures
related to the continued development of the Company's network and working
capital and general corporate purposes, funding operating deficits and possible
strategic acquisitions of complementary assets and businesses such as, but not
limited to, subscriber accounts of other access providers, World Wide Web page
developers and access providers in other markets. The Company estimates that its
cash and financing needs through mid-1997 will be met by the net proceeds of the
Offering. Beginning in mid-1997, the Company anticipates that cash flow from
operations will be sufficient to support anticipated capital expenditures and
working capital and general corporate purposes requirements. However, any
increases in the Company's anticipated growth rate, shortfalls in anticipated
net proceeds from the Offering or in anticipated revenues, increases in
anticipated expenses, or significant acquisition opportunities could have a
material adverse effect on the Company's liquidity and capital resources and
could require the Company to raise additional capital from public or private
equity or debt sources. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all. Other
than with respect to required payments of the balance of the Purchase Price for
the Acquisition and the amounts payable for the Nando.net Transaction, which
amounts depend upon the net proceeds from the Offering, the Company is not
required to allocate the net proceeds from the Offering in the manner described
above and, in light of future developments and circumstances, may allocate
different amounts of the proceeds to the uses described above. See "Use of
Proceeds."

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<PAGE> 11

NEED FOR ADDITIONAL CAPITAL TO FINANCE GROWTH AND CAPITAL
REQUIREMENTS. The Company must continue to enhance and develop its network in
order to maintain its competitive position and continue to meet the increasing
demands for service quality, availability and competitive pricing. As a result
of the PSINet Transaction, the Company generally anticipates opening fewer POPs.
However, the Company intends to maintain the flexibility to expand or open
MindSpring POPs or make other capital investments as and where subscriber demand
or strategic considerations may warrant. Opening new MindSpring POPs entails
significant capital equipment expenditures as well as initial commitments for
leased telecommunications facilities and advertising. In addition, the
nationwide expansion of the Company's subscriber base is likely to require
additional capital equipment expenditures to maintain the high speed and
reliability of the Company's Internet access services. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." The Company estimates that it will acquire
approximately 66,000 subscriber accounts pursuant to the Acquisition and
anticipates that cash requirements through the end of 1996 will include
approximately $4,500,000 for capital expenditures (excluding $1,129,000 payable
for the Harrisburg Facility) and $1,600,000 to fund cash used in operations,
which the Company expects to fund from the net proceeds of the Offering and cash
on hand. In the event the net proceeds from the Offering, cash on hand, and cash
generated from operations, after payment of the expected outstanding balance of
the Purchase Price in the Acquisition, the amounts payable for the Nando.net
Transaction and the purchase of certain other subscriber accounts, and funding
of operating losses (before depreciation), are not sufficient to meet these cash
requirements, or to the extent that the number of subscriber accounts acquired
pursuant to the Acquisition exceeds the Company's current estimates, the Company
will need to seek alternative sources of financing to carry out its growth and
operating plans. The Company may need to raise additional capital from public or
private equity or debt sources in order to: (i) fund growth, operating losses,
increases in expenses or cash requirements; (ii) take advantage of unanticipated
opportunities, such as major strategic alliances or other special marketing
opportunities, acquisitions of complementary businesses or assets, or the
development of new products; or (iii) otherwise respond to unanticipated
developments or competitive pressures. There can be no assurance that the
Company will be able to raise any such capital on terms acceptable to the
Company or at all. Such financings may be upon terms that are dilutive or
potentially dilutive to the Company's stockholders. If alternative sources of
financing are required, but are insufficient or unavailable, the Company will be
required to modify its growth and operating plans in accordance with the extent
of available funding and attempt to attain profitability in its existing
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

MANAGEMENT AND RISKS OF GROWTH. The rapid execution necessary for the
Company to fully exploit the market for its products and services requires an
effective planning and management process. MindSpring's rapid growth, the PSINet
Transaction and the Nando.net Transaction are placing, and are expected to
continue to place, a significant strain on the Company's managerial, operational
and financial resources. In order to effectively manage its operations, the
Company will be required to continue to implement and improve its operational,
financial and management information systems and to attract, identify, train,
integrate and retain qualified personnel. These demands will require the
addition of new management personnel and the development of additional expertise
by existing management. Seven of the Company's eleven officers have joined the
Company since January 1995, including President and Chief Operating Officer
Michael S. McQuary and Vice President and Chief Financial Officer Michael G.
Misikoff. The Company's success depends to a significant extent on the ability
of its officers to operate effectively, both independently and as a group.

In particular, the successful integration of newly-acquired assets and the
implementation of a nationwide strategy and network will require close
monitoring of service quality (particularly through PSINet POPs) and, to the
extent management deems necessary, identification and acquisition of physical
sites, acquisition and installation of necessary equipment and telecommunication
facilities, implementation of marketing efforts in new as well as existing
locations, employment of qualified personnel to provide technical and marketing
support for such sites, and continued expansion of the Company's managerial,
operational and financial resources to support such development. The demands on
the Company's customer support resources have grown rapidly due to the Company's
rapidly expanding subscriber base and are expected to continue to increase as a
result of the PSINet Transaction and the Nando.net Transaction. There can be no
assurance that

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<PAGE> 12

the Company's customer support or other resources will be sufficient to manage
any future growth in the Company's business or that the Company will be able to
implement in whole or in part its expansion program.

DEPENDENCE ON NETWORK INFRASTRUCTURE; CAPACITY; RISK OF SYSTEM
FAILURE. The future success of the Company's business will depend on the
capacity, reliability and security of its network infrastructure, including the
PSINet POPs to which the Company is granted access pursuant to the Services
Agreement. The Company will have to expand and adapt its network infrastructure
as the number of subscribers and the amount and type of information they wish to
transfer increases. Such expansion and adaptation of the Company's network
infrastructure will require substantial financial, operational and management
resources. There can be no assurance that the Company will be able to expand or
adapt its network infrastructure to meet additional demand or changing
subscriber requirements on a timely basis and at a commercially reasonable cost,
or at all.

Capacity constraints have occurred, and may occur in the future, both at
the level of particular POPs (affecting only subscribers attempting to use the
particular POP) and in connection with system-wide services (such as e-mail and
news group services). From time to time the Company has experienced delayed
delivery from suppliers of new telephone lines, modems, terminal servers and
other equipment. If delays of this nature are severe, all incoming modem lines
may become full during peak times, resulting in busy signals for subscribers who
are trying to connect to MindSpring. Similar problems can occur if the Company
is unable to expand the capacity of its information servers (for e-mail, news
and the World Wide Web) fast enough to keep up with demand from the Company's
rapidly expanding subscriber base. If the capacity of such servers is exceeded,
subscribers will experience delays when trying to use a particular service.
Further, if the Company does not maintain sufficient bandwidth capacity in its
network connections, subscribers will perceive a general slow-down of all
services on the Internet. On two occasions early in the Company's history,
management chose to suspend activation of new subscriber accounts for periods of
less than two weeks each until additional capacity could be brought on-line.
While the Company's objective is to maintain substantial excess capacity, any
failure of the Company to expand or enhance its network infrastructure on a
timely basis or to adapt it to an expanding subscriber base, changing subscriber
requirements or evolving industry standards could materially adversely affect
the Company's business, financial condition and results of operations. In
addition, while the Services Agreement requires PSINet to provide commercially
reliable service to MindSpring's subscribers with a significant assurance of
accessibility to the Internet, there can be no assurance that such services or
Internet access will meet the Company's requirements, which could materially
adversely affect the Company's business, financial condition and results of
operations.

The Company's operations and services provided through PSINet POPs are
dependent on the extent to which the Company's and PSINet's computer equipment
is protected against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. A significant portion of the
Company's computer equipment, including critical equipment dedicated to its
Internet access services, is located at a single facility in Atlanta, Georgia. A
significant amount of critical equipment is also located at the Harrisburg
Facility, which the Company acquired from PSINet as of September 1, 1996.
Despite precautions taken by the Company and by PSINet (over which the Company
has no control), the occurrence of a natural disaster or other unanticipated
problems at the Company's headquarters, network hub, the Harrisburg Facility or
at MindSpring or PSINet POPs could cause interruptions in the services provided
by the Company. In addition, failure of the Company's telecommunications
providers to provide the data communications capacity required by the Company as
a result of a natural disaster, operational disruption or for any other reason
could cause interruptions in the services provided by the Company. See
"Business -- Network Infrastructure." The Company does not currently maintain
fully redundant or backup Internet services or backbone facilities or other
fully redundant computing and telecommunication facilities. Any accident,
incident or system failure that causes interruptions in the Company's operations
could have a material adverse effect on the Company's ability to provide
Internet services to its subscribers, and, in turn, on the Company's business,
financial condition and results of operations.

DEPENDENCE ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS. The Company
relies on local telephone companies and other companies to provide data
communications capacity via local telecommunications lines and leased
long-distance lines. The Company will also rely on PSINet to provide
connectivity to

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<PAGE> 13

MindSpring subscribers through PSINet's nationwide network of POPs. The Company
is subject to potential disruptions in these telecommunications services and may
have no means of replacing these services, on a timely basis or at all, in the
event of such disruption. In addition, local phone service is currently
available only from the local monopoly telephone company in each of the markets
served by the Company. Management believes that the 1996 Telecommunications Act
generally will lead to increased competition in the provision of local telephone
service, but the Company cannot predict the timing or extent of any such
developments or the effect thereof on pricing or supply.

The Company is dependent on certain third-party suppliers of hardware
components. Certain components used by the Company in providing its networking
services are currently acquired from only one source, including modems
manufactured by U.S. Robotics, Inc., terminal servers manufactured by Livingston
Enterprises, Inc., and high-performance routers manufactured by Cisco Systems,
Inc. Expansion of network infrastructure by the Company and others is placing,
and will continue to place, a significant demand on the Company's suppliers,
some of which have limited resources and production capacity. Failure of the
Company's suppliers to adjust to meet such increasing demand may prevent them
from continuing to supply components and products in the quantities, at the
quality levels and at the times required by the Company, or at all. The
Company's inability to develop alternative sources of supply if required could
result in delays and increased costs in expanding the Company's network
infrastructure.

The Company's suppliers and telecommunications carriers also sell or lease
products and services to the Company's competitors and may be, or in the future
may become, competitors of the Company themselves. There can be no assurance
that the Company's suppliers and telecommunications carriers will not enter into
exclusive arrangements with the Company's competitors or stop selling or leasing
their products or services to the Company at commercially reasonable prices or
at all.

SECURITY RISKS. Despite the implementation of security measures, both
MindSpring's and PSINet's network infrastructures are vulnerable to computer
viruses or similar disruptive problems caused by their subscribers or other
Internet users. Computer viruses or problems caused by third parties could lead
to interruptions, delays or cessation in service to MindSpring's subscribers.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of the Company or its subscribers, which may cause losses to the Company
or its subscribers or deter certain persons from subscribing to the Company's
services. Such inappropriate use of the Internet would include attempting to
gain unauthorized access to information or systems -- commonly known as
"cracking" or "hacking." Although the Company intends to continue to implement
security measures, and PSINet has publicly stated that it intends to do the
same, such measures have been circumvented in the past, and there can be no
assurance that measures implemented by the Company or PSINet will not be
circumvented in the future. Alleviating problems caused by computer viruses or
other inappropriate uses or security breaches may require interruptions, delays
or cessation in service to the Company's subscribers, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company expects that its subscribers
will increasingly use the Internet for commercial transactions in the future.
Any network malfunction or security breach could cause these transactions to be
delayed, not completed at all, or completed with compromised security. There can
be no assurance that subscribers or others will not assert claims of liability
against the Company as a result of any such failure. Further, until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential subscribers may inhibit the growth of the
Internet service industry in general and MindSpring's subscriber base and
revenues in particular.

NEW AND UNCERTAIN MARKET; UNCERTAIN ACCEPTANCE OF THE INTERNET AS A MEDIUM
OF COMMERCE AND COMMUNICATION. The market for Internet access and related
products is in an early stage of growth. The Company's success will depend upon
the continuing development and expansion of the Internet and the market for
Internet access. Critical issues concerning commercial and personal use of the
Internet (including security, reliability, cost, ease of use, access and quality
of service) remain unresolved and may affect the growth of Internet use. The
acceptance of the Internet for commerce and communications, particularly by
those individuals and enterprises that have historically relied upon alternative
means of commerce and communication, generally requires that such subscribers
accept a new way of conducting business and

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<PAGE> 14

exchanging information, that industry participants continue to provide new and
compelling content and applications, and that the Internet provide a reliable
and secure computer platform. It is difficult to predict with any assurance the
rate at which the market will grow or at which new or increased competition will
result in market saturation. The novelty of the market for Internet access may
also adversely affect the Company's ability to retain new subscribers, as
subscribers unfamiliar with the Internet may be more likely to discontinue the
Company's services after an initial trial period than other subscribers. If
demand for Internet services fails to continue to grow, grows more slowly than
anticipated, or becomes saturated with competitors, the Company's business,
financial condition and results of operations will be materially adversely
affected.

RISKS OF TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS. The market for
Internet access is characterized by rapidly changing technology, evolving
industry standards, changes in subscriber needs, and frequent new service and
product introductions. The Company's future success will depend, in part, on its
ability to use leading technologies effectively, to continue to develop its
technical expertise, and to enhance its existing services and develop new
services to meet changing subscriber needs on a timely and cost-effective basis.
There can be no assurance that the Company will be successful in using new
technologies effectively, developing new services or enhancing existing services
on a timely basis or that such new technologies or enhancements will achieve
market acceptance.

The Company believes that its ability to compete successfully is also
dependent upon the continued compatibility and interoperability of its services
with products and architectures offered by various vendors. Although the Company
intends to support emerging standards in the market for Internet access, there
can be no assurance that industry standards will be established or, if they
become established, that the Company will be able to conform to these new
standards in a timely fashion and maintain a competitive position in the market.
In addition, there can be no assurance that services or technologies developed
by others will not render the Company's services or technology uncompetitive or
obsolete.

The Company is also at risk to fundamental changes in the way Internet
access is delivered. Currently, Internet services are accessed primarily by
computers connected by telephone lines. Recently, several companies have
developed cable television modems which they may offer for sale in the near
future. These cable television modems have the ability to transmit data at
substantially faster speeds than the modems the Company and its subscribers
currently use. As the Internet becomes accessible through these cable television
modems and by screen-based telephones, wireless products, televisions and other
consumer electronic devices, or as subscriber requirements change the way
Internet access is provided, the Company will have to develop new technology or
modify its existing technology to accommodate these developments. The Company's
pursuit of these technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in adapting
its Internet access business to alternate access devices and conduits.

PROPRIETARY RIGHTS; INFRINGEMENT CLAIMS. The Company's success depends in
part upon its software and related documentation. The Company principally relies
upon copyright, trade secret and contract law to protect its proprietary
technology. There can be no assurance that the steps taken by the Company will
be adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. See "Business -- Proprietary
Rights."

The Company has obtained permission and, in certain cases, licenses from
each manufacturer of the software that the Company bundles in its front-end
software product for subscribers. Although the Company does not believe that the
software or the trademarks it uses infringe the proprietary rights of any third
parties, there can be no assurance that third parties will not assert such
claims against the Company in the future or that such claims will not be
successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights, which could materially adversely affect the Company's
business, financial condition and results of operations. Parties making such
claims could secure a judgment awarding substantial damages, as well as
injunctive or other equitable relief that could effectively block the Company's
ability to license its products in the United States or abroad. Such a judgment
could have a material adverse effect on the Company's business, financial

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<PAGE> 15

condition and results of operations. In the event a claim relating to
proprietary technology or information is asserted against the Company, the
Company may seek licenses to such intellectual property. There can be no
assurance, however, that licenses could be extended or obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses will be
acceptable to the Company. The failure to obtain the necessary licenses or other
rights could materially adversely affect the Company's business, financial
condition and results of operations. See "Business -- Proprietary
Rights -- Licenses."

DEPENDENCE ON KEY PERSONNEL. The Company's success depends upon the
continued efforts of its senior management team and its technical, marketing and
sales personnel. Such employees may voluntarily terminate their employment with
the Company at any time. The Company's success also depends on its ability to
attract and retain additional highly qualified management, technical, marketing
and sales personnel and will depend on the Company's ability to successfully
integrate former PSINet personnel hired in connection with the Acquisition who
will continue to operate the Harrisburg Facility. The process of hiring
employees with the combination of skills and attributes required to carry out
the Company's strategy can be extremely competitive and time-consuming. There
can be no assurance that the Company will be able to retain or integrate
existing personnel or identify and hire additional personnel. The loss of the
services of key personnel, or the inability to attract additional qualified
personnel, could materially adversely affect the Company's business, financial
condition and results of operations. See "Management" and
"Business -- Employees."

GOVERNMENT REGULATION. The Company provides Internet access, in part,
through transmissions over public telephone lines. These transmissions are
governed by regulatory policies establishing charges and terms for
communications. The Company is at present considered an enhanced services
provider and, therefore, is not currently subject to direct regulation by the
Federal Communications Commission (the "FCC") or any other agency, other than
regulations applicable to businesses generally. However, the Company could
become subject in the future to regulations by the FCC and/or other regulatory
commissions as a provider of basic telecommunications services. For example, a
number of long distance telephone carriers recently filed a petition with the
FCC seeking a declaration that Internet telephone service is a
"telecommunications service" subject to common carrier regulation. Such a
declaration, if enacted, would create substantial barriers to the Company's
entry into the Internet telephone market. See "Business -- Government
Regulation."

The 1996 Telecommunications Act contains certain provisions lifting, or
establishing procedures for lifting, restrictions on Bell Operating Companies
and other companies that may permit them to engage directly in the Internet
access business and allows the Bell Operating Companies to provide electronic
publishing of information and databases. Competition from these companies could
have an adverse effect on the Company's business, financial condition and
results of operations. See "-- Competition." Further, the 1996
Telecommunications Act imposes fines on any entity that knowingly uses any
interactive computer service to send obscene or indecent material to minors or
makes indecent material available to minors. The standard for determining
whether an entity acted knowingly has not yet been established. See
"-- Potential Liability."

Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, user privacy, pricing, and copyright
infringement. Shortly after AT&T announced its plans to offer Internet access,
several Bell Operating Companies reportedly complained that AT&T should no
longer receive the benefit of a data transmission exemption to a 1983 FCC
"access charge" plan, which exemption applies to all Internet service providers.
In response to a petition or on its own motion, the FCC could eliminate this
exemption. The Company cannot predict the impact, if any, that the elimination
of this exemption or any other future regulatory changes or developments may
have on its business, financial condition and results of operations. In
addition, Tacoma, Washington has recently imposed a tax on companies that
connect people to the Internet, and other localities may impose similar taxes.
Changes in the regulatory environment relating to the Internet access industry,
including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Government Regulation."

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POTENTIAL LIABILITY. The law relating to the liability of Internet access
providers and on-line services companies for information carried on or
disseminated through their networks is unsettled. Several private lawsuits
seeking to impose such liability upon Internet access providers and on-line
services companies are currently pending. Although no such claims have been
asserted against the Company to date, there can be no assurance that such claims
will not be asserted in the future, or if asserted, will not be successful.
Furthermore, although the Company has attempted to limit its liability by the
terms of its standard service agreement, there can be no assurance that the
Company's liability would be so limited in the event of any litigation or other
claim against the Company. In addition, the Communications Decency Act of 1996
(the "CDA"), which is Title V of the 1996 Telecommunications Act, imposes fines
on any entity that: (i) by means of a telecommunications device, knowingly sends
indecent or obscene material to a minor; (ii) by means of an interactive
computer service, sends or displays indecent material to a minor; or (iii)
permits any telecommunications facility under such entity's control to be used
for the purposes detailed above. The standard for determining whether an entity
acted knowingly has not yet been established. The following defenses to
liability under the statute exist: (i) any entity that solely provides access or
connection to or from a facility, system, or network not under that entity's
control; and (ii) the use of reasonable, effective and appropriate screening
efforts to restrict or prevent access by minors. These defenses are unavailable
to an entity that (i) is found to have conspired with another entity involved in
the creation or knowing distribution of indecent material through an interactive
computer service or telecommunications device or that knowingly advertises the
availability of such material or (ii) that solely provides access or connection
but also owns or controls a facility, system, or network engaged in the
prohibited activities. The 1996 Telecommunications Act creates the right to
challenge the law before a three-judge district court and a right of direct
appeal to the U.S. Supreme Court. Litigation was filed in federal court
challenging the constitutionality of the on-line provisions of the 1996
Telecommunications Act. On June 12, 1996, a three-judge panel of the U.S.
District Court for the Eastern District of Pennsylvania unanimously enjoined
enforcement of these provisions. The court has since clarified that its
injunction applies only to indecency issues and not to the display or
transmission of obscene material or child pornography. The Justice Department
has appealed the lower court's decision to the Supreme Court and recently filed
its jurisdictional statement arguing, among other things, that the Supreme Court
should uphold as much of the CDA as possible and sever only those portions it
determines to be unconstitutional. In addition, a similar suit has been filed in
the U.S. District Court for the Eastern District of New York where a stay was
granted against enforcement of the CDA. The Justice Department has not yet filed
a jurisdictional statement in that case. It is likely that these two cases will
be consolidated.

As the law in this area develops, the potential imposition of liability
upon the Company for information carried on and disseminated through its network
could require the Company to implement measures to reduce its exposure to such
liability, which may require the expenditure of substantial resources or the
discontinuation of certain products or service offerings. Any costs that are
incurred as a result of contesting any such asserted claims or the consequent
imposition of liability could materially adversely affect the Company's
business, financial condition and results of operations.

CONTROL OF COMPANY. As of June 30, 1996, ITC Holding Company, Inc. ("ITC
Holding") owned approximately 37% and the Company's officers and directors owned
approximately 23% of the outstanding voting stock of the Company. Upon
completion of the Offering, based on beneficial ownership as of June 30, 1996,
ITC Holding and the Company's officers and directors would beneficially own
approximately 26% and 16% of the outstanding voting stock, respectively (25% and
16%, respectively, assuming that the Underwriters' over-allotment option is
exercised in full). As a result, these stockholders, acting together, will
continue to be able to exercise significant control over most matters requiring
approval by the stockholders of the Company, including the election of a
majority of the directors and the approval of significant corporate matters such
as certain change-of-control transactions. ITC Holding has pledged all of its
stock in the Company to certain lenders in connection with a credit facility. In
the event of a default by ITC Holding under such credit facility, the lenders or
another third party may obtain ownership of all of ITC Holding's stock in the
Company. In addition, the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") authorizes the Board of Directors of
the Company (the "Board of Directors") to provide for the issuance of shares of
preferred stock of the Company, in one or more series, which the Board of
Directors could issue without further stockholder approval and upon such terms
and conditions, and having such rights, privileges

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<PAGE> 17

and preferences, as the Board of Directors may determine. The Company has no
current plans to issue any such preferred stock. These factors could have the
effect of delaying, deferring, dissuading or preventing a change of control of
the Company. See "Principal Stockholders" and "Description of Capital Stock."

In the event that any PSINet Note issued in connection with the Acquisition
is not repaid in full by the first anniversary of the date of such PSINet Note,
PSINet or the registered owner of such PSINet Note will have the right to
convert all, but not less than all, of the amount due under such PSINet Note
into fully paid and non-assessable shares of Common Stock. If such conversions
would result in the aggregate issuance under all PSINet Notes of greater than
19.9% of the issued and outstanding Common Stock as of June 28, 1996 (an "Excess
Issuance"), and approval by the Company's stockholders of such Excess Issuance
has not been obtained, a PSINet Note may be converted in part to the extent that
such conversion would not result in an Excess Issuance. The Company has agreed
to seek such stockholder approval if conversion of the PSINet Note would result
in an Excess Issuance as of the date that notices must be mailed for the
Company's next annual meeting of stockholders. If a PSINet Note is converted in
part, as described above, PSINet will be required to convert the remaining
balance of such PSINet Note upon receipt by MindSpring of stockholder approval.
If all five PSINet Notes were issued and outstanding and the Company were to
default on all amounts due thereunder, the number of shares of Common Stock into
which such PSINet Notes could be converted at the Conversion Price (as defined
under the heading "Recent Transactions") would represent approximately 49% of
the voting stock of the Company outstanding as of June 30, 1996. See "Recent
Transactions -- Acquisition of PSINet Assets."

POTENTIAL CONFLICTS OF INTEREST. ITC Holding, as a significant stockholder
of the Company, and Campbell B. Lanier, III, William H. Scott, III and O. Gene
Gabbard, who are directors, stockholders, and officers of ITC Holding and
directors of the Company, are in positions involving the possibility of
conflicts of interest with respect to certain transactions concerning the
Company. Certain decisions concerning the operations or financial structure of
the Company may present conflicts of interest between the Company and ITC
Holding and/or its affiliates. For example, if the Company is required to raise
additional capital from public or private sources in order to finance its
anticipated growth and contemplated capital expenditures, the interests of the
Company might conflict with those of ITC Holding and/or its affiliates with
respect to the particular type of financing sought. In addition, the Company may
have an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in the Company's judgment, could be beneficial to the
Company, even though such transactions might conflict with the interests of ITC
Holding and/or its affiliates. For example, Viper Computer Systems, Inc., an
indirect wholly owned subsidiary of ITC Holding, provides Web-hosting and
Internet access services primarily to companies and other organizations. If such
conflicts do occur, ITC Holding and its affiliates may exercise their influence
in their own best interests.

The Company currently engages and expects in the future to engage in
transactions with ITC Holding and/or its affiliates. The Company has purchased
leased line connections, local telephone service, and on-site technical
assistance for some of its POPs in western Georgia and Alabama from companies
controlled by ITC Holding. Any significant interruption in these services would
materially adversely affect the operation of the Company's network (as would the
interruption of service from any of the Company's telecommunications vendors).
The Company provides Internet access to various companies controlled by ITC
Holding, but the revenues the Company derives from these sources are not
substantial. The Company has adopted a policy requiring that any material
transaction between the Company and persons or entities affiliated with
officers, directors or principal stockholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arms'
length transactions with independent third parties. The Company believes that
each current transaction in which it is engaged with an affiliate complies with
this policy. See "Management -- Board of Directors -- Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions."

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Restated Certificate
and the Company's Amended and Restated Bylaws (the "Bylaws") and the Delaware
General Corporation Law (the "Delaware Corporation Law") could delay or impede
the removal of incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving the Company, or could discourage a third
party from attempting to acquire control of the Company, even if such events
would be beneficial to the interests of the stockholders. In particular, the
classification of the Board of Directors could have the effect of delaying a
change in control of

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<PAGE> 18

the Company. In addition, the Restated Certificate authorizes the Board of
Directors to provide for the issuance of shares of preferred stock of the
Company, in one or more series, which the Board of Directors could issue without
further stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine. The
Company has no current plans to issue any such preferred stock. The Company is
also subject to the provisions of Section 203 of the Delaware Corporation Law.
In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless certain conditions are met. See
"Principal Stockholders" and "Description of Capital Stock -- Certain Charter
and Statutory Provisions."

VOLATILITY OF STOCK PRICE. Since the Common Stock has been publicly
traded, the market price of the Common Stock has fluctuated over a wide range
and may continue to do so in the future. See "Price Range of Common Stock and
Dividend Policy." The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including,
among other things, the depth and liquidity of the trading market of the Common
Stock, quarterly variations in actual or anticipated operating results, growth
rates, changes in estimates by analysts, market conditions in the industry
(including demand for Internet access), announcements by competitors, regulatory
actions and general economic conditions. In addition, the stock market has from
time to time experienced significant price and volume fluctuations, which have
particularly affected the market prices of the stocks of high technology
companies, and which may be unrelated to the operating performance of particular
companies. As a result of the foregoing, the Company's operating results and
prospects from time to time may be below the expectations of public market
analysts and investors. Any such event would likely result in a material adverse
effect on the price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE. Future sales of substantial amounts of
the Common Stock could adversely affect the market price of the Common Stock.
Several of the Company's principal stockholders hold a significant portion of
the Company's outstanding Common Stock, and a decision by one or more of these
stockholders to sell their shares could adversely affect the market price of the
Common Stock. The shares of Common Stock offered hereby (plus any shares issued
upon exercise of the Underwriters' over-allotment option) will be freely
tradable without restriction. Certain significant stockholders of the Company
and the Company's directors and executive officers have agreed to enter into
contractual agreements with the Underwriters (the "Lock-up Agreements")
generally providing that they will not offer, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock, any securities exercisable
for or convertible into Common Stock or any options to acquire Common Stock
owned by them for a period of 120 days from the completion of the Offering
without the prior written consent of J.C. Bradford & Co. As a result,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
shares subject to the Lock-up Agreements generally will not be eligible for sale
until the Lock-up Agreements expire or their terms are waived by J.C. Bradford &
Co. Assuming J.C. Bradford & Co. does not release the stockholders from the
Lock-up Agreements, the following shares of Common Stock will be eligible for
sale in the public market at the following times: upon completion of the
Offering, approximately 4,378,000 shares (of which 103,296 shares are eligible
to be sold in accordance with Rule 144) will be immediately available for sale
in the public market; and 120 days after the completion of the Offering,
approximately 56,800 shares will be eligible for sale pursuant to Rule 701 under
the Securities Act and approximately 2,220,846 shares (all of which are held by
affiliates of the Company) will be eligible for sale pursuant to Rule 144. See
"Shares Eligible for Future Sale" and "Underwriting." In addition, the Company
intends to register the shares of Common Stock reserved for issuance under the
Company's stock option plans as soon as practicable.

ABSENCE OF CASH DIVIDENDS. The Company has never declared or paid any cash
dividends on its capital stock and does not anticipate paying cash dividends in
the foreseeable future. See "Price Range of Common Stock and Dividend Policy."

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<PAGE> 19

RECENT TRANSACTIONS

ACQUISITION OF PSINET ASSETS

On June 28, 1996, the Company and PSINet entered into: (i) the Purchase
Agreement, pursuant to which the Company agreed to acquire the tangible and
intangible assets and rights relating to the consumer dial-up Internet access
services provided by PSINet in the United States (the "PSINet Consumer
Services"); and (ii) the Services Agreement, pursuant to which the Company's
individual subscribers will be able to access the Internet through local dial-in
POPs connected to PSINet's nationwide network. The Company believes that the
PSINet Transaction effectively expands the geographic scope of the MindSpring
network throughout the United States without the need for significant up-front
capital expenditures.

PSINet has publicly stated that the PSINet Transaction is part of its new
strategy to serve the consumer Internet market by providing wholesale services
to consumer-oriented Internet access providers in the United States, such as
MindSpring, and to focus its internal marketing, sales and customer support
efforts on the corporate sector. The Company believes that it is especially
well-suited to the challenge of providing service to individual PSINet
subscribers who become MindSpring subscribers as a result of the Acquisition,
although there can be no assurance that the subscriber accounts acquired from
PSINet will remain MindSpring subscriber accounts. See "Risk Factors -- PSINet
Transaction" and "Risk Factors -- Dependence on PSINet."

The Purchase Agreement. Under the terms of the Purchase Agreement, the
Company agreed to purchase certain assets (collectively, the "Assets"),
including: (i) up to 100,000 of PSINet's subscriber accounts relating to the
PSINet Consumer Services, excluding subscriber accounts with five or more users
on a single billing account; (ii) the lease for the Harrisburg Facility, and all
related telephone switches and other equipment; (iii) the benefits of most
preexisting marketing programs relating to the PSINet Consumer Services; (iv)
all ownership rights to the software related to PSINet's Pipeline service in the
United States, including the components that allow Pipeline subscribers to
access the Internet (the "Pipeline Software"); (v) rights to the local content
published by that portion of the PSINet Consumer Services dedicated to servicing
subscribers using Pipeline Software; and (vi) a fully-paid non-exclusive license
to use and modify (but not sublicense) certain PSINet proprietary software. The
Company has also agreed to hire approximately 75 employees who are expected to
continue to operate the Harrisburg Facility. The maximum aggregate purchase
price for the Assets (the "Purchase Price") is $21,129,000 (excluding accrued
interest and increases in principal amounts under the PSINet Notes), payable in
five installments, the first of which occurred on June 28, 1996 (the "First
Closing").

The Purchase Agreement provides that the Purchase Price will be equal to
the sum of: (i) the net book value of the Harrisburg Facility, which has been
determined to be approximately $1,129,000; and (ii) the product of (a) $200 and
(b) the number of subscribers obtained from PSINet at the First Closing, at the
second closing, which occurred as of September 1, 1996 (the "Second Closing"),
and after the Second Closing but before October 1, 1996 who remain MindSpring
subscribers and current in their payments for services on November 15, 1996 (the
"First Measurement Date"), plus those PSINet subscribers obtained by MindSpring
from October 1 through October 31, 1996 who remain MindSpring subscribers and
current in their payments for services on December 15, 1996 (the "Second
Measurement Date"), plus those PSINet subscribers obtained by MindSpring from
November 1, 1996 through November 30, 1996 who remain current in their payments
for services on January 15, 1997 (the "Third Measurement Date"), up to a maximum
of 100,000 subscribers.

At the First Closing, the Company paid PSINet $1,000,000 in cash (the "Cash
Payment") and issued a $2,000,000 promissory note to PSINet (the "First PSINet
Note") for 15,000 subscriber accounts, primarily located within the geographic
areas currently served by MindSpring POPs. At the Second Closing, the Company
received substantially all of the remaining Assets and issued a second
promissory note in the amount of $9,929,000 (the "Second PSINet Note"). The
Company agreed to pay the balance of the Purchase Price (up to an aggregate of
approximately $8,200,000) in the form of cash and/or three additional promissory
notes (the "Third PSINet Note," the "Fourth PSINet Note" and the "Fifth PSINet
Note"), depending on the net

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<PAGE> 20

proceeds from the Offering, on the First Measurement Date, the Second
Measurement Date and the Third Measurement Date, respectively (the First PSINet
Note, Second PSINet Note, Third PSINet Note, Fourth PSINet Note and Fifth PSINet
Note are collectively referred to as the "PSINet Notes," and each individually
as a "PSINet Note"). The First PSINet Note and Second PSINote are, and each of
the other PSINet Notes will be, due and payable in full (including accrued
interest) on the first anniversary of the date of such PSINet Note. In the event
that any PSINet Note is not paid in full within 90 days after the date of such
PSINet Note, the principal amount thereof will increase by 5.0% of the principal
then outstanding, compounding at the rate of 5.0% each 90 days thereafter until
such PSINet Note is redeemed in full. See "Risk Factors -- PSINet Transactions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

In the event that any PSINet Note is not paid in full by the first
anniversary of the date of such PSINet Note, the registered owner of such PSINet
Note will have the right to convert all, but not less than all, of the amount
due under such PSINet Note into fully paid and non-assessable shares of Common
Stock, at a conversion price per share (the "Conversion Price") equal to $9.50.
If such conversions would result in an Excess Issuance of greater than 19.9% of
the issued and outstanding Common Stock as of June 28, 1996, and approval by the
Company's stockholders of such Excess Issuance has not been obtained, a PSINet
Note may be converted in part to the extent that such conversion would not
result in an Excess Issuance. The Company has agreed to seek such stockholder
approval if conversion of the PSINet Note would result in an Excess Issuance as
of the date that notices must be mailed for the Company's next annual meeting of
stockholders. If a PSINet Note is converted in part, as described above, PSINet
will be required to convert the remaining balance of such PSINet Note upon
receipt by MindSpring of stockholder approval. Both ITC Holding and Charles M.
Brewer have agreed to vote all shares of Common Stock and other capital stock of
the Company held by them in favor of such conversion. See "Risk
Factors -- Control of Company."

Network Services Agreement. Under the Services Agreement, PSINet has
agreed, for specified fees, to provide Internet connection services to the
Company through PSINet POPs in the United States or in the territories served
with such services by PSINet or any PSINet wholly owned subsidiary. There are
currently over 200 PSINet POPs, located in 46 states and the District of
Columbia. The Company has agreed to pay, during the term of the Services
Agreement, specified fees for each MindSpring subscriber assigned by the Company
in writing to a primary dial-in POP that is a PSINet POP. The Company also has
agreed to provide PSINet forecasts of the number of MindSpring subscribers per
price/usage plan served by each PSINet POP, and PSINet has agreed to index such
forecasts with respect to usage in order to obtain guaranteed uninterrupted
service and for the purposes of determining applicable fees.

Also pursuant to the Services Agreement, PSINet has agreed, for specified
fees: (i) to make ISDN 64 Kbps and 128 Kbps Internet connection services
available to MindSpring dial-up subscribers; (ii) to allow the Company to
co-locate equipment to provide to MindSpring subscribers being served through
PSINet's network e-mail, chat, news, World Wide Web, and/or domain name services
at a limited number of PSINet POPs; and (iii) to provide the Company network
status reports, access to PSINet's network monitoring systems and subscriber
log-in and accounting information, which will enable the Company to evaluate the
service provided to its subscribers through the PSINet POPs. PSINet has agreed
to provide to the Company, for its subscribers, Internet connection services
which meet reasonable commercial standards, including, without limitation, with
respect to access, reliability, latency, packet loss and throughput.

The term of the Services Agreement is five years, commencing on June 28,
1996, with automatic annual renewals thereafter unless either party notifies the
other in writing not less than 12 months prior to the end of such five-year
period or any 12-month extension thereof. Either party may terminate the
Services Agreement at any time during the term of the Services Agreement, upon
365 days written notice. The Company may terminate the Services Agreement in
whole or in part without advance notice to PSINet if PSINet's network is
consistently inaccessible to a significant portion of MindSpring's subscribers,
under the circumstances specified in the Services Agreement. The Company may
also terminate the Services Agreement on a per-POP basis upon 365 days written
notice or upon payment to PSINet of an amount equal to the aggregate amount of
the fees paid or payable by the Company for the last two months' service
provided through the PSINet POP or POPs being terminated. See "Risk
Factors -- Dependence on PSINet."

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<PAGE> 21

OTHER RECENT TRANSACTIONS

On August 6, 1996, the Company and N&O entered into a definitive agreement,
which was amended and restated on September 11, 1996, pursuant to which the
Company agreed to acquire certain individual dial-up subscriber accounts for
subscribers located in North Carolina (currently expected to number between
4,000 and 6,000) in connection with N&O's Nando.net Internet access business.
The Nando.net Transaction was consummated as of September 30, 1996 (the "Closing
Date"). As payment for the Nando.net Transaction, the Company: (i) paid N&O
$100,000 on the Closing Date; and (ii) will pay N&O an additional amount based
upon the number of acquired Internet subscriber accounts which continue to be
current MindSpring subscriber accounts on December 1, 1996 or January 1, 1997,
depending on when such subscriber accounts were first acquired. The Company may
pay cash for the additional amounts or issue up to two promissory notes
(individually, a "Promissory Note" and collectively, the "Promissory Notes")
payable in two equal installments on March 31, 1997 and September 30, 1997
(unless prepayment is required due to the occurrence of one of several specified
conditions). There are no prepayment penalties under the Promissory Notes. One
of the Promissory Notes will be secured by a lien on, and a security interest
in, certain Internet customer contracts, equipment, inventory and accounts owned
by the Company. The Company currently anticipates that the aggregate amount
payable for the Nando.net Transaction (including fees for certain transition and
advertising services to be provided to the Company) will be approximately
$700,000, assuming that all of the acquired subscriber accounts continue to be
current MindSpring subscriber accounts on the applicable measurement date.
Depending upon the amount of net proceeds received by the Company from the
Offering, the Company will be required to use a certain percentage of the net
proceeds of the Offering to satisfy its obligations to Nando.net. The Company
will either prepay certain percentages of outstanding Promissory Notes or, to
the extent such Promissory Notes have not been issued, pay cash in lieu of
issuing future promissory notes.

Since January 1, 1996, the Company has purchased from various Internet
access providers subscriber accounts for approximately 1,700 subscribers located
in Florida, Kentucky and Georgia. The aggregate cash consideration for such
purchases is expected to be up to approximately $200,000 (depending upon the
number of subscribers who remain MindSpring subscribers as of certain specified
measurement dates), of which the Company had paid approximately $61,000 as of
June 30, 1996. The balance of amounts payable in connection with these purchases
is due on various dates through November 1, 1996. See "Use of Proceeds." As of
June 30, 1996, approximately 1,100 of such subscribers were using the Company's
services. See "Risk Factors -- Risks Associated With Additional Acquisitions and
Purchases of Subscriber Accounts."

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<PAGE> 22

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be approximately $18,451,000 (approximately $21,353,000
if the Underwriters' over-allotment option is exercised in full) after deducting
estimated underwriting discounts and commissions and other fees and expenses
payable by the Company.

The Company intends to use approximately $14,339,000 of the estimated net
proceeds from the Offering to pay: (i) the balance of the Purchase Price in
connection with the Acquisition, including repayment of all amounts outstanding
under the PSINet Notes (assuming the Company acquires 66,000 subscribers
pursuant to the Purchase Agreement); (ii) the balance of the amounts payable
(including fees for certain transition and advertising services to be provided
to the Company) in the Nando.net Transaction (currently anticipated to be
approximately $600,000, excluding $100,000 paid as of the Closing Date); and
(iii) all amounts payable (currently anticipated to be approximately $140,000)
in connection with certain other purchases of subscriber accounts. Pursuant to
the terms of the Purchase Agreement, the Company may be required to purchase up
to 100,000 subscriber accounts. The Company currently expects to acquire
approximately 66,000 subscriber accounts. To the extent that more than 66,000
subscriber accounts are actually acquired, the Purchase Price will be increased
by the product of $200 and the difference between 66,000 and the number of
subscriber accounts actually acquired, and the amount of proceeds allocated to
working capital and general corporate purposes will be decreased by a like
amount. The Company does not anticipate repaying any amounts due under any
PSINet Note prior to completion of the Offering. The First PSINet Note and the
Second PSINet Note are, and each of the other PSINet Notes will be, due and
payable in full (including accrued interest) on the first anniversary of the
date of such PSINet Note. In the event that any PSINet Note is not paid in full
within 90 days after the date of such PSINet Note, the principal amount thereof
will increase by 5.0% of the principal then outstanding, compounding at the rate
of 5.0% each 90 days thereafter until such PSINet Note is redeemed in full.
Pursuant to the terms of the First PSINet Note, principal amounts thereunder
increased by 5.0% on September 26, 1996. Principal and interest payable on the
First PSINet Note are expected to be approximately $2,100,000 and $60,000,
respectively, and principal and interest payable on the Second PSINet Note are
expected to be $9,929,000 and $110,000, respectively, upon completion of the
Offering.

The Company intends to pay the balance of the Purchase Price due in
connection with the Acquisition ($13,599,000, assuming the acquisition of 66,000
subscriber accounts) from the net proceeds from the Offering during the fourth
quarter of 1996 and the first quarter of 1997. Provided the Company receives
between $10,000,000 and $20,000,000 in net proceeds from the Offering, the
Purchase Agreement requires the Company, promptly after the Offering, to apply
50% of such net proceeds to pay outstanding amounts under PSINet Notes and, if
such allocated net proceeds are greater than the amounts then outstanding under
the PSINet Notes, to thereafter pay the balance of such allocated net proceeds
to PSINet in cash, in lieu of issuing any additional PSINet Notes. Assuming net
proceeds of $18,451,000 from the Offering, the Company would be required to pay
all amounts outstanding under the First PSINet Note and all but $2,971,000 of
amounts outstanding under the Second PSINet Note from the net proceeds from the
Offering. In addition, assuming the acquisition of 66,000 subscriber accounts,
an aggregate of approximately $1,403,000 would be payable pursuant to the Third
PSINet Note. If the net proceeds from the Offering exceed $20,000,000 but are
less than $30,000,000, as would be the case if the Underwriters' over-allotment
option is exercised in full, the Purchase Agreement requires the Company to
apply 75% of such net proceeds to the payment of the balance of the Purchase
Price promptly after completion of the Offering. The Company will be required to
pay PSINet $200 for each additional subscriber account acquired in excess of
66,000 up to a maximum of 100,000.

After paying all such amounts payable in connection with the Acquisition,
the Nando.net Transaction and the purchase of certain other subscriber accounts,
the Company expects to use the remaining net proceeds of approximately
$4,112,000 for capital expenditures through the end of 1996, most of which are
expected to be associated with the continued development of the Company's
network, including capacity expansion of existing POPs, and working capital and
general corporate purposes, funding operating deficits and possible strategic
acquisitions of complementary assets and businesses such as, but not limited to,
subscriber accounts of other access providers, World Wide Web page developers
and access providers in other markets. The Company intends to continue to
evaluate potential strategic acquisitions. The Company estimates that its cash

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<PAGE> 23

and financing needs through mid-1997 will be met by the net proceeds from the
Offering. Beginning in mid-1997, the Company anticipates that cash flow from
operations will be sufficient to support anticipated capital expenditures and
working capital and general corporate purposes requirements. However, any
increases in the Company's anticipated growth rate, shortfalls in anticipated
net proceeds from the Offering or in anticipated revenues, increases in
anticipated expenses, or significant acquisition opportunities could have a
material adverse effect on the Company's liquidity and capital resources and
would require the Company to raise additional capital from public or private
equity or debt sources in order to finance operating losses, anticipated growth
and contemplated capital expenditures. There can be no assurance that the
Company will be able to raise any such capital on terms acceptable to the
Company or at all.

Except for the payment of the balance of the Purchase Price and the amounts
payable for the Nando.net Transaction, the Company is not required to allocate
the net proceeds of the Offering in the manner described above and, in light of
future developments and circumstances, may allocate different amounts of the
proceeds to the uses described above. See "Risk Factors -- Management's
Discretion Regarding Use of Proceeds," "Risk Factors -- Need for Additional
Capital to Finance Growth and Capital Requirements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Pending such uses, the Company intends to invest such
proceeds in short-term, interest-bearing securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company completed its initial public offering on March 14, 1996, at a
price per share of Common Stock of $8.00. Since that date, the Common Stock has
traded on the Nasdaq National Market under the symbol "MSPG." The following
table sets forth for the periods indicated the high and low sales prices per
share of the Common Stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
1996 HIGH LOW
--------------------------------------------------------------------- ------ -----
<S> <C> <C>
First Quarter (from March 14, 1996).................................. $ 8.88 $7.88
Second Quarter....................................................... 13.00 7.88
Third Quarter........................................................ 12.75 8.38
Fourth Quarter (through October 9, 1996)............................. 11.50 9.13
</TABLE>

On October 9, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $9.50 per share. At October 7, 1996, there were 92
holders of record of the Common Stock.

The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. It is the current policy of the Board of Directors to retain
earnings to finance the expansion of the Company's operations. Future
declaration and payment of dividends, if any, will be determined in light of the
then-current conditions, including the Company's earnings, operations, capital
requirements, financial condition, restrictions in financing agreements, and
other factors deemed relevant by the Board of Directors.

23
<PAGE> 24

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996: (i) on an actual basis; (ii) as adjusted to reflect the sale of shares
of Common Stock offered hereby (at a price to the public of $9.13 per share) and
the increase in cash equal to the aggregate estimated net proceeds from the
Offering less repayment of the First PSINet Note; and (iii) on a pro forma basis
giving effect to the Acquisition. This table should be read in conjunction with
"Selected Financial and Operating Data," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's financial statements and notes thereto and other financial and
operating data included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING PRO FORMA
------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash(1).................................................... $ 5,694 $ 21,984 $ 8,568
======= ======== =======
Indebtedness to PSINet(1).................................. 2,000 0 0
Stockholders' equity:
Class C preferred stock, $0.01 par value, 5,000,000
shares authorized; 100,000 shares issued and
outstanding; 0 shares issued and outstanding as
adjusted and pro forma(2)............................. 638 0 0
Common stock, $0.01 par value, 15,000,000 shares
authorized; 5,125,793 shares issued and outstanding;
7,475,793 issued and outstanding as adjusted and pro
forma(3).............................................. 51 75 75
Additional paid-in capital(3)............................ 15,977 35,042 35,042
Accumulated deficit...................................... (4,533) (4,533) (4,533)
------- -------- -------
Total stockholders' equity............................ 12,133 30,584 30,584
------- -------- -------
Total capitalization............................. $14,133 $ 30,584 $30,584
======= ======== =======
</TABLE>

- ---------------
(1) Assumes, for purposes of the as adjusted presentation, that the Company's
indebtedness to PSINet under the First PSINet Note, estimated to be
approximately $2,160,000 (including accrued interest and increases in
principal amount) as of the completion of the Offering, has been repaid in
full with a portion of the net proceeds from the Offering. Assumes, for
purposes of the pro forma presentation, that the Company has acquired 66,000
subscriber accounts from PSINet and that the resulting aggregate
indebtedness to PSINet of $13,599,000 (including accrued interest and
increases in principal amounts through early October 1996) as well as
certain one-time license fees and starter kit costs of approximately
$462,000 have been repaid in full with a portion of the net proceeds from
the Offering. See the unaudited pro forma financial statements elsewhere in
this Prospectus.

(2) The 100,000 shares of Class C Preferred were issued to ITC Holding in
December 1995 as part of the consideration for the Second Loan (as defined
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Year Ended
December 31, 1995 Compared to Inception Period") provided to the Company by
ITC Holding. See "Management -- Board of Directors -- Compensation Committee
Interlocks and Insider Participation." By their terms, these shares
converted on a one-for-one basis into shares of Common Stock on September
19, 1996, resulting in 100,000 additional shares of Common Stock outstanding
and an additional $637,000 of additional paid-in capital.

(3) Does not include 439,213 shares of Common Stock reserved for issuance
pursuant to stock options granted as of June 30, 1996.

24
<PAGE> 25

SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AND OPERATING DATA)

The following table sets forth selected financial and operating data for
the Company. The selected historical statements of operations data for the
period from February 24, 1994 (inception) to December 31, 1994 (the "Inception
Period") and the year ended December 31, 1995 and the selected historical
balance sheet data as of December 31, 1995 have been derived from financial
statements of the Company, which have been audited by Arthur Andersen LLP,
independent public accountants, whose report with respect thereto is included
elsewhere in this Prospectus. The selected historical statement of operations
data for the six months ended June 30, 1995 and June 30, 1996 and the selected
historical balance sheet data as of June 30, 1996 have been derived from the
unaudited financial statements of the Company. In the opinion of management, the
unaudited financial statements include all material adjustments (consisting of
normal recurring adjustments) necessary to present fairly the information set
forth herein. The results for the six months ended June 30, 1996 are not
necessarily indicative of the operating results for the entire year.

The pro forma statement of operations data give effect to the PSINet
Transaction and the Offering as if each had occurred at the beginning of the
periods presented, and the pro forma balance sheet data give effect to the
Acquisition and the Offering as if each had occurred at June 30, 1996. The pro
forma financial information does not purport to represent what the Company's
results of operations would have been if the PSINet Transaction and the Offering
had in fact occurred on such dates, nor does it purport to indicate the future
financial position or results of future operations of the Company. The pro forma
adjustments are based on currently available information and certain assumptions
that management believes to be reasonable. The selected historical and pro forma
financial and operating data set forth below should be read in conjunction with
"Summary Financial and Operating Data," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's financial statements and notes thereto and other financial and
operating data included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
SIX MONTHS ENDED JUNE 30,
31, (UNAUDITED)
---------------------- -----------------------------------
INCEPTION PRO FORMA PRO FORMA
PERIOD 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................. $ 103 $ 2,227 $ 9,013 $ 511 $ 4,307 $ 12,262
Costs and expenses:
Selling, general and
administrative.................. 121 2,230 9,001 504 4,342 12,362
Cost of revenues.................. 52 966 4,359 223 1,912 5,890
Depreciation...................... 5 265 797 48 596 929
Amortization...................... 0 0 4,644 0 0 2,322
--------- --------- --------- --------- --------- ---------
Total costs and expenses..... 178 3,461 18,801 775 6,850 21,503
--------- --------- --------- --------- --------- ---------
Operating loss........................ (75) (1,234) (9,788) (264) (2,543) (9,241)
Interest income (expense), net........ 0 (725) (725) 2 44 44
--------- --------- --------- --------- --------- ---------
Net loss.............................. $ (75) $ (1,959) $ (10,513) $ (262) $ (2,499) $ (9,197)
======== ========= ========= ========= ========= ==========
PER SHARE DATA:
Net loss per share(1)................. $ (0.62) $ (1.94) $ (0.09) $ (0.58) $ (1.38)
Weighted average common shares
outstanding(1)...................... 3,175,376 5,425,376 2,857,119 4,309,859 6,659,859
Pro forma supplementary net loss(2)... $ (0.55)
OTHER OPERATING DATA:
Approximate number of subscribers at
end of period(3).................... 1,000 12,410 78,410 4,370 34,460 100,460
Approximate number of POPs at end of
period(3)........................... 1 17 207 2 40 230
</TABLE>

25
<PAGE> 26

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------
DECEMBER 31, AS ADJUSTED
1995 ACTUAL FOR THE OFFERING(4) PRO FORMA(5)
------------ ------- -------------------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ (3,099) $ 2,154 $ 20,445 $ 7,029
Property and equipment, net..................... 3,539 6,874 6,874 9,518
Total assets.................................... 4,845 17,215 33,666 33,666
Total liabilities............................... 4,363 5,082 3,082 3,082
Accumulated deficit............................. (2,034) (4,533) (4,533) (4,533)
Total stockholders' equity...................... 482 12,133 30,584 30,584
</TABLE>

- ---------------
(1) Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock and dilutive Common Stock equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). For 1996, the Class C Preferred
and stock options have been excluded from the calculations as their effect
is antidilutive. For 1995, Common Stock and Common Stock equivalent shares
issued at prices below the initial public offering price ($8.00 per share)
during the twelve-month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding
for all periods prior to the initial public offering, regardless of whether
they are dilutive. Accordingly, all stock options granted and the Class C
Preferred are included in the earnings per share calculations for all 1995
periods presented, even though the effect on net loss is antidilutive. For
1995, the Company's Class A Preferred Stock and the Class B Preferred Stock
(which converted to shares of Common Stock on a one-for-one basis at the
time of the Company's initial public offering) have been included for the
respective weighted average periods for which such shares were outstanding,
even though their effect is antidilutive. For purposes of the pro forma
presentations, includes 2,250,000 shares of Common Stock offered hereby and,
for pro forma 1996, 100,000 shares issued upon the conversion of the Class C
Preferred on September 19, 1996.
(2) Assumes that the indebtedness under the First PSINet Note as of June 30,
1996 has been repaid with the net proceeds from the sale of 243,893 shares
of the 2,250,000 shares of Common Stock expected to be sold in the Offering.
Does not include the remaining 2,006,107 shares expected to be sold in the
Offering, because the proceeds from such sale are expected to be used for
other purposes. See "Use of Proceeds."
(3) The pro forma presentations assume the acquisition by the Company of 66,000
subscriber accounts and access to 190 PSINet POPs that are not located in
areas served by a MindSpring POP. The historical number of POPs and
subscribers at end of period for the six months ended June 30, 1996 excludes
the effects of the PSINet Transaction.
(4) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
hereby at a price to the public of $9.13 per share. Assumes an increase to
working capital equal to the aggregate estimated net proceeds of the
Offering less repayment of the First PSINet Note (including accrued interest
and increases in principal amount through early October 1996), estimated to
be $2,160,000 upon completion of the Offering. See "Use of Proceeds" for a
description of the Company's specific plans for application of the net
proceeds from the Offering.
(5) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
hereby at a price to the public of $9.13 per share. Assumes an increase to
working capital equal to the aggregate estimated net proceeds of the
Offering less repayment of indebtedness to PSINet, which is assumed to be
$13,599,000 (including accrued interest and increases in principal amounts
through early October 1996), based on an assumed acquisition of 66,000
subscriber accounts from PSINet. Assumes that an additional $462,000 of net
proceeds from the Offering will be used to pay certain one-time license fees
and starter kit costs associated with the transfer of PSINet subscriber
accounts to MindSpring.

26
<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

On June 28, 1996, the Company agreed to acquire up to 100,000 subscriber
accounts, the Harrisburg Facility and certain other assets related to the PSINet
Consumer Services and agreed to hire approximately 75 employees who are expected
to continue to operate the Harrisburg Facility. The maximum aggregate purchase
price for the Acquisition is $21,129,000 (excluding accrued interest and
increases in principal amounts under the PSINet Notes). In connection with the
Acquisition, the Company and PSINet also entered into the Services Agreement,
pursuant to which PSINet has agreed generally to provide Internet connection
services to the Company and its subscribers through PSINet's nationwide network
of over 200 POPs. Pursuant to the Services Agreement, the Company has agreed to
pay specified monthly fees for each subscriber that the Company has assigned to
a primary dial-in POP that is a PSINet POP. See "Recent Transactions --
Acquisition of PSINet Assets." Management believes that, primarily as a
consequence of the PSINet Transaction, the Company's future financial results
will not be comparable to its historical financial results.

The Company derives revenues primarily from monthly subscriptions and
start-up fees from individuals for dial-up access to the Internet. Monthly
subscription fees vary by billing plan. In May 1996, in response to a changing
competitive environment, the Company introduced five different pricing plans for
dial-up access (one of which was discontinued in September 1996 due to low
subscriber interest), compared to the two prior plan offerings. With the new
pricing plans, new and existing subscribers have a choice of two "flat rate"
plans (The Works and Unlimited Access) and two "usage-sensitive" plans (Standard
and Light). These plan changes generally represent a reduction from the previous
rates. See "Business -- MindSpring Service Plans." The Company anticipates that
additional price changes may be necessary in the future due to the dynamic
nature of the Internet access industry. Management believes that the reduction
in revenues per subscriber due to the recently effected price changes will be
offset in the near term by continuing increases in subscriber growth. However,
there can be no assurance that growth in the Company's revenues or subscriber
base will continue or that the Company will be able to achieve or sustain
profitability or positive cash flow. See "Risk Factors -- Limited Operating
History; Operating Losses" and "Risk Factors -- Competition."

In addition, the Company earns revenues by providing Web-hosting services,
full-time dedicated access connections to the Internet and domain registration
primarily to businesses and some individual subscribers. The Company's
Web-hosting services allow a business or individual to post information on the
World Wide Web so that the information is available to anyone who has access to
the Internet. The Company provides the subscriber the ability to personalize an
e-mail address through its domain registration services. These services have
been classified as business services in the following table.

27
<PAGE> 28

The table below shows historical revenues, cost of revenues and expenses by
category and the percentage of total revenues attributable to each category.
Dollar amounts are shown in thousands.

<TABLE>
<CAPTION>
THIRD
QUARTER
ENDED FOURTH QUARTER FIRST SECOND
SEPTEMBER ENDED QUARTER ENDED QUARTER ENDED
30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Dial-up access to Internet......... $ 403 68% $ 680 60% $ 1,165 65% $ 1,506 60%
Start-up fees...................... 137 34 229 20 367 20 479 19
Business services.................. 62 11 166 15 274 15 397 16
Other revenues, net(1)............. (12) (2) 51 5 6 0 113 5
----- --- ------- ---- ------- --- ------- ---
Total revenues................ 590 100 1,126 100 1,812 100 2,495 100
Cost of revenues:
Cost of revenues -- recurring...... 178 31 288 25 542 30 755 30
Cost of subscriber start-up fees... 91 15 186 17 264 14 352 14
----- --- ------- ---- ------- --- ------- ---
Total cost of revenues........ 269 46 474 42 806 44 1,107 44
----- --- ------- ---- ------- --- ------- ---
Costs and expenses:
Selling, general and
administrative................... 644 109 1,082 96 1,738 96 2,603 104
Depreciation....................... 65 11 152 13 234 13 362 15
----- --- ------- ---- ------- --- ------- ---
Total costs and expenses...... 978 166 1,708 151 2,778 153 4,072 163
----- --- ------- ---- ------- --- ------- ---
Operating loss......................... (388) (66) (582) (51) (966) (53) (1,577) (63)
----- --- ------- ---- ------- --- ------- ---
Interest expense....................... (1) -- (730) (65) (92) (5) -- --
Interest income........................ -- -- 4 -- 19 1 117 5
----- --- ------- ---- ------- --- ------- ---
Net loss............................... $(389) (66)% $(1,308) (116)% $(1,039) (57)% $(1,460) (59)%
===== === ======= ==== ======= === ======= ===
Approximate subscribers at end of
period............................... 7,430 12,410 21,540 34,460
Approximate POPs at end of period...... 7 17 29 40
</TABLE>

- ---------------
(1) "Other revenues, net" include billing adjustments and miscellaneous
(primarily non-recurring) additional items.

The Company's costs include (i) cost of revenues that are primarily related
to the number of subscribers, (ii) selling, general and administrative expenses
that are associated more generally with operations, and (iii) depreciation and
amortization, which are related to the size of the Company's network. Cost of
revenues consists primarily of the startup expenses for each subscriber, certain
monthly licensing fees, and the costs of telecommunications facilities necessary
to provide service to subscribers. Start-up expenses for each subscriber include
one-time license fees paid to third parties for the right to bundle other
capabilities into the Company's software, cost of diskettes and other product
media, manuals, and packaging and delivery costs associated with the materials
provided to new subscribers. The Company does not defer any such subscriber
start-up expenses. Cost of revenues also includes monthly license fees per
subscriber for the right to receive and make available certain news services.
Telecommunications costs include the costs of providing local telephone lines
into each POP and costs associated with leased lines connecting each POP to the
Company's Atlanta hub and connecting the hub to the Internet backbone.

As the above table indicates, subscriber start-up fees have decreased
generally as a percentage of revenues as the cumulative subscriber base has
increased. Because operating margins on start-up fees are lower than margins
earned for providing monthly access services, a continuing trend of decreasing
start-up fee revenues would, by itself, tend to increase the overall margins for
the Company. However, historically, the impact of this trend has been offset by
increased costs and expenses associated with opening new POPs. See "-- Results
of Operations -- Year Ended December 31, 1995 Compared to Inception Period." As
a result of the PSINet Transaction, the Company generally anticipates opening
fewer MindSpring POPs.

Selling, general and administrative costs are incurred in the areas of
sales and marketing, customer support, network operations and maintenance,
engineering, accounting and administration. Selling, general and administrative
costs will increase over time as the scope of the Company's operations
increases, primarily as a result of the PSINet Transaction and the related
nationwide expansion of the Company's marketing and

28
<PAGE> 29

advertising activities. However, the Company expects such costs will be more
than offset by anticipated increases in revenues attributable to the subscriber
accounts acquired as part of the Acquisition. In addition, significant levels of
marketing activity may be necessary in order for the Company to build or
increase its subscriber base in a given market to a size large enough to
generate sufficient revenues to offset such marketing expenses. The Company does
not defer any start-up expenses or subscriber acquisition costs related to
entering new markets. The costs associated with the development and registration
of the Company's trademarks have been expensed as incurred. Such costs have not
been material.

Historically, the Company has achieved growth of subscriber revenues by
providing service through new MindSpring POPs. For each new POP opened to date,
the Company has initially invested approximately $35,000 in capital expenditures
for telecommunications equipment, primarily modems and terminal servers. The
Company also incurs approximately $5,000 of installation costs for local
telephone lines and for the leased telephone lines used in transporting data
from the POP to the Company's Atlanta hub. The Company estimates that
approximately 250 subscribers can be served by the capacity provided by its
initial investment (which typically includes 24 telephone lines) in each POP,
based on current rates of usage.

Prior to the PSINet Transaction, as the demand for the Company's services
in a particular POP has grown, the Company has had to invest in additional
telecommunications equipment and provide additional local telephone lines for
that POP. The Services Agreement provides the Company the option to evaluate on
a POP-by-POP basis whether to continue to develop MindSpring POPs or to conserve
capital through utilization of PSINet POPs for a specified fee. As the Company
expands into new markets, both cost of revenues and selling, general and
administrative expenses will increase. To the extent the Company opens
MindSpring POPs, such expenses may also increase as a percentage of revenues in
the short term after a new MindSpring POP is opened because many of the fixed
costs of providing service in a new market are incurred before significant
revenues can be expected from that market. However, to the extent that the
Company expands into new markets by using PSINet POPs instead of opening
MindSpring POPs, the Company's incremental monthly recurring costs will consist
primarily of the fees to be paid per subscriber served, as provided in the
Services Agreement.

The Company estimates that as of June 30, 1996, the 40 MindSpring POPs,
which were serving approximately 34,500 subscribers as of such date, had
sufficient capacity to serve in excess of approximately 38,900 subscribers. As
of June 30, 1996, the Company and PSINet had an aggregate of 20 POPs located in
the same service areas. Pursuant to the Services Agreement, the Company has the
flexibility to offer Internet access in such overlapping POP locations through a
MindSpring POP, through a PSINet POP or a combination of both. In certain of
these locations, it may be more cost-effective for the Company to close the
MindSpring POP and offer Internet access exclusively through the PSINet POP. The
Company currently estimates that it will be offering Internet access in over 230
POPs by the end of 1996. Although the Company does not currently plan to open a
significant number of new MindSpring POPs in 1996, the Company intends to
maintain the flexibility to close, expand or open new MindSpring POPs or make
other capital investments as and where subscriber demand or strategic
considerations may warrant. Management will evaluate the closing or expansion of
existing MindSpring POPs or opening of new MindSpring POPs on a POP-by-POP
basis.

The Company has experienced operating losses since its inception as a
result of efforts to build its network infrastructure and internal staffing,
develop its systems and expand into new markets. The Company expects to continue
to focus on increasing its subscriber base and geographic coverage. Accordingly,
the Company expects that its cost of revenues, selling expenses, general and
administrative expenses, and capital expenditures will continue to increase, all
of which may have a negative impact on short-term operating results.

29
<PAGE> 30

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995

Revenues. Revenues for the six months ended June 30, 1996 totaled
approximately $4,307,000, as compared to approximately $511,000 for the same
period in the prior year. Subscriber start-up fees accounted for 20% of revenues
for the six months ended June 30, 1996, as compared to 29% for the six months
ended June 30, 1995. The 743% increase in period revenues resulted primarily
from an increase of 689% in subscribers to approximately 34,460 as of June 30,
1996, compared to approximately 4,370 subscribers as of June 30, 1995. In
addition, the business services revenues in the period ended June 30, 1996
increased to approximately $671,000 or 16% of revenues, as compared to
approximately $32,000 or 6% of revenues, for the same period in the prior year,
primarily due to substantial increases in Web-hosting accounts.

Cost of revenues. For the six months ended June 30, 1996, cost of revenues
increased to approximately $1,913,000 or 44% of revenues, compared to
approximately $223,000 or 44% of revenues for the six months ended June 30,
1995. Cost of revenues increased significantly for the six months ended June 30,
1996 as a result of the capital expenditures and other costs associated with the
opening of new MindSpring POPs and the significant increase in subscribers.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $4,341,000 or 101% of
revenues for the six months ended June 30, 1996, compared to approximately
$504,000 or 99% of revenues for the six months ended June 30, 1995. The increase
as a percentage of revenues resulted primarily from increased advertising
expenses incurred to attract new subscribers, whereas in the past the Company
relied primarily on personal referrals. The overall increase in expenses was
primarily attributable to the expansion of the Company's operations in terms of
POPs, subscribers and employees between the periods. The Company was operating
40 POPs and had 177 employees as of June 30, 1996, compared to two POPs and 29
employees as of June 30, 1995.

Depreciation and amortization. Depreciation and amortization expenses
increased substantially to approximately $596,000 or 14% of revenues for the six
months ended June 30, 1996, compared to approximately $48,000 or 9% of revenues
for the same period in the prior year, reflecting a dramatic expansion in the
Company's asset base.

Interest expense. At the beginning of the first quarter of 1996, the
Company had $2,500,000 outstanding under the Second Loan (as defined herein)
with ITC Holding. In March 1996, the outstanding amount of $3,500,000 was paid
in full, plus accrued interest of $97,000, with a portion of the proceeds from
the Company's initial public offering. The interest expense of approximately
$92,000 recorded during the first six months of 1996 represents interest on the
Second Loan, which accrued at the rate of 14% per annum. No such credit
facilities existed during the first six months of 1995.

Year Ended December 31, 1995 Compared to Inception Period

Revenues. Revenues for the year ended December 31, 1995 were approximately
$2,227,000, as compared to approximately $103,000 for the Inception Period. The
Inception Period reflects sales activity from June through December 31, 1994.
During the months of April and May 1994, the Company offered services to a
limited number of subscribers on a "test" basis. The quarter ended September 30,
1994 was the first full quarter in which the Company made its services available
to the general public. The increase in revenues in 1995 as compared to the
Inception Period was primarily attributable to the Company being operational for
the full 1995 period and the substantial increase in the number of subscribers
in 1995.

Revenues for both periods were comprised of start-up fees and monthly
service fees from subscribers. Subscriber start-up fees accounted for 26% of
total revenues in 1995, as compared to 33% in 1994. At December 31, 1994 the
Company had approximately 990 dial-up subscribers, fewer than ten dedicated
access subscribers and fewer than ten Web-hosting service subscribers. At
December 31, 1995, the Company had approximately 11,830 dial-up customers,
approximately 80 dedicated access subscribers and approximately 490 Web-hosting
service subscribers.

30
<PAGE> 31

Cost of revenues. For the year ended 1995, cost of revenues increased to
approximately $966,000 or 43% of revenues, compared to approximately $52,000 or
51% of revenues for the Inception Period. Cost of revenues increased
significantly in the year ended December 31, 1995 as a result of the significant
increase in subscribers. Cost of revenues decreased as a percentage of revenues
as a result of higher utilization of telecommunications facilities. In addition,
cost of subscriber start-up fees, which have lower associated margins than
recurring costs, were approximately 15% of revenues for the year ended December
31, 1995, as compared to 14% of revenues for the Inception Period.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $2,230,000 or 100% of
revenues for the year ended December 31, 1995, compared to approximately
$121,000 or 117% of revenues during the Inception Period. The decrease as a
percentage of revenues resulted from the substantial increase in subscriber
revenues. The increase in expenses was primarily attributable to the expansion
of the Company's operations in terms of POPs and subscribers between the
periods. The Company was operating in 17 POPs as of December 31, 1995 compared
to one POP during the Inception Period.

Depreciation and amortization. During the Inception Period, the Company
had a very small asset base, which expanded dramatically during 1995.
Consequently, depreciation and amortization expenses increased substantially, to
approximately $265,000 or 12% of revenues for the year ended December 31, 1995,
compared to approximately $5,000 or 5% of revenues for the Inception Period.

Interest expense. In August 1995, ITC Holding agreed to lend to the
Company up to $2,000,000 in aggregate principal amount for working capital,
general corporate purposes, and to fund capital expenditures (the "First Loan").
At December 15, 1995, the Company had not repaid any amounts outstanding under
the First Loan. In consideration of ITC Holding's agreement not to exercise its
rights and remedies upon such default under the First Loan, the Company agreed
to pay ITC Holding a $50,000 processing fee, which the Company recorded as a
charge to interest expense in the fourth quarter of 1995. In addition, the
Company issued to ITC Holding an immediately exercisable warrant to purchase
100,000 shares of Class C Preferred at an exercise price of $0.01 per share. The
Company recorded the $637,000 difference between the fair market value of the
warrant and the aggregate exercise price as interest expense in the fourth
quarter. In December 1995, ITC Holding agreed to lend to the Company up to
$4,000,000 for working capital and to fund capital expenditures (the "Second
Loan"). The remaining $44,000 of interest expense recorded during the fourth
quarter of 1995 represents interest on the two loans. No such credit facilities
existed during the Inception Period. The First Loan accrued interest at 11% per
annum, and the Second Loan accrued interest at 14% per annum. See
"Management -- Board of Directors -- Compensation Committee Interlocks and
Insider Participation."

LIQUIDITY AND CAPITAL RESOURCES

The Company has not generated net cash from operations for any period
presented. The Company has primarily financed its operations to date through
public and private sales of equity securities and loans from its principal
stockholders. During the first six months of 1996, the Company completed an
initial public offering of Common Stock, issuing 2,025,000 shares at a price of
$8.00 per share. Total cash from financing activities for the six months ended
June 30, 1996 (consisting of the gross proceeds of $14,150,000 from the initial
public offering, net of underwriting discounts and expenses) were approximately
$13,650,000, a $12,600,000 increase compared to the same period in 1995.

Cash used in investing activities was approximately $7,000,000 for the six
months ended June 30, 1996, of which approximately $5,706,000 was used during
the second quarter ended June 30, 1996, and approximately $786,000 during the
six months ended June 30, 1995, of which approximately $472,000 was used during
the second quarter ended June 30, 1995. Cash used in investing activities
consisted primarily of purchases of telecommunications equipment necessary for
the provision of service to subscribers. In addition, on June 28, 1996, in
connection with the First Closing of the Acquisition, the Company paid PSINet
$1,000,000 in cash and issued a one-year promissory note in the amount of
$2,000,000. See "Recent Transactions -- Acquisition of PSINet Assets."

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At the Second Closing of the Acquisition, which occurred as of September 1,
1996, the Company received substantially all of the remaining Assets in exchange
for issuing the Second PSINet Note in the amount of $9,929,000. The Company has
agreed to pay the balance of the Purchase Price (up to an aggregate of
$8,200,000) as follows: (i) within 10 days after the First Measurement Date, the
Company will deliver the Third PSINet Note, in an original principal amount
equal to the Purchase Price (as determined as of the First Measurement Date)
minus $12,929,000 (the sum of the Cash Payment and the original principal
amounts of the First PSINet Note and the Second PSINet Note), (ii) within 10
days after the Second Measurement Date, the Company will deliver the Fourth
PSINet Note, in an original principal amount equal to the Purchase Price (as
determined as of the Second Measurement Date) minus the sum of $12,929,000 and
the original principal amount of the Third PSINet Note and (iii) within 10 days
after the Third Measurement Date, the Company will deliver the Fifth PSINet
Note, in an original principal amount equal to the Purchase Price (as determined
as of the Third Measurement Date) minus the sum of $12,929,000 and the original
principal amounts of the Third PSINet Note and the Fourth PSINet Note.

The First PSINet Note and the Second PSINet Note are, and each of the other
PSINet Notes will be, due and payable in full (including accrued interest) on
the first anniversary of the date of such PSINet Note. In the event that any
PSINet Note is not paid in full within 90 days after the date of such PSINet
Note, the principal amount thereof will increase by 5.0% of the principal then
outstanding, compounding at the rate of 5.0% each 90 days thereafter until such
PSINet Note is redeemed in full. Therefore, pursuant to the Purchase Agreement,
the maximum consideration (excluding interest payable on the PSINet Notes) could
increase to approximately $24,500,000 if all of the PSINet Notes are issued and
outstanding, and no amounts payable thereunder are paid until due.

The principal amount of the First PSINet Note increased by 5.0% on
September 26, 1996. The Company does not anticipate making any payments on any
PSINet Note prior to the completion of the Offering. Principal and interest
payable on the First PSINet Note are expected to be approximately $2,100,000 and
$60,000, respectively, and principal and interest payable on the Second PSINet
Note are expected to be approximately $9,929,000 and $110,000, respectively,
upon completion of the Offering (assuming the Offering is completed in early
October 1996). The Purchase Agreement requires the Company to apply certain
specified percentages of the net proceeds from the Offering, depending on the
amount of such net proceeds, first, to pay down the outstanding PSINet Notes in
the order of their issuance, and second, to pay cash in lieu of issuing
additional PSINet Notes following completion of the Offering. The Company
intends to pay the balance of the Purchase Price ($13,599,000, assuming
acquisition of 66,000 subscriber accounts) from the net proceeds from the
Offering. Provided the Company receives between $10,000,000 and $20,000,000 in
net proceeds from the Offering, the Purchase Agreement requires the Company,
promptly after the Offering, to apply 50% of such net proceeds to pay
outstanding amounts under PSINet Notes and, if such allocated net proceeds are
greater than the amounts then outstanding under PSINet Notes, to thereafter pay
the balance of such allocated net proceeds to PSINet in cash, in lieu of issuing
any additional PSINet Notes. Assuming net proceeds of $18,451,000 from the
Offering, the Company would be required to pay all amounts outstanding under the
First PSINet Note, and all but $2,971,000 of amounts outstanding under the
Second PSINet Note from the net proceeds from the Offering promptly after the
Offering. In addition, assuming the acquisition of 66,000 subscriber accounts,
an aggregate of approximately $1,403,000 would be payable pursuant to the Third
PSINet Note. If the net proceeds from the Offering exceed $20,000,000 but are
less than $30,000,000, as would be the case if the Underwriters' over-allotment
option is exercised in full, the Purchase Agreement requires the Company to
apply 75% of such net proceeds to the payment of the balance of the Purchase
Price promptly after completion of the Offering. The Company will be required to
pay PSINet $200 for each subscriber account acquired in excess of 66,000 up to a
maximum of 100,0000. Assuming no exercise of the underwriters' over-allotment
option, and if the Company acquires in excess of 66,000 subscriber accounts,
there can be no assurance that the Company will be able to pay outstanding
principal and accrued interest outstanding under the Second PSINet Note or any
other PSINet Note when due, and any failure to pay such amounts could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds," "Risk Factors -- PSINet
Transaction" and "-- Control of Company."

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In the event that any PSINet Note is not paid in full by the first
anniversary of the date of such PSINet Note, the registered owner of such PSINet
Note will have the right to convert all, but not less than all, of the amount
due under such PSINet Note into fully paid and non-assessable shares of Common
Stock. If such conversions would result in an Excess Issuance of greater than
19.9% of the issued and outstanding Common Stock as of June 28, 1996, and
approval by the Company's stockholders of such Excess Issuance has not been
obtained, a PSINet Note may be converted in part to the extent that such
conversion would not result in an Excess Issuance. The Company has agreed to
seek such stockholder approval if conversion of the PSINet Note would result in
an Excess Issuance as of the date that notices must be mailed for the Company's
next annual meeting of stockholders. If a PSINet Note is converted in part, as
described above, PSINet will be required to convert the remaining balance of
such PSINet Note upon receipt by MindSpring of stockholder approval. See "Risk
Factors -- Control of Company" and "Recent Transactions."

In connection with the Nando.net Transaction, the Company paid $100,000 in
cash as of the Closing Date, which occurred as of September 30, 1996. The
Company may pay cash for the balance of the amounts payable in the Nando.net
Transaction or issue up to two Promissory Notes, one of which will be secured.
The Promissory Notes will be due and payable in two equal installments on March
31, 1997 and September 30, 1997. The aggregate amount payable in the Nando.net
Transaction (including fees for certain transition and advertising services to
be provided to the Company) is currently expected to be approximately $700,000.
The Company currently anticipates paying the outstanding balance of the amounts
payable in the Nando.net Transaction (anticipated to be approximately $600,000,
excluding $100,000 paid as of the Closing Date) in full with a portion of the
net proceeds from the Offering. Depending upon the amount of net proceeds
received by the Company from the Offering, the Company will be required to use a
certain percentage of the net proceeds of the Offering to satisfy its
obligations to Nando.net. The Company will either prepay certain percentages of
outstanding Promissory Notes or, to the extent such Promissory Notes have not
been issued, pay cash in lieu of issuing future promissory notes. See "Recent
Transactions."

On July 15, 1996, the Company and Bell South Telecommunications, Inc.
("BellSouth") entered into a two-year agreement (the "BellSouth Agreement"),
pursuant to which the Company agreed to purchase telecommunications services
from BellSouth for a minimum of $2,000,000 in the first year, and, in the second
year, a minimum of 90% of the amount billed to the Company during the first
year. The Company may renew the BellSouth Agreement pursuant to two one-year
renewal options. In the event the Company terminates the BellSouth Agreement
prior to its expiration, the Company is required to pay BellSouth a termination
fee equal to 50% of the amounts billed to the Company during the 12 months
preceding such termination. The Company currently has no other material
commitments except for obligations related to the First PSINet Note, the Second
PSINet Note and various operating leases entered into in the ordinary course of
the Company's business, including the Company's office space lease (which
expires on March 31, 1999).

Current anticipated capital expenditures through the end of 1996 and for
1997 required due to the nationwide expansion of MindSpring's subscriber base
primarily as a result of the Acquisition, and in connection with the expansion
of existing MindSpring POPs or, if applicable, opening of selected new
MindSpring POPs, are estimated to be $4,500,000 and $8,500,000, respectively.

At June 30, 1996, the Company's principal source of liquidity was
approximately $5,694,000 in cash. The Company anticipates that cash requirements
for the rest of 1996 will include approximately $4,500,000 for capital
expenditures (excluding approximately $1,129,000 in capital expenditures for the
Harrisburg Facility to be represented by a portion of the Second PSINet Note)
and approximately $1,600,000 to fund cash used in operations. As discussed
above, the Company estimates that cash requirements through the first quarter of
1997 will also include approximately $13,599,000 for payment of the balance of
the Purchase Price for the Acquisition (including accrued interest and increases
in principal amounts under the PSINet Notes, assuming that the Company pays the
maximum Purchase Price payable under the Purchase Agreement) to be funded with
the proceeds from the Offering.

The Company estimates that its cash and financing needs through mid-1997
will be met by the net proceeds from the Offering. However, any increases in the
Company's growth rate, shortfalls in anticipated net proceeds from the Offering
or in anticipated revenues, increases in anticipated expenses, increases in the

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number of PSINet subscribers acquired or significant acquisition opportunities
could have a material adverse effect on the Company's liquidity and capital
resources and would require the Company to raise additional capital from public
or private equity or debt sources in order to finance operating losses,
anticipated growth and contemplated capital expenditures. If such sources of
financing are insufficient or unavailable, the Company will be required to
modify its growth and operating plans in accordance with the extent of available
funding and attempt to attain profitability in its existing markets (including
those accessible pursuant to the Services Agreement). The Company may need to
raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or otherwise respond to unanticipated competitive
pressures. There can be no assurance that the Company will be able to raise any
such capital on terms acceptable to the Company or at all. See "Risk
Factors -- Need for Additional Capital to Finance Growth and Capital
Requirements."

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BUSINESS

MindSpring is an Internet access provider that focuses on serving
individual subscribers, including individuals with little or no prior on-line
experience. MindSpring provides easy-to-use Internet access by offering
customized software, reliable network facilities and responsive customer
service. MindSpring believes that there is a growing and unsatisfied demand for
high quality Internet access for individuals. Trends contributing to this growth
in demand include the heightened consumer awareness of the Internet, the
increasing number of individuals who have computers with modems and the
expanding diversity of information, entertainment and commercial offerings
available on the Internet. Management believes that few, if any, of the
Company's major competitors have developed a comparable level of service quality
and customer support for individual subscribers and that by targeting individual
subscribers, rather than attempting to serve all segments of the Internet access
market, MindSpring can continue to increase its subscriber base rapidly while
maintaining superior quality service.

In June 1996, the Company announced its plans to become a nationwide
Internet access provider through agreements with PSINet to purchase up to
100,000 consumer dial-up subscriber accounts, a customer service facility and
certain other related assets, and to obtain access to PSINet's national network
of over 200 POPs. Prior to the PSINet Transaction, MindSpring was a regional
Internet access provider that offered its services through 40 POPs in the
southeastern United States and had grown to approximately 34,500 subscribers
from approximately 12,400 subscribers as of December 31, 1995. On a pro forma
basis as of June 30, 1996, MindSpring would have had access to approximately 230
POPs (excluding PSINet POPs located in areas served by MindSpring POPs) and
would have had approximately 100,500 subscribers, assuming the acquisition of
66,000 subscriber accounts from PSINet.

In early September 1996, the Company began sending to each PSINet
subscriber transitioning to the Company's network a copy of MindSpring's
customized software package. Those subscribers who receive new e-mail addresses
in the conversion will have any e-mail sent to their old address forwarded to
their MindSpring e-mail address for approximately twelve months from the date of
switch-over. Once they have been successfully converted to the MindSpring
system, these subscribers will generally continue to have access to all of the
applications that they could access as PSINet subscribers.

MindSpring POPs are connected to the Internet primarily through
MindSpring's network hub in Atlanta, Georgia. Leased data communication lines
from three different suppliers connect the network hub to the Internet backbone.
The Company's network hub is connected to PSINet's nationwide network of over
200 POPs at the PSINet POP located in Austel, Georgia. The Company may also
connect its network to PSINet's network at various other PSINet POP sites.

Management believes that as a result of the PSINet Transaction and the
Company's reputation for reliability and high quality, MindSpring will become
recognized as a leading national provider of high quality Internet access
services to individual subscribers. PSINet has agreed, among other things, to
provide to the Company: (i) Internet connection services which meet reasonable
commercial standards, including with respect to access and reliability; and (ii)
access to PSINet's network monitoring systems and subscriber log-in and
accounting information. In addition, by using PSINet POPs, MindSpring has
reduced the need for significant up-front capital expenditures to establish
MindSpring POPs to support the Company's growth, although the Company intends to
maintain the flexibility to expand, open or close MindSpring POPs or make other
capital investments as and where subscriber demand or strategic considerations
warrant.

The Company's largest stockholder is ITC Holding, which currently owns
approximately 37% of the Company's outstanding capital stock. See "Principal
Stockholders." ITC Holding is a diversified telecommunications company based in
West Point, Georgia, with substantial holdings in telecommunications companies

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operating throughout the southeastern United States. ITC Holding's affiliates
provide, among other things, local exchange telephone service, audio and video
teleconferencing, long distance telecommunications service, Web hosting and
Internet access services, wireless communications, and cable television, fiber
optic network and telemarketing services. MindSpring anticipates that ITC
Holding's experience and contacts in the telecommunications industry will
enhance ITC Holding's contributions to MindSpring's development. Campbell B.
Lanier, III, Chairman and Chief Executive Officer of ITC Holding, William H.
Scott, III, President and Chief Operating Officer of ITC Holding, and O. Gene
Gabbard, a director of ITC Holding, are members of the Board of Directors of
MindSpring. See "Risk Factors -- Control of Company," "Risk Factors -- Potential
Conflicts of Interest," and "Management."

The Company was incorporated in February 1994 and began offering services
in June 1994.

MINDSPRING STRATEGY

MindSpring's objective is to become a leading national provider of high
quality Internet access services to individual subscribers. The Company intends
to achieve this objective by:

Leveraging the opportunities afforded by the PSINet Transaction and
expanding its subscriber base. The Company intends to exploit the
opportunities presented by the PSINet Transaction to attract subscribers
nationwide and establish the Company as a national Internet access
provider. Management believes that the substantial increase in subscribers
and nationwide POP access resulting from the PSINet Transaction will enable
it to achieve its strategic objectives on a cost-effective and accelerated
basis and to realize economies of scale while providing the Company with
opportunities to further increase its subscriber base. Management believes
that providing exceptionally high quality service to its existing
subscribers, including subscribers who become MindSpring subscribers as a
result of acquisitions, is the most important factor in determining both
the retention of existing subscribers and the addition of new subscribers.
Historically, the Company has obtained many of its new subscribers as a
result of referrals from existing subscribers. During 1995 and the first
six months of 1996, approximately half of the Company's new subscribers
(not including the 15,000 subscribers obtained from PSINet in June 1996 or
the subscribers obtained through other purchases) indicated that they were
direct referrals from existing subscribers. The Company expects to obtain
additional subscribers through referrals from subscribers added as a result
of the PSINet Transaction and other acquisitions.

Maintaining superior service and customer support and providing
easy-to-use software and reliable Internet access. Providing superior
service and customer support is a fundamental component of the Company's
strategy. Consequently, the Company strives to maintain adequate numbers of
qualified customer support representatives to be able to provide responsive
customer support services. The Company's customer support representatives,
who are familiar with the Company's software and are experienced with
Internet issues, are generally available seven days a week to provide
technical support to subscribers. By year-end 1996, the Company expects to
have over 190 technical support employees (compared to approximately 74
full-time and four part-time employees as of June 30, 1996). In addition,
MindSpring has developed starter kits that are intended to simplify
Internet access for individual users. The Company believes that its starter
kits, which include front-end software and documentation for both Windows
and Macintosh users, and reliable network infrastructure significantly
enhance its ability to provide a positive experience to a wide variety of
potential users, including those who have little or no on-line experience.

Expanding marketing and distribution activities and pursuing strategic
alliances. The Company intends to expand and strengthen its marketing and
distribution efforts in order to establish a national presence and
nationwide name recognition. As a result of the Company's nationwide access
and reputation for reliability and high quality, the Company believes that
opportunities for nationwide strategic alliances with complementary
businesses and retail distribution and bundling arrangements will become
available to the Company. In addition, the Company plans to integrate into
its marketing plan certain PSINet marketing programs to which it will
receive the rights and benefits under the Purchase Agreement. The Company
also intends to continue to emphasize personal contacts with influential

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members of the communities it serves. These contacts include
representatives of the media, schools, universities, computer user groups,
and high technology business associations.

Focusing on individual subscribers. The Company believes that the
Internet access services market for individual subscribers is likely to
continue to grow rapidly. Trends contributing to the continued growth of
this market segment include: the increasing use of computers by individuals
in their homes for, among other things, e-mail, file transfer, remote
login, file sharing and information services; the dramatic increases in
cost-effective processing power and data storage capabilities in personal
computers; the widespread availability of multimedia, fax/modem and
networking capabilities to the home computing market; the growing awareness
of the Internet generally; and the increasing diversity of information,
entertainment and commercial offerings available on the Internet. The
Company further believes that there is a growing and unsatisfied demand for
high-quality Internet access for individuals, based on reports of start-up
problems, busy signals, poor network performance, insufficient customer
support and billing problems with other Internet access providers. The
Company believes that serving individual Internet access subscribers
requires a very different form of expertise than does serving dedicated
access subscribers. MindSpring believes that its strategy of focusing on
individual subscribers, rather than dividing its efforts between the two
types of subscribers, will make it easier to provide superior quality
service while expanding rapidly.

Engaging in selected acquisitions. Since early 1996, the Company has
accelerated its expansion efforts through selected acquisitions of
businesses and subscriber accounts, including the PSINet Transaction and
the Nando.net Transaction. As the Company continues to expand, it may in
the future acquire additional subscriber accounts and complementary
businesses. The Company further believes that its operational focus on
serving individual subscribers provides the Company with significant
acquisition opportunities given the Company's belief that a number of
Internet access providers will discontinue serving individual subscribers
in order to focus on some other segment of the market, such as dedicated
access for institutional customers. The Company expects to continue to
benefit from the significant experience of its largest stockholder, ITC
Holding, in achieving growth through acquisitions in the telecommunications
industry.

CUSTOMER SUPPORT

MindSpring believes that excellent customer support is critical to its
success in retaining existing subscribers and in attracting new subscribers.
MindSpring currently provides customer support through a call center located at
its headquarters, which is open for service from 9:00 a.m. until 9:00 p.m.
eastern time seven days a week (excluding holidays). The Company also provides
customer support through the Harrisburg Facility, which was acquired as part of
the Acquisition and is generally open for service 24 hours a day, seven days a
week. Subscribers can call these centers through a local Atlanta telephone
number or a toll-free "800" number. Subscribers can also e-mail their questions
directly to a customer support address at the Company. In addition, the Company
maintains MindSpring specific newsgroups on the Internet, where subscribers can
post requests for help, and other subscribers, as well as MindSpring support
personnel, can respond. By year-end 1996, the Company expects to have a staff of
over 190 technical support employees (compared to approximately 74 full-time and
four part-time employees as of June 30, 1996).

SALES AND MARKETING

MindSpring believes that the market for individual Internet access is
heavily influenced by person-to-person referrals. Accordingly, the Company's
marketing efforts have been geared, among other things, toward generating
positive referrals and stimulating subscriber growth and retention by providing
an exceptionally high quality service to its existing subscribers. MindSpring
also offers a $10 credit to existing subscribers each time a new subscriber
names the existing subscriber as the referral source. During 1995 and the first
six months of 1996, approximately half of the Company's new subscribers (not
including the 15,000 subscriber accounts obtained at the First Closing or the
subscriber accounts obtained through other purchases) indicated that they were
referred by an existing subscriber.

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In addition to encouraging referrals from existing subscribers, the Company
intends to establish a nationwide presence and nationwide name recognition
through moderate amounts of print publication, radio and direct mail advertising
and by pursuing the nationwide strategic alliances and retail opportunities
available to the Company as a result of MindSpring's nationwide access and
reputation for reliability and high quality. Such nationwide marketing
opportunities may include, among others: entering into large-scale bundling
arrangements with complementary products such as computers, software products,
multimedia books, and CD-ROM merchandise; entering into retail distribution
agreements for its software package with national distributors; and seeking
strategic alliances with complementary businesses operating in its service
areas, such as Internet-oriented training organizations and consulting firms,
World Wide Web content developers, computer networking firms, media companies,
telecommunications companies, local area network and World Wide Web consulting
companies, and other Internet access companies that specialize in providing
dedicated connections. The Company expects that any such alliances would be of
varying natures and terms. The Company seeks to forge these alliances through:

Trade arrangements with media companies. The Company establishes
trade arrangements with a variety of media companies, including newspapers,
radio and television stations, cable television stations, and
telecommunications companies in the POPs in which the Company provides
service. These arrangements may involve, among other things, commission
arrangements, "wholesale" purchases of Company services for resale, private
branding of Company services, or an exchange of MindSpring Internet
services for advertising or other promotional services.

Sales agent programs. MindSpring has relationships with a number of
sales agents who typically are involved in offering products or services
that are related to the Internet. The basic sales agent agreement offers a
finder's fee for each new subscriber who names the sales agent as the
referral source. MindSpring sales agents include Internet-oriented training
organizations and consulting firms, World Wide Web content developers,
computer networking firms, local area network and World Wide Web consulting
companies and computer stores. The Company anticipates expanding this
program as it expands into new POP locations as a result of the PSINet
Transaction. Pursuant to the Purchase Agreement, MindSpring will pay PSINet
a fee for each new subscriber obtained as a result of PSINet's sales
efforts.

Speaking appearances and presentations. MindSpring marketing
personnel spend considerable time meeting with and making presentations to
groups representing potential subscribers, such as computer user
associations, high technology business associations and educational
institutions.

Pursuant to the Purchase Agreement, MindSpring acquired the rights to and
benefits of all of PSINet's preexisting marketing programs that are targeted at
individual subscribers. These programs include: (i) marketing relationships with
publishers, equipment manufacturers and organizations representing potential
subscribers; (ii) relationships with individuals and organizations that receive
a commission for successfully recruiting subscribers; and (iii) certain
arrangements with retail outlets to distribute, sell or promote Internet access
services. The Company intends to integrate certain of these programs into its
marketing plan. For example, as part of the Acquisition, the Company acquired
the right to assume certain of PSINet's distribution relationships with book and
hardware vendors, pursuant to which the vendor would include the MindSpring
front-end software as part of a CD-ROM which might include other programs or as
a stand-alone CD-ROM. Pursuant to these distribution arrangements, PSINet was
required to make a one-time payment per subscriber of usually less than $10 for
each new subscriber resulting from the arrangement, and the Company will have
the same obligation for each arrangement it continues. MindSpring has contacted
every such PSINet vendor, and most have indicated their intention to continue
the distribution relationship with MindSpring.

The Company intends to continue to expand its marketing and distribution
efforts by exploiting these newly available marketing opportunities as well as
traditional advertising media in order to develop the Company's evolving
nationwide service area. The Company anticipates that the expansion of its
geographic coverage and subscriber base will require it to continue to expand
and adapt its marketing and distribution

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efforts. MindSpring will continue to closely monitor the results of its
marketing techniques as part of an ongoing effort to increase the
cost-effectiveness of its marketing efforts.

MindSpring has attempted to maintain a high degree of personal contact with
the communities that it serves, and the Company has a staff of regional managers
who are responsible for generating interest in MindSpring in these communities.
The Company plans to continue these efforts in the southeastern United States
and selectively expand them to include key metropolitan areas in other regions
of the country.

Sales are consummated by the Company's telephone sales force, which
responds to incoming subscription inquiries, as well as through an on-line
sign-up procedure. The on-line registration module, which is included in the
Company's retail software package, enables a user to become a MindSpring
subscriber by selecting service plans and billing methods on-line, without the
need to speak to a MindSpring employee. As of June 30, 1996, the Company's
retail software package was available in 117 computer stores and other outlets
located in the southeastern United States. The Company intends to expand the
availability of the retail software package in connection with the Company's
evolving nationwide service area.

MINDSPRING SERVICE PLANS

MindSpring's primary subscribers are individuals within local dialing range
of one of the MindSpring or PSINet POPs and Web-hosting service subscribers. The
Company's objective is to offer its service in a way that enables subscribers to
have a positive experience with MindSpring and the Internet, even if they are
not expert computer users or have no on-line experience. Accordingly, the
Company provides extensive customer support services, helpful and easily
understood documentation, and a software starter kit that is designed to be easy
to install, easy to use and supports both Windows and Macintosh users. In
addition, MindSpring also provides service to dedicated access subscribers.

Dial-up Internet Access. MindSpring's primary service offering is dial-up
Internet access. The basic equipment requirements for an individual dial-up
subscriber are a Windows 3.x or later or Macintosh computer with at least 8MB of
RAM and a working modem of 14.4 Kbps speed or faster. The subscriber's
MindSpring connection is a direct PPP connection, enabling the subscriber to use
any standard Internet-capable software that will run on the subscriber's
computer.

The Company currently offers the following four price plans for dial-up
subscribers in order to accommodate both heavy and light Internet users. Each
plan requires a $35 start-up fee and includes a complete starter kit (purchasers
of the retail software package are charged only a $25 start-up fee). PSINet
subscribers who become MindSpring subscribers as a result of the Acquisition
will receive the starter kit at no charge.

The Works. For $26.95 per month, individual subscribers receive
unlimited use (not intended to be a fulltime connection) as well as 10MB of
Web space, access to the Clarinet premium news service and two extra
mailboxes.

Unlimited Access. Individual subscribers pay $19.95 per month for
unlimited use, with the restriction that the subscriber must disconnect
when not actively accessing the Internet. The subscriber is not permitted,
for example, to maintain a full-time computer connection as a World Wide
Web server.

Standard. Subscribers pay $14.95 per month for 20 hours of use and $1
per hour for each additional hour. Subscribers also receive 5MB of Web
space and access to the Clarinet premium news service.

Light. Subscribers pay $6.95 per month for five hours of use and $2
per hour for each additional hour. Subscribers also receive 5MB of Web
space.

The Company has also established a discount program for organizations that
open a group of at least ten individual accounts. The Company expects that the
typical user of this program will be a corporation or other organization that
wishes to purchase Internet access for its employees.

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Substantially all of the Company's subscribers are on month-to-month
subscriptions. The Company offers a 30-day money-back satisfaction guarantee for
new subscribers. Billing is made to the majority of subscribers by automatic
charges to subscribers' credit cards each month in advance, though some
subscribers are invoiced (for an extra charge). Subscribers, as well as the
Company, may cancel an account at any time, with the cancellation taking effect
as of the first day of the following month. The Company's liability in
connection with a subscriber's use of the Company's services may be limited by
certain provisions in the Company's standard form of service agreement. See
"Risk Factors -- Potential Liability."

A user whose primary location is within local dialing range of one of the
MindSpring POPs or PSINet POPs can access the Internet with a local telephone
call. Beginning in October 1996, subscribers will be able to access all such
POPs by using a special password. The Company also offers access to its services
through an "800" number for an additional charge. All dial-up subscribers can
connect to the MindSpring network (including the PSINet POPs) via modem at
speeds up to 28.8 Kbps. In some cities that the Company serves, individual
subscribers can also choose to connect via ISDN at 64 Kbps or 128 Kbps. There is
a one-time extra startup fee of $35 for ISDN users; otherwise, pricing is the
same as for modem subscribers. All dial-up subscribers, except subscribers to
the Unlimited Access plan, also have the option of using MindSpring servers to
publish information on the Internet through the World Wide Web or FTP.
MindSpring subscribers may use the space made available on MindSpring's servers
for each subscriber to make World Wide Web pages or computer files available to
the Internet.

Web Hosting. MindSpring also offers Web-hosting accounts for companies and
other organizations that wish to create their own World Wide Web sites without
maintaining their own Web server and high speed Internet connection. Web-hosting
subscribers can use their own domain name in their World Wide Web address. This
type of Web hosting is sometimes called "virtual hosting." Web-hosting
subscribers are responsible for building their Web sites themselves, and then
uploading the pages to a MindSpring Web server. The Company's Web-hosting
service features state-of-the-art Web servers for high speed and reliability, a
high quality connection to the Internet, specialized customer support, advanced
services features such as secure transactions and VRML (Virtual Reality Markup
Language, a feature which allows Web site visitors to navigate through a three
dimensional "virtual" world) and detailed statistical reporting on hits to the
site. Average monthly fees for Web-hosting accounts are approximately $55.
MindSpring had approximately 1,590 Web-hosting subscribers as of June 30, 1996,
compared to 490 Web-hosting subscribers as of December 31, 1995.

"Dedicated" Connections. MindSpring offers "dedicated" (i.e., full-time)
connections at the following current prices:

<TABLE>
<S> <C>
Dedicated 28.8 Kbps modem connection................ $500 start-up fee, $120 per month
Dedicated 64 Kbps ISDN connection................... $250 start-up fee, $250 per month
Dedicated 128 Kbps ISDN connection.................. $250 start-up fee, $400 per month
</TABLE>

As a result of the Company's strategy of focusing on Internet access to
individual subscribers, the Company generally intends to limit its number of
dedicated access subscribers to those currently served. In addition, MindSpring
does not provide network consulting services. Subscribers intending to use a
dedicated MindSpring connection to their own networks need to be technically
self-sufficient.

NETWORK INFRASTRUCTURE

Geographic Coverage. As of June 30, 1996, MindSpring offered Internet
access service through 40 MindSpring POPs in nine states and the District of
Columbia. In addition, as a result of the PSINet Transaction, the Company has
access to PSINet's network of over 200 POPs located in 46 states and the
District of Columbia. See "Recent Transactions -- Acquisition of PSINet Assets."

The MindSpring Network. Users located within local dialing range of a
MindSpring POP connect to the POP through telephone lines provided by the local
telephone company. Each MindSpring POP generally connects to the Company's
Atlanta hub via a leased line T-1 connection. The equipment located in the
remote POPs consists primarily of a router, rackmounted terminal servers and
modems.

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In order to continue to build its base of individual dial-up subscribers,
the Company intends to continue to evaluate the need to expand existing
MindSpring POPs, to open new MindSpring POPs and to locate servers in remote
locations to optimize network traffic. The number and location of additional
POPs that the Company may actually open depends on such factors as subscriber
demand, relative costs of telecommunications facilities, competitive
considerations, and other factors, including the ability to provide service
through access to PSINet POPs and possibly through POPs of other companies. The
Company has no current plans and is not involved in any negotiations with
respect to providing service through POPs of other companies.

MindSpring's network hub is currently connected to the Internet through
three separate leased data communications lines, one connecting to the Sprint
Communications Company, L.P. ("Sprint Communications") network, one to the Apex
Global Information Services, Inc. ("AGIS") network and one to the BBN Planet
Corporation ("BBN") network. Sprint Communications, AGIS and BBN are Internet
backbone providers that carry data traffic for MindSpring and other subscribers
and deliver it either to its end destination (if that destination is connected
directly to their network) or to the Internet gateway points where the traffic
is routed onward to its ultimate destination. As MindSpring grows, it will need
to increase the bandwidth over its connection to the rest of the Internet. This
may be done through increasing the bandwidth of the Company's connections
through these current providers, by adding new connections through these or
other providers, or by establishing leased line connections directly to the
Internet gateway points.

The Company maintains a Network Management Center at its Atlanta
headquarters through which the Company's technical staff monitors network
traffic, service quality and security, as well as equipment at individual POPs,
to ensure reliable Internet access. The Network Management Center is staffed 24
hours a day seven days a week. In addition, the Company is continuing to invest
in improved network monitoring software and hardware systems.

MindSpring Connection to PSINet POPs. In addition to its MindSpring POPs,
the Company expects to provide Internet access to its subscribers, beginning in
October 1996, through a nationwide network of over 200 PSINet POPs pursuant to
the Services Agreement. The Company believes that this arrangement will enable
it to provide Internet access services on a nationwide basis while reducing
capital expenditures. However, the Company intends to maintain the flexibility
to expand or open MindSpring POPs or make other capital investments as and where
subscriber demand or strategic considerations warrant. This approach provides
MindSpring the freedom to focus on superior customer service rather than on
establishing new POPs. See "Recent Transactions -- Acquisition of PSINet
Assets -- Network Services Agreement."

The Company's network hub is connected via a telecommunications circuit
provided by the Company to PSINet's network at the PSINet POP located in Austel,
Georgia. The Company may also co-locate equipment at various other PSINet POP
sites. The Company is responsible for all customer support, pricing, billing and
collection services that are associated with subscribers that access the
Company's network through a PSINet POP. In addition, the Company may, at its
option, enter into peering arrangements with PSINet whereby the Company would
establish connections between MindSpring's network and PSINet's network with
telecommunications circuits in order to more efficiently route traffic
originating within one party's network and destined for the other party's
network. See "Recent Transactions -- Acquisition of PSINet Assets -- Network
Services Agreement."

MINDSPRING SOFTWARE

An important component of the Company's offering for dial-up subscribers is
the MindSpring starter kit. The starter kit includes: the MindSpring
installation program, front-end software and documentation; an on-line
registration module (retail version only); network software that enables a
subscriber to connect to the Internet; and application programs. See
"-- Subscriber Applications."

The Company's objectives in developing and providing this starter kit are
to:

Simplify installation. The MindSpring Windows software package
automatically configures all the individual Internet access programs after
one-time entry by the user of a few required fields of

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<PAGE> 42

information (name, username, password, etc.). The Macintosh installation
program is similar but requires subscribers to enter some additional
information.

Provide a convenient and intuitive starting place for
subscribers. The MindSpring front-end software allows subscribers to
connect and disconnect, see any current messages from MindSpring, check
their monthly usage, see if they have any e-mail, and launch any of their
Internet application programs, all from one screen. "Help" files and the
accompanying documentation contain information on trouble-shooting and
things to do on the Internet.

Enhance efficiency of the Company's support services. High-quality
software with which the Company's customer service representatives are
familiar makes it easier for the Company to provide fast and efficient
customer support. Software that is reliable and easy to install and use
also tends to reduce subscriber need for extensive support services.

Provide state-of-the-art applications. The Company uses
already-existing applications in its software package. MindSpring believes
that this approach will enable it to include state-of-the-art software in
its package and keep pace with technology developments by replacing
applications with newer or better programs as they become available without
diverting resources by attempting to develop new applications programs.

Provide open standards and flexibility. MindSpring software is based
on open standards, and the Windows package is fully Winsock-compatible.
Winsock is an industry standard programming interface definition for
Windows which specifies how TCP/IP-based network applications should
communicate with TCP/IP protocol software. Winsock has been adopted by most
vendors of network protocol software and network applications software for
Windows. Subscribers can run any standard Windows or Macintosh Internet
programs and are not limited to those programs that are included in the
starter kit but can experiment with new Internet applications as they
become available.

SUBSCRIBER APPLICATIONS

MindSpring subscribers use their accounts for communicating, retrieving
information and publishing information on the Internet. In Company surveys of
its subscribers, a substantial number of the Company's individual subscribers
report that they use their MindSpring accounts for business as well as for
personal purposes. The subscribers' MindSpring connection is a direct PPP
connection, enabling subscribers to use any standard Internet-capable software
that will run on their computers. A complete set of the most popular Internet
applications are included in the MindSpring starter kit software package,
including:

Electronic Mail. E-mail allows subscribers to exchange electronic
messages with anyone else who has an Internet e-mail address. These
messages are usually text only, but can also include other kinds of
computer files (such as images, computer programs, or word processing
documents), which are sent as attachments. The Company's software package
includes the Eudora(R) e-mail application.

The World Wide Web. The World Wide Web allows a multimedia
presentation of material (text, graphic, sound and video). Users can move
from one World Wide Web site to another by clicking on hypertext links and
can interact with the World Wide Web information providers through typed
input. The software programs that allow users to explore the World Wide Web
are known as "browsers." The browser application currently included in the
Company's software package is either Netscape Navigator (a trademark of
Netscape Communications Corporation ("Netscape Communications")) or
Microsoft's Internet Explorer.

Network News. Network News provides Internet-wide, subject-specific
forums on thousands of different subjects, where users can post information
and review posted information from other users.

FTP. File transfer protocol, or FTP, is a standard Internet tool that
allows users to send and retrieve computer files. FTP is often used for
retrieving software from various archive sites on the Internet.

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<PAGE> 43

Internet Relay Chat. Internet Relay Chat allows users to participate
in "chat" sessions, in which typed comments from all participants appear on
the screen, allowing simultaneous multi-person real-time conversations.

The Company has obtained permission and, in certain cases, licenses from
each manufacturer of the software that the Company bundles in its front-end
software product for Windows and Macintosh subscribers. See "-- Proprietary
Rights."

PROPRIETARY RIGHTS

General. Although the Company believes that its success is more dependent
upon its technical expertise than its proprietary rights, the Company's success
and ability to compete is dependent in part upon its technology. The Company
relies on a combination of copyright, trademark and trade secret laws and
contractual restrictions to establish and protect its technology. It is the
Company's policy to require employees and consultants and, when possible,
suppliers to execute confidentiality agreements upon the commencement of their
relationships with the Company. These agreements provide that confidential
information developed or made known during the course of a relationship with the
Company must be kept confidential and not disclosed to third parties except in
specific circumstances. There can be no assurance that the steps taken by the
Company will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. See "Risk
Factors -- Proprietary Rights; Infringement Claims."

Licenses. The Company has obtained authorization to use the product of
each manufacturer of software that the Company bundles in its front-end software
product for Windows and Macintosh subscribers. The particular applications
included in the MindSpring starter kit have in some cases been licensed. These
licensed applications currently include: the Netscape Navigator (a trademark of
Netscape Communications) from Netscape Communications (which license expires on
December 31, 1997); WS-FTP software from Ipswitch, Inc. (which license expires
on March 1, 1997), TCP/IP software from Network TeleSystems, Inc. (which license
expires on November 11, 1996 and is renewable for one-year terms); the Eudora(R)
e-mail program from Qualcomm, Inc. (which license expires on September 28,
1997); Lview Pro graphics viewer software from MMedia Research (which license
has an indefinite term); Internet Explorer from Microsoft (which license expires
on September 5, 1998); Anarchie from Peter N. Lewis (which license expires on
January 19, 1997); Newswatcher from Northeastern University (which license
expires on March 1, 1997); Mac TCP from Apple Computer Inc. (which license
expires on December 30, 1996); FreePPP from Steve Dagley (which license has an
indefinite term); Fetch from Dartmouth University (which license expires on June
3, 1997); Free Agent from Forte Advanced Management Software, Inc. (which
license expires on November 29, 1996); and MacPPP from Merit Network, Inc.
(which license expires on March 11, 1997). License fees charged to the Company
upon enrollment of additional subscribers are included in the cost of subscriber
start-up fees. In other cases such applications are shareware that the Company
has obtained permission to distribute, or are from the public domain and are
freely distributable. The only software programs in the MindSpring starter kit
that were developed by MindSpring are the front-end programs for Windows, Win95
and Macintosh. The Company currently intends to maintain or negotiate renewals
of, as the case may be, all existing software licenses and authorizations as
necessary. The Company may also want or need to license other applications in
the future.

Trademarks. In April 1996, the Company adopted a new MindSpring logo. The
Company currently has applications pending with respect to the registration in
the United States of the trademark "MindSpring" (and design) for each of the old
and new MindSpring logos. As part of the PSINet Transaction, the Company has
acquired trademark applications for the trademarks "Pipeline" and "Pipeline
USA." The Company is evaluating whether to prosecute these applications.

BILLING AND MANAGEMENT INFORMATION SYSTEMS

Most of the Company's individual subscribers pay their MindSpring fees
automatically by credit card each month. The Company generally sends monthly
invoices to commercial accounts with multiple users.

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Billing calculations and payment transactions are managed on the Company's
automated billing system, which was implemented in May 1995. The Company is
currently upgrading the capacity of its billing system by purchasing additional
hardware and modifying its software to facilitate the addition of all of the
PSINet subscribers who become MindSpring subscribers following the Acquisition.
The Company expects to continue to modify and upgrade its billing system in
order to maintain its ability to bill and collect amounts due and to be
responsive to changes in the market.

COMPETITION

The market for the provision of Internet access to individuals is extremely
competitive and highly fragmented. There are no substantial barriers to entry,
and the Company expects that competition will continue to intensify. The Company
believes that the primary competitive factors determining success in this market
are a reputation for reliability and service, effective customer support,
pricing, easy-to-use software and geographic coverage. Other important factors
include the timing of introductions of new products and services and industry
and general economic trends. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.

As a result of increased competition in the industry, the Company has
encountered and expects to continue to encounter significant pricing pressure.
In May 1996, in response to a changing competitive environment, the Company
introduced five different pricing plans for dial-up access (one of which was
discontinued in September 1996 due to low subscriber interest), compared to the
two prior plan offerings. These plan changes generally represent a reduction
from the previous rates. Further reductions in rates charged by the Company's
competitors could require the Company to further reduce prices charged to its
subscribers, which could cause a decrease in total revenues and revenue per
subscriber and reduce the likelihood of the Company achieving positive cash flow
or profitability in the future. Any such reductions in prices could materially
adversely affect the Company's business, financial condition and results of
operations. In addition, telecommunications companies may be able to offer
customers reduced communications costs in connection with their Internet access
services, reducing the overall cost of their Internet access solution and
significantly increasing price pressures on the Company. Competition could also
result in increased selling and marketing expenses, related subscriber
acquisition costs, and increased subscriber attrition, all of which could
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to offset
the effects of any such increased costs or reductions in the Company's prices
through an increase in the number of its subscribers, higher revenue from
enhanced services, cost reductions or otherwise, or that the Company will have
the resources to continue to compete successfully. See "Risk
Factors -- Competition."

The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. In addition, every
local market the Company has entered or intends to enter is served by multiple
local Internet access providers. The Company currently competes or expects to
compete with the following types of Internet access providers: (i) national
commercial Internet access providers, such as NETCOM; (ii) numerous regional and
local commercial Internet access providers which vary widely in quality, service
offerings and pricing; (iii) established on-line commercial information service
providers, such as America Online and CompuServe; (iv) computer hardware and
software and other technology companies, such as IBM and Microsoft; (v) national
long distance carriers, such as AT&T, MCI, MFS, Sprint and WorldCom; (vi)
regional telephone companies; (vii) cable operators; and (viii) nonprofit or
educational Internet access providers.

Congress recently enacted, and President Clinton signed, the 1996
Telecommunications Act, which contains certain provisions lifting, or
establishing procedures for lifting, restrictions on Bell Operating Companies
and other companies which may permit them to engage directly in the Internet
access business. In addition, the 1996 Telecommunications Act makes it easier
for national long distance carriers such as AT&T to offer local telephone
service. The Company cannot predict the extent to which the 1996
Telecommunications Act, or strategic alliances or consolidation among Internet
access providers may result in additional

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competitive pressures on the Company or have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company believes that new competitors, including large computer
hardware and software, media and telecommunications companies, will continue to
enter the Internet access market, resulting in even greater competition for the
Company. For example, Microsoft has introduced an Internet access solution,
including front-end software and an on-line service called "Microsoft Network."
The application software for this on-line service is bundled with Microsoft's
Windows '95 operating system, which may give the service a significant advantage
over on-line and other Internet access providers, including the Company. In
connection with its plans to enter the Internet access market, Microsoft has
entered into a strategic alliance with UUNet (which was recently acquired by
MFS) (including the purchase of a minority investment in UUNet by Microsoft)
that will give Microsoft customers access to the Internet through UUNet's POPs.
In addition, WorldCom has recently announced its agreement to acquire MFS.
Microsoft also recently announced strategic marketing alliances for Internet
access with MCI, AT&T and NETCOM. GTE also recently entered into a strategic
alliance with UUNet whereby GTE's customers will obtain access to the Internet
through UUNet's communications network. AT&T began offering Internet access to
its customers in April 1996 and MCI and Sprint have also recently entered the
Internet access market. In addition, IBM's most recent version of its OS/2
operating system software includes Internet utilities, and IBM offers Internet
access through its own private communications network. The ability of these
competitors or others to enter into strategic alliances or joint ventures or to
bundle services and products with Internet access could put the Company at a
significant competitive disadvantage.

Moreover, the Company expects to face competition in the future from
companies that provide connections to consumers' homes, including local and long
distance telephone companies, cable television companies, electric utility
companies and wireless communications companies. For example, technologies have
been developed to enable cable television operators to offer high-speed Internet
access through their cable facilities. These broadband technologies promise
significantly higher access rates than existing modem speeds. Such companies
could include Internet access in their basic bundle of services or offer such
access for a nominal additional charge and could prevent the Company from
delivering Internet access through the wire and cable connections that such
companies own. Any such developments could materially adversely affect the
Company's business, financial condition and results of operations.

INDUSTRY BACKGROUND

The Internet. The Internet is a global collection of thousands of
interconnected computer networks that enable commercial organizations,
educational institutions, governmental agencies and individuals to communicate
electronically, access and share information and conduct business. The Internet
originated with the ARPAnet, a restricted network started in 1969 by the United
States Department of Defense Advanced Research Project Agency to provide
efficient and reliable long-distance data communications among the disparate
computer systems used by government-funded researchers and organizations. Unlike
other public and private telecommunications networks that are managed by
businesses, governmental agencies and other entities, the Internet is a
cooperative interconnection of many such public and private networks. The
networks that comprise the Internet are connected in a variety of ways,
including by the public-switched telephone network and by dedicated high speed
leased lines. Open communications on the Internet are enabled by TCP/IP, the
common Internet communications protocol, which enables communication across the
Internet regardless of the hardware and software used.

Internet Growth. Recent technological advances, including the development
of easy-to-use graphical user interfaces (which provide a means of communicating
with computers by manipulating icons and "windows," in addition to text),
combined with cultural and business changes, have led to the Internet being
integrated into the activities of individuals and the operations and strategies
of commercial organizations.

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Individuals increasingly are using computers in their homes for electronic mail,
file transfer, remote login, file sharing and information services. This trend
has been facilitated by dramatic increases in cost-effective processing power
and data storage capabilities in personal computers, as well as widespread
availability of multimedia, fax/modem, and networking capabilities to the home
computing market. Much of the recent growth in Internet use by businesses and
individuals has been driven by the emergence of a network of servers and
information available on the Internet called the World Wide Web. The World Wide
Web, which is based on a client/server model and a set of standards for
information access and navigation, can be accessed using software that allows
non-technical users to exploit the capabilities of the Internet. The World Wide
Web enables users to find, retrieve and link information on the Internet easily
and consistently. The development of World Wide Web technology and associated
easy-to-use software has made the Internet easier to navigate and more
accessible to a larger number of users and for a broader range of applications.

Internet Services and Software Providers. Until recently, individuals
could access the Internet only through their employer or another organization
with a direct Internet connection or through traditional on-line services
employing closed, proprietary networks that allowed access only to limited
Internet resources. With the growth and increasing commercialization of the
Internet, a number of companies have emerged to provide Internet software and
direct access targeted to individuals. Traditional on-line services have also
begun to increase the scope and capacity of their access to the Internet.

Access providers vary widely in the geographic coverage, customer focus and
levels of Internet access provided to subscribers. For example, access providers
may concentrate on certain types of subscribers (such as businesses or
individuals) that differ substantially in the type of service and support
required. Providers may also differ according to whether they provide direct or
non-direct access to the Internet. Direct access through Internet protocols such
as SLIP or PPP enable users to establish direct connections to other computers
on the Internet, including World Wide Web sites or computers operated by other
users, and thereby have access to the full range of Internet resources. The
Company offers direct Internet access, as do most regional and national access
providers other than on-line service providers. To compete with these direct
Internet access providers, consumer on-line services (including America Online
and CompuServe) have introduced Internet access gateways.

GOVERNMENT REGULATION

The Company provides Internet access, in part, through transmissions over
public telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. The Company is at present
considered an enhanced services provider and, therefore, is not currently
subject to direct regulation by the FCC or any other agency, other than
regulations applicable to businesses generally. However, the Company could
become subject in the future to regulations by the FCC and/or other regulatory
commissions as a provider of basic telecommunications services. For example, a
number of long distance telephone carriers recently filed a petition with the
FCC seeking a declaration that Internet telephone service is a
"telecommunications service" subject to common carrier regulation. Such a
declaration, if enacted, would create substantial barriers to the Company's
entry into the Internet telephone market.

The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. Several private lawsuits seeking to impose such liability
upon Internet access providers and on-line services companies are currently
pending. Although no such claims have been asserted against the Company to date,
there can be no assurance that such

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claims will not be asserted in the future, or if asserted, will not be
successful. Furthermore, although the Company has attempted to limit its
liability by the terms of its standard service agreement, there can be no
assurance that the Company's liability would be so limited in the event of any
litigation or other claim against the Company. In addition, the Communications
Decency Act of 1996 (the "CDA"), which is Title V of the 1996 Telecommunications
Act, imposes fines on any entity that: (i) by means of a telecommunications
device, knowingly sends indecent or obscene material to a minor; (ii) by means
of an interactive computer service, sends or displays indecent material to a
minor; or (iii) permits any telecommunications facility under such entity's
control to be used for the purposes detailed above. The standard for determining
whether an entity acted knowingly has not yet been established. The following
defenses to liability under the statute exist: (i) any entity that solely
provides access or connection to or from a facility, system, or network not
under that entity's control; and (ii) the use of reasonable, effective and
appropriate screening efforts to restrict or prevent access by minors. These
defenses are unavailable to an entity that (i) is found to have conspired with
another entity involved in the creation or knowing distribution of obscene or
indecent material through an interactive computer service or telecommunications
device or that knowingly advertises the availability of such material or (ii)
that solely provides access or connection but also owns or controls a facility,
system, or network engaged in the prohibited activities. The 1996
Telecommunications Act creates the right to challenge the law before a
three-judge district court and a right of direct appeal to the U.S. Supreme
Court. Litigation was filed in federal court challenging the constitutionality
of the on-line provisions of the 1996 Telecommunications Act. On June 12, 1996,
a three-judge panel of the U.S. District Court for the Eastern District of
Pennsylvania unanimously enjoined enforcement of these provisions. The court has
since clarified that its injunction applies only to indecency issues and not to
the display or transmission of obscene material or child pornography. The
Justice Department has appealed the lower court's decision to the Supreme Court
and recently filed its jurisdictional statement arguing, among other things,
that the Supreme Court should uphold as much of the CDA as possible and sever
only those portions it determines to be unconstitutional. In addition, a similar
suit has been filed in the U.S. District Court for the Eastern District of New
York where a stay was granted against enforcement of the CDA. The Justice
Department has not yet filed a jurisdictional statement in that case. It is
likely that these two cases will be consolidated.

Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, user privacy, pricing and copyright
infringement. Shortly after AT&T announced its plans to offer Internet access,
several Bell Operating Companies reportedly complained that AT&T should no
longer receive the benefit of a data transmission exemption to a 1983 FCC
"access charge" plan, which exemption applies to all Internet service providers.
In response to a petition or on its own motion, the FCC could eliminate this
exemption. The Company cannot predict the impact, if any, that the elimination
of this exemption or any other future regulatory changes or developments may
have on its business, financial condition and results of operations. In
addition, Tacoma, Washington has recently imposed a tax on companies that
connect people to the Internet, and other localities may impose similar taxes.
Changes in the regulatory environment relating to the Internet access industry,
including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have a material adverse effect on
the Company's business, financial condition and results of operations.

EMPLOYEES

As of June 30, 1996, the Company had 177 employees, including approximately
21 part-time employees. In connection with the Purchase Agreement, and
concurrently with the Second Closing, the Company hired approximately 75 former
PSINet employees who will continue to operate the Harrisburg Facility. The

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Company anticipates that the development of its business will require the hiring
of a substantial number of new employees. None of the Company's current
employees or the employees of the Harrisburg Facility are represented by a labor
organization, and the Company's management considers its employee relations to
be good.

The Company anticipates that in connection with the development of its
network infrastructure and its expansion into new markets as a result of the
Acquisition, the Company will be required to hire a substantial number of new
employees during 1996 and 1997. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Overview."

PROPERTIES

The Company maintains its corporate headquarters in Atlanta, Georgia. The
lease for this space expires March 31, 1999. The Company has the option to
extend this lease for an additional two years. The Company has arranged for
expansion space within the building that houses its current headquarters, and
believes that its facilities there, as expanded, will be adequate through 1996.
The Company is currently negotiating to arrange additional office space in the
vicinity of its Atlanta headquarters in order to meet the Company's anticipated
additional space requirements. The Company has also arranged for expansion space
for its POP site in Atlanta, which it believes will provide sufficient room for
growth over the expected term of its lease for such site, which expires on
December 31, 1996, but which will renew automatically for successive six-month
terms thereafter, subject to termination by either party upon 180 days written
notice. Equipment for POPs other than the Atlanta POP site is generally
co-located with, and in space leased from, other companies operating in the area
of the particular POP. MindSpring employees in remote offices are expected to
continue to work from their homes until the scope of the Company's operations in
the related market warrants multiple employees there.

In addition, as part of the Acquisition, the Company was assigned the
rights and obligations under the lease for the Harrisburg Facility, which is
located in New Cumberland, Pennsylvania. The lease for the Harrisburg Facility
expires on April 14, 1997. The Company intends to use the Harrisburg Facility
primarily to augment its current sales and customer support operations.

As part of the Nando.net Transaction, the Company exercised an option to
sublease approximately 1,900 square feet of office space in Raleigh, North
Carolina, through the end of January 1997, for an aggregate rent of
approximately $7,200. The Company intends to use the space primarily to support
the subscriber accounts to be acquired through the Nando.net Transaction. The
sublease is not renewable.

LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party.

48
<PAGE> 49

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Directors of the Company are elected at the annual meeting of stockholders.
Officers of the Company are appointed at the first meeting of the Board of
Directors after each annual meeting of stockholders. Directors and executive
officers of the Company are elected to serve until they resign or are removed,
or are otherwise disqualified to serve, or until their successors are elected
and qualified. The ages of the persons set forth below are as of September 30,
1996.

<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION(S) WITH COMPANY EXPIRES
- ------------------------- --- -------------------------------------------------- --------
<S> <C> <C> <C>
Charles M. Brewer........ 37 Chairman, Chief Executive Officer and Director 1998
Michael S. McQuary....... 36 President, Chief Operating Officer and Director 1997
Michael G. Misikoff...... 43 Vice President, Chief Financial Officer, 1996
Secretary, Treasurer and Director
James T. Markle.......... 37 Vice President of Network Operations --
Susan F. Nicholson....... 35 Vice President of Corporate Communications --
J. Fredrick Nixon........ 40 Vice President of Engineering --
Robert D. Sanders........ 23 Vice President and Chief Technical Officer --
Thomas R. Stranberg...... 51 Vice President of Business Services --
Gregory J. Stromberg..... 43 Vice President of Call Centers --
Alan J. Taetle........... 33 Vice President of Marketing --
Lance Weatherby.......... 36 Vice President of Business Development --
O. Gene Gabbard.......... 56 Director 1996
Campbell B. Lanier, III.. 45 Director 1998
William H. Scott, III.... 49 Director 1997
</TABLE>

CHARLES M. BREWER founded the Company and has served as Chief Executive
Officer and Director of the Company since its inception in February 1994 and as
Chairman since March 1996. He also served as the President of the Company from
its inception until March 1996 and as the Secretary and Treasurer of the Company
from its inception until January 1995. From May 1993 to January 1994, Mr. Brewer
developed the concept for the Company and evaluated its prospects. Prior to
starting the Company, he served as Chief Executive Officer of AudioFax, Inc.
("AudioFax"), a software company providing fax server software, from May 1992 to
April 1993 and was the Chief Financial Officer of AudioFax from May 1989 to
April 1992. From March 1988 to April 1989, Mr. Brewer explored potential
business opportunities. Mr. Brewer was Vice President of Sanders & Company, a
venture capital firm, from September 1987 to February 1988. From November 1984
to August 1987, Mr. Brewer primarily worked toward his MBA, managed a retail
store and traveled. From November 1981 to October 1984, he was employed by
Wertheim & Company, an investment banking firm, and worked in institutional
sales. Mr. Brewer received a BA in Economics from, and was a Phi Beta Kappa
graduate of, Amherst College and received a MBA from Stanford University.

MICHAEL S. MCQUARY has been the President of the Company since March 1996,
the Chief Operating Officer of the Company since September 1995, and a Director
of the Company since December 1995. He also served as the Company's Executive
Vice President from October 1995 to March 1996 and the Company's Executive Vice
President of Sales and Marketing from July 1995 to September 1995. Prior to
joining the Company, Mr. McQuary served in a variety of management positions
with Mobil Chemical Co., a petrochemical company, from August 1984 to June 1995,
including Regional Sales Manager from April 1991 to February 1994 and Manager of
Operations (Reengineering) from February 1994 to June 1995. From September 1981
to July 1984, Mr. McQuary served as a Sales Representative, Territory Manager
and then Product Sales Manager for Lily Tulip, Inc., a food service packaging
company. Mr. McQuary received a BA in Psychology from the University of Virginia
and a MBA from Pepperdine University.

MICHAEL G. MISIKOFF has served as Vice President, Chief Financial Officer,
Secretary, Treasurer and a Director of the Company since January 1995. From
January 1992 to December 1994, Mr. Misikoff was the

49
<PAGE> 50

Acting Chief Financial Officer and a Director of InterCall Corporation, a
subsidiary of ITC Holding that provides conference call services. From March
1991 to January 1992, Mr. Misikoff worked as an independent financial
consultant. Mr. Misikoff served as Chief Financial Officer of Async Corporation
("Async"), a provider of voice messaging services, from its startup in February
1985 until March 1991. From March 1979 to February 1985, Mr. Misikoff served as
the Chief Financial Officer for TransDesigns, Inc., a multi-level marketing
company. Mr. Misikoff was a Certified Public Accountant with the firm of Arthur
Young & Co. from July 1975 until March 1979. He received a BBA in Accounting
from Georgia State University.

JAMES T. MARKLE joined the Company as Vice President of Network Operations
in April 1995. Prior to joining the Company, Mr. Markle served as the Director
of Technical Support for Concert Communications, Co., a telecommunications
company, from April 1994 until April 1995. From August 1990 to April 1994, Mr.
Markle served as Senior Manager of Network Operations for MCI. Mr. Markle served
in various operation positions at Telecom*USA, Inc. ("Telecom") and its
predecessor SouthernNet, Inc. ("SouthernNet"), including Director of Operations
for a multi-state region, from July 1985 until July 1990. Mr. Markle attended
Maryville College.

SUSAN F. NICHOLSON has served as the Company's Vice President of Corporate
Communications since September 1996, prior to which she served as Vice President
of Marketing beginning in July 1995. Ms. Nicholson served as Director of
Marketing of the Company from September 1994 until July 1995. Prior to joining
the Company, Ms. Nicholson worked for AudioFax from March 1990 to September
1994, first as a technical writer, then as Director of Marketing Communications
and then as Director of Product Management. In addition, Ms. Nicholson worked as
an independent technical writer from August 1987 to March 1990 and founded and
sold Babes in Highland, a retail store in Atlanta, Georgia between June 1986 and
May 1987. She served as a Technical Sales representative for Hewlett-Packard
Company, a computer manufacturing company, from December 1982 to June 1986. Ms.
Nicholson received a BS in Electrical Engineering from Georgia Institute of
Technology.

J. FREDRICK NIXON joined the Company as Vice President of Engineering in
August 1995. From August 1994 to July 1995, Mr. Nixon served as a consultant for
the Tennessee Valley Authority and Federal Express, Inc. He served from
September 1990 to August 1994 as an Assistant Professor of Computer Science at
the University of Tennessee at Chattanooga. From September 1989 to September
1990, Mr. Nixon served as a senior member of the Technical Staff of General
Electric Advanced Technology Labs, an operating systems research company. He was
a Senior Scientist at General Electric Research Corporation, a database systems
development company, from March 1987 to September 1989. Mr. Nixon also served as
the Principal Engineer for Token Link Corporation, a computer design and
manufacturing company, from September 1986 to March 1987. From December 1978 to
September 1982, Mr. Nixon served as a Programmer/Analyst for General Electric
Information Services Company, a general research company. Mr. Nixon received a
BA in Physics and Math and a Ph.D. in Computer Science from Vanderbilt
University.

ROBERT D. SANDERS has been the Company's Vice President since September
1996 and its Chief Technical Officer since January 1995. Mr. Sanders served as
the Company's Vice President of Network Engineering from December 1995 to
September 1996 and the Company's Senior Engineer from June 1994 to January 1995.
Prior to joining the Company, Mr. Sanders worked as the Software Engineer and
System Administrator of Harry's Farmers Market, Inc. from March 1994 to May
1994. He served as Co-op Engineer in the Line Card Development Group of Bell
Northern Research, Inc., a research subsidiary of Northern Telecom, Inc., from
March 1992 to December 1993. Mr. Sanders attended the Georgia Institute of
Technology.

THOMAS R. STRANBERG joined the Company in May 1996, as acting Vice
President of Business Services, and was appointed Vice President of Business
Services in September 1996. From September 1985 to May 1996, Mr. Stranberg
served as Executive Vice President and Chief Operating Officer for Medical
Systems Development Corporation, a software development company. Mr. Stranberg
worked for the City of Asheville, North Carolina as a Senior System Analyst from
July 1974 to December 1976 and as Data Processing Director from December 1976 to
September 1985. From October 1972 to July 1974 Mr. Stranberg worked for American
Enka Company, a textile manufacturer, as a Senior Programmer and Acting

50
<PAGE> 51

Programming Manager. Mr. Stranberg received a BS in Business Administration from
Western Illinois University in 1966 and a MBA from Western Carolina University
in 1976.

GREGORY J. STROMBERG has been the Company's Vice President of Call Centers
since September 1996, having joined the Company as Vice President of Customer
Service in October 1995. From June 1993 to September 1994, he served as a
Regional Manager for Digital Financial Services, a computer leasing company,
after which he traveled. Mr. Stromberg worked for Digital Equipment Corporation,
a computer manufacturer, and served as a Senior Sales representative from June
1983 to May 1987, Program Manager from May 1987 to May 1990, and District
Operations Manager from May 1990 to June 1993. In addition, Mr. Stromberg served
as a Large Account Sales representative and Product Manager for Burroughs Corp.,
a computer hardware company, from June 1978 to June 1983. Mr. Stromberg received
a BS in Business Management and a MBA from the University of Utah.

ALAN J. TAETLE has been the Company's Vice President of Marketing since
September 1996, having joined the Company as its Vice President of Business
Development in March 1995. Prior to joining the Company, Mr. Taetle served as
the Director of Operations and Product Management at CogniTech Corporation,
makers of a retail series of Contact Management software products, from November
1992 to March 1995. Mr. Taetle was the Director of MIS of a subsidiary of Itochu
International ("Itochu"), a Japanese trading company, from September 1989 until
November 1991, and served as the Assistant to the Executive Vice President of
Itochu from November 1991 to November 1992. From July 1985 to August 1987, Mr.
Taetle served as Systems Engineer with Electronic Data Systems, a systems
integration consulting company. Mr. Taetle received a BA in Economics from the
University of Michigan and a MBA from Harvard Business School.

LANCE WEATHERBY has been the Company's Vice President of Business
Development since September 1996 and was the Company's acting Vice President of
Business Development commencing in August 1996. Mr. Weatherby joined the Company
as Market Development Manager in September 1995. Prior to joining the Company,
Mr. Weatherby held a variety of sales, sales management and marketing positions
with Mobil Chemical Co., a petrochemical company, from October 1990 to September
1995, including District Sales Manager from December 1992 to September 1995.
From April 1990 to October 1990, Mr. Weatherby served as an Account Executive
with United Parcel Service, Inc., a shipping company. From December 1983 to
August 1987 Mr. Weatherby served as a Sales Representative for Lantech, Inc., a
packaging equipment manufacturer. Mr. Weatherby received a BBA in Marketing from
Eastern Kentucky University and a MBA from Indiana University.

O. GENE GABBARD has been a Director of the Company since December 1995. He
has worked independently as an entrepreneur and consultant since February 1993.
Mr. Gabbard currently serves as a director of ITC Holding and several of its
subsidiaries, InterCel, Inc. ("InterCel") (a wireless telecommunications
company), Masada Security, Inc. (a security monitoring services company),
Adtran, Inc. (a telecommunications equipment manufacturing company), and two
telecommunications technology companies, Dynatech Corporation and Telogy
Network, Inc. From August 1990 through January 1993, he served as Executive Vice
President and Chief Financial Officer of MCI. He served in various senior
executive capacities, including Chairman of the Board, President and Chief
Executive Officer of Telecom from December 1988 until Telcom's merger with MCI
in August 1990. From July 1984 to December 1988, he was Chairman and/or
President of SouthernNet, a long distance telecommunications company which was
the predecessor to Telecom.

CAMPBELL B. LANIER, III has served as a Director of the Company since
November 1994. Mr. Lanier serves as Chairman of the Board and Chief Executive
Officer of ITC Holding and has served as a director of ITC Holding since its
inception in 1985 through a predecessor company. In addition, Mr. Lanier is an
officer and director of several ITC Holding subsidiaries. He is a director of
National Vision Associates, Ltd. (a full service optical retailer), K&G Men's
Centers (a discount retailer of men's clothing) Vice Chairman of the Board of
AvData Systems, Inc. ("AvData") (a company providing data communications
networks) and Chairman of the Board of InterCel. He served as Chairman of the
Board of AvData from 1988 to 1990. From 1984 to 1989, Mr. Lanier served as
Chairman of the Board of Async. Mr. Lanier also served as Vice
President -- Industry Relations of Telecom from 1984 to 1988 and as Senior Vice
President -- Industry Relations from January 1989

51
<PAGE> 52

until Telecom's merger with MCI in August 1990. From 1984 to 1985, he served as
Chief Executive Officer of SouthernNet, and from 1985 to 1986 he was Vice
Chairman of the Board of SouthernNet.

WILLIAM H. SCOTT, III has been a Director of the Company since November
1994. Mr. Scott has served as President of ITC Holding since December 1991 and
has been a director of ITC Holding since May 1989. Mr. Scott is a director and
Secretary of InterCel. Mr. Scott is also currently a director of AvData. From
1985 to 1989, Mr. Scott was an officer and director of Async. Between 1984 and
1988, Mr. Scott held several offices with SouthernNet, including Chief Operating
Officer, Chief Financial Officer and Vice President -- Administration. He was a
director of SouthernNet from 1984 to 1987.

BOARD OF DIRECTORS

The Restated Certificate provides for a classified Board of Directors
consisting of three classes of directors with each class required to be as
nearly equal in number as possible. The number of directors is determined from
time to time by the Board of Directors and is currently fixed at six. A single
class of directors is elected each year at the Company's annual meeting of
stockholders. Subject to transition provisions, each director elected at each
such meeting will serve for a term ending on the date of the third annual
meeting of stockholders after his election and until his successor has been
elected and qualified. Messrs. Gabbard and Misikoff are serving for terms
expiring in 1996, Messrs. McQuary and Scott are serving for terms expiring in
1997, and Messrs. Brewer and Lanier are serving for terms expiring in 1998.
Officers of the Company are appointed annually by the Board of Directors and
serve at its discretion.

The Board of Directors currently has two committees, the Audit Committee
and the Compensation Committee. The Audit Committee, among other things,
recommends the firm to be appointed as independent accountants to audit the
Company's financial statements, discusses the scope and results of the audit
with the independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers the
adequacy of the internal accounting controls and audit procedures of the Company
and reviews the non-audit services to be performed by the independent
accountants. The current members of the Audit Committee are Messrs. Brewer,
Lanier and Scott.

The Compensation Committee reviews and recommends the compensation
arrangements for management of the Company and administers the Company's 1995
Stock Option Plan.

Compensation Committee Interlocks and Insider Participation. The current
members of the Compensation Committee are Messrs. Lanier, Scott and Gabbard.
Prior to December 1995, compensation decisions were made by the Board of
Directors, including Messrs. Brewer and Misikoff.

As of June 30, 1996, ITC Holding owned approximately 37% of the outstanding
capital stock of the Company. Both Messrs. Lanier and Scott serve as executive
officers and directors of ITC Holding. Mr. Gabbard also is a director of ITC
Holding. As of June 30, 1996, Messrs. Lanier, Scott and Gabbard beneficially
owned approximately 28%, less than 3% and less than 1%, respectively, of the
common stock of ITC Holding. As of June 30, 1996, Messrs. Brewer and Misikoff
each owned less than 1% of the common stock of ITC Holding.

In August 1995, ITC Holding agreed to extend the First Loan to the Company
in an aggregate principal amount of up to $2,000,000 at an annual interest rate
of 11%, to be used for capital expenditures and for general and working capital
purposes. All amounts outstanding under the First Loan were due and payable in
full on or before December 15, 1995. At December 15, 1995, the outstanding
aggregate principal amount of all advances under the First Loan was $2,000,000.

At December 15, 1995, the Company had not repaid any amounts outstanding
under the First Loan. In consideration of ITC Holding's agreement not to
exercise its rights and remedies upon such default under the First Loan, on
December 27, 1995 the Company agreed to pay ITC Holding a processing fee of
$50,000 and issued to ITC Holding an immediately exercisable warrant to purchase
100,000 shares of Class C Preferred at a price of $.01 per share. Accordingly,
the Company recorded a charge of approximately $637,000 in December 1995
representing the fair market value of the warrant issued less the aggregate
exercise price thereunder. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --

52
<PAGE> 53

Results of Operations -- Year Ended December 31, 1995 Compared to Inception
Period -- Interest expense." By December 31, 1995, ITC Holding had exercised
such warrant in full. All principal amounts due and owing under the First Loan
were paid in full by December 31, 1995 with proceeds from the Second Loan made
to the Company by ITC Holding. Accrued interest on the First Loan of
approximately $39,100 and the $50,000 processing fee were paid in full in
January 1996.

In December 1995, the Company executed a promissory note in favor of, and
entered into a loan agreement and a security agreement with, ITC Holding
relating to the Second Loan, pursuant to such loan agreement the Company was
entitled to borrow, from time to time, up to $4,000,000 (in aggregate
outstanding principal amount). The unpaid principal amount of the Second Loan
was due and payable in a single payment on July 15, 1996, together with interest
on the unpaid principal amount from the date of each advance, until paid in
full, at an annual rate of 14%. All of the unpaid principal amount of the Second
Loan, together with all accrued and unpaid interest thereon, in an amount equal
to approximately $3,597,000, was paid in full by the Company on March 18, 1996
with a portion of the proceeds from the Company's initial public offering.

In 1995, the Company loaned excess cash totaling approximately $300,000 to
ITC Holding. This transaction was approved by the Board of Directors. The loan
amount, plus interest thereon equal to approximately $3,000, was repaid by ITC
Holding during 1995.

The Company has also entered into certain business relationships with
several subsidiaries of ITC Holding. The Company currently leases telephone
lines from, and has contracts for maintenance and installations with, Interstate
Telephone Company, Inc. ("Interstate Telephone"), a wholly owned subsidiary of
ITC Holding. The Company pays Interstate Telephone approximately $3,000 per
month for these leased telephone lines. Charges from Interstate Telephone for
telephone lines and installation charges totaled approximately $41,000 for the
year ended December 31, 1995 and approximately $38,000 for the six months ended
June 30, 1996, of which the Company had paid approximately $34,000 as of June
30, 1996.

The Company also leases a T-1 line for data transport for some of its POPs
from Interstate FiberNet Company ("Interstate FiberNet"), a wholly owned
subsidiary of ITC Holding. The Company pays Interstate FiberNet approximately
$7,500 per month for these services. The Company had no charges from Interstate
FiberNet for the year ended December 31, 1995 and approximately $15,000 in
charges for the six months ended June 30, 1996 of which the Company had paid
approximately $9,000 as of June 30, 1996.

The Company also purchases long distance telephone services and wide area
network transport service from DeltaCom, Inc. ("DeltaCom"), a wholly owned
subsidiary of ITC Holding. The Company pays DeltaCom approximately $25,000 per
month for such services. Unpaid charges from DeltaCom totaled approximately
$50,000 for the six months ended June 30, 1996.

As of January 1, 1995, the Company entered into an agreement with AvData
providing for the rental by the Company of floor space from AvData for the
placement of the Company's equipment for its network hub and for AvData
personnel to service and maintain such equipment for a payment by the Company of
$3,000 per month. AvData may increase this monthly payment if the amount of
technical support services required by the Company exceeds ten hours per month.
The lease runs from January 1, 1995, through December 31, 1996, but either party
may terminate the lease earlier, without cause, upon 180 days prior written
notice. Unless either party gives notice to terminate, this lease will renew
automatically for successive six-month terms. As of December 31, 1995, ITC
Holding owned approximately 25.5% of the capital stock of AvData.

In February 1994, in connection with the initial capitalization of the
Company, the Company issued a total of 1,032,951 shares of Common Stock to
Charles M. Brewer for an aggregate purchase price of $200.

53
<PAGE> 54

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the cash and
non-cash compensation during fiscal years 1994 and 1995 earned by or awarded to
the Company's Chief Executive Officer. No executive officers of the Company
received a combined salary and bonus in excess of $100,000 during the fiscal
year ended December 31, 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS
----------------------------------------------------------- ---- ------- -------
<S> <C> <C> <C>
Charles M. Brewer.......................................... 1995 $60,000 $10,000
President and Chief Executive Officer.................... 1994 0 0
</TABLE>

OPTION GRANTS DURING 1995

As of December 31, 1995, no options had been granted to the Chief Executive
Officer of the Company, and no executive officer of the Company received a
combined salary and bonus in excess of $100,000 during the fiscal year ended
December 31, 1995.

OPTION PLANS

Employee Stock Option Plan. Under the Company's 1995 Stock Option Plan
(the "Stock Option Plan"), as adopted on February 21, 1995, and as amended by
the Board of Directors on April 5, 1995 and December 19, 1995, and approved by
the stockholders, effective December 27, 1995, 616,668 shares of Common Stock
are reserved and authorized for issuance upon the exercise of options. All
employees of the Company and its subsidiaries are eligible to receive options
under the Stock Option Plan. The Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. The purpose of the Stock
Option Plan is to further the growth and success of the Company by enabling
selected employees of the Company to acquire shares of Common Stock of the
Company, thereby increasing their personal interest in such growth and success
and to provide a means of rewarding outstanding performance by such persons.
Options granted under the Stock Option Plan are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended. Options will become exercisable as follows: (i) 50% of the
options will become exercisable on the second anniversary of the date of grant,
or in certain cases, the commencement date of the holder's employment; (ii) an
additional 25% of the options will become exercisable on the third anniversary
of the date of grant, or in certain cases, the commencement date of the holder's
employment; and (iii) the remaining 25% of the options will become exercisable
on the fourth anniversary of the date of grant, or in certain cases, the
commencement date of the holder's employment. See Note 4 to the December 31,
1994 and 1995 financial statements included elsewhere in this Prospectus. As of
June 30, 1996, 439,213 options have been granted at exercise prices ranging from
$0.64 to $12.375, all of which will be outstanding and unexercised as of the
consummation of the Offering. Options expire ten years after the date of grant,
or in certain cases, the commencement date of the option holder's employment. An
increase in the number of shares of Common Stock that may become available for
sale in the public market, or the perception that such sales may occur, could
adversely affect the market price prevailing from time to time of the Common
Stock in the public market and could impair the Company's ability to raise
additional capital through the sale of its equity securities. See "Shares
Eligible for Future Sale."

Directors Stock Option Plan. Under the Company's Directors Stock Option
Plan (the "Directors Plan"), adopted in December 1995, 70,000 shares of Common
Stock are authorized for issuance to nonemployee directors (in the form of
grants of 10,000 options per director) upon their initial election or
appointment to the Board of Directors, or, in the case of Messrs. Lanier and
Scott, who joined the Board of Directors prior to the creation of the Directors
Plan, upon the adoption of the Directors Plan by the Board of Directors. Options
are exercisable at the fair market value of the Common Stock (as determined by
the Board of Directors) on the date of grant. The Directors Plan does not
provide for discretionary option grants. Options

54
<PAGE> 55

generally become exercisable as to 50% two years after the date of grant, as to
an additional 25% three years after the date of grant, and as to the remaining
25% four years after the date of grant. As of June 30, 1996, 30,000 options had
been granted at an exercise price of $6.38 pursuant to the Directors Plan, all
of which will be outstanding and unexercised as of the Effective Date. Options
expire ten years after the date of grant. An increase in the number of shares of
Common Stock that may become available for sale in the public market, or the
perception that such sales may occur, could adversely affect the market price
prevailing from time to time of the Common Stock in the public market and could
impair the Company's ability to raise additional capital through the sale of its
equity securities. See "Shares Eligible for Future Sale."

DIRECTOR COMPENSATION

Since the Company's inception, members of the Board of Directors have not
received any compensation for their service on the Board of Directors except as
provided under the Directors Plan. See "-- Option Plans -- Directors Stock
Option Plan."

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Restated Certificate contains provisions that provide that no director
of the Company shall be liable for breach of fiduciary duty as a director except
for: (i) any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) liability under
Section 174 of the Delaware Corporation Law; or (iv) any transaction from which
the director derived an improper personal benefit. The Restated Certificate
contains provisions that further provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by the Delaware
Corporation Law. The Company also has entered into indemnity agreements with
each of its directors pursuant to which the Company has agreed to indemnify the
directors as permitted by the Delaware Corporation Law.

CERTAIN TRANSACTIONS

The Company has adopted a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers, directors
or principal stockholders of the Company be on terms no less favorable to the
Company than reasonably could have been obtained in arms' length transactions
with independent third parties.

For a summary of certain transactions and relationships among the Company
and its associated entities, and among the directors, executive officers and
stockholders of the Company and its associated entities, see
"Management -- Board of Directors -- Compensation Committee Interlocks and
Insider Participation."

55
<PAGE> 56

PRINCIPAL STOCKHOLDERS

The following table provides information, as of June 30, 1996, concerning
beneficial ownership of Common Stock by: (i) each person or entity known by the
Company to beneficially own more than 5% of the outstanding Common Stock; (ii)
each director of the Company; (iii) the Chief Executive Officer; and (iv) all
directors and executive officers of the Company as a group. The information as
to beneficial ownership has been furnished by the respective stockholders,
directors and executive officers of the Company, and, unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.

<TABLE>
<CAPTION>
PERCENT OF COMMON
AMOUNT AND NATURE OF STOCK OUTSTANDING AMOUNT AND NATURE OF PERCENT OF COMMON
BENEFICIAL OWNERSHIP BEFORE BENEFICIAL OWNERSHIP STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BEFORE OFFERING(1) OFFERING(2) AFTER OFFERING AFTER OFFERING(3)
- -------------------------- -------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
ITC Holding(4)(5)......... 1,933,489 37.0% 1,933,489 25.9%
Charles M. Brewer(6)...... 1,032,951 19.8 1,032,951 13.8
O. Gene Gabbard(5)........ 5,000 * 5,000 *
Campbell B. Lanier,
III(5).................. 7,400 * 7,400 *
Michael S. McQuary........ 63,920 1.2 63,920 *
Michael G. Misikoff....... 77,972 1.5 77,972 1.0
William H. Scott,
III(5).................. 5,500 * 5,500 *
All executive officers and
directors as a group (14
persons)(7)............. 1,220,950 23.3% 1,220,950 16.3%
</TABLE>

- ---------------
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of Common Stock if such person has
or shares voting power or investment power with respect to such security, or
has the right to acquire beneficial ownership at any time within 60 days
from June 30, 1996. As used herein, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the power to dispose
or direct the disposition of shares.
(2) Total Common Stock outstanding includes the conversion on September 19, 1996
of 100,000 shares of Class C Preferred into shares of Common Stock on a
one-for-one basis.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) The address of ITC Holding is 1239 O.G. Skinner Drive, West Point, Georgia
31833. Beneficial ownership presented for ITC Holding includes the
conversion on September 19, 1996 of the 100,000 shares of Class C Preferred
owned by ITC Holding into shares of Common Stock on a one-for-one basis. On
January 29, 1996, ITC Holding pledged all of its stock in the Company to
certain lenders in connection with a credit facility.
(5) Mr. Lanier is Chairman of the Board, Chief Executive Officer and a
beneficial owner of approximately 28% of the common stock of ITC Holding.
Mr. Lanier's beneficial ownership of MindSpring includes 1,200 shares of
Common Stock held in trust for his son and 1,200 shares of Common Stock held
by his wife. Mr. Scott is the President and a director of ITC Holding and is
a beneficial owner of less than 3% of its common stock. Mr. Scott's
beneficial ownership of MindSpring includes 500 shares of Common Stock held
by his wife. Mr. Gabbard is a director of ITC Holding and a beneficial owner
of less than 1% of its common stock. Each of Messrs. Lanier, Scott and
Gabbard disclaims beneficial ownership of the shares of the Company's Common
Stock held by ITC Holding.
(6) The address for Charles M. Brewer is MindSpring Enterprises, Inc., 1430 West
Peachtree, Suite 400, Atlanta, Georgia 30309.
(7) Includes 12,912 shares of Common Stock that such persons have the right to
purchase within 60 days from June 30, 1996 pursuant to options.

56
<PAGE> 57

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Restated
Certificate and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Pursuant to the Restated Certificate, the Company has authority to issue
15,000,000 shares of Common Stock, par value $0.01 per share, and 5,000,000
shares of Class C Preferred, par value $0.01 per share, each having the terms
described below. In addition, under the Restated Certificate, the Board of
Directors of the Company has authority (without action by the stockholders) to
issue 1,000,000 shares of preferred stock, par value $0.01 per share, in one or
more classes or series and, within certain limitations, to determine the voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and in liquidation, and conversion and other rights
of each such series. The Company has no current plans to issue any additional
shares of preferred stock.

The rights of the holders of Common Stock discussed below are subject to
such rights as the Board of Directors may hereafter confer on the holders of
preferred stock; accordingly, rights conferred on holders of preferred stock
that may be issued in the future under the Restated Certificate may adversely
affect the rights of holders of Common Stock.

COMMON STOCK

Voting Rights. Each holder of shares of Common Stock shall be entitled to
attend all special and annual meetings of the stockholders of the Company and,
share-for-share and without regard to class, together with the holders of all
other classes of stock entitled to attend such meetings and to vote (except any
class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.

Liquidation Rights. In the event of any dissolution, liquidation, or
winding up of the Company, whether voluntary or involuntary, the holders of the
Common Stock and holders of any class or series of stock entitled to participate
therewith, as to the distribution of assets in such event, shall become entitled
to participate in the distribution of any assets of the Company remaining after
the Company shall have paid, or provided for payment of, all debts and
liabilities of the Company and after the Company shall have paid, or set aside
for payment, to the holders of any class of stock having preference over the
Common Stock in the event of dissolution, liquidation or winding up the full
preferential amounts (if any) to which they are entitled.

Dividends. Dividends may be paid on the Common Stock and on any class or
series of stock entitled to participate therewith as to dividends but only when
and as declared by the Board of Directors.

CLASS C PREFERRED STOCK

In consideration of ITC Holding's agreement not to exercise its rights and
remedies upon the Company's default under the First Loan, on December 27, 1995
the Company, among other things, issued to ITC Holding an immediately
exercisable warrant to purchase 100,000 shares of Class C Preferred at a price
of $0.01 per share. By December 31, 1995, ITC Holding had exercised such warrant
in full. By their terms, the shares of Class C Preferred automatically converted
into fully paid and nonassessable shares of Common Stock of the Company at the
rate of one share of Common Stock for each share of Class C Preferred (as
adjusted for any stock split or reclassification) on September 19, 1996.

OTHER AUTHORIZED PREFERRED STOCK

The Restated Certificate authorizes the Board of Directors, from time to
time and without further stockholder action, to provide for the issuance of up
to 1,000,000 shares of preferred stock, par value $.01 per share, in one or more
series, and to fix the relative rights and preferences of the shares, including
voting

57
<PAGE> 58

powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges. As of the date hereof, the Board of Directors has not
provided for the issuance of any series of such preferred stock, and there are
no agreements or understandings for the issuance of any such preferred stock.
Because of its broad discretion with respect to the creation and issuance of
preferred stock without stockholder approval, the Board of Directors could
adversely affect the voting power of the holders of Common Stock and, by issuing
shares of preferred stock with certain voting, conversion and/or redemption
rights, could discourage any attempt to obtain control of the Company.

CERTAIN CHARTER AND STATUTORY PROVISIONS

The Restated Certificate provides for the division of the Board of
Directors into three classes of directors, serving staggered three year terms.
The Restated Certificate further provides that the approval of the holders of at
least two-thirds of the shares entitled to vote thereon and the approval of a
majority of the entire Board of Directors are necessary for the alteration,
amendment or repeal of certain sections of the Restated Certificate relating to
the election and classification of the Board of Directors, indemnification and
the vote requirements for such amendments to the Restated Certificate. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.

The Company is subject to the provisions of Section 203 of the Delaware
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, the board approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares
outstanding, shares owned by certain directors or certain employee stock plans),
or (iii) on or after the date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and authorized by
the affirmative vote (and not by written consent) of at least two-thirds of the
outstanding voting stock excluding that stock owned by the interested
stockholder. A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who (other than the corporation and any
direct or indirect majority-owned subsidiary of the corporation), together with
affiliates and associates, owns (or, as an affiliate or associate, within three
years prior, did own) 15% or more of the corporation's outstanding voting stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

58
<PAGE> 59

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. An increase in the number of shares of Common
Stock that may become available for sale in the public market after the
expiration of the restrictions described below could adversely affect the market
price prevailing from time to time of the Common Stock in the public market and
could impair the Company's ability to raise additional capital through the sale
of its equity securities in the future.

The Company's directors, executive officers and certain significant
stockholders have agreed to enter into Lock-up Agreements with the Underwriters
providing that, subject to certain exceptions, they will not offer, sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock, any
securities convertible into or exercisable or exchangeable for Common Stock or
any options to acquire Common Stock for a period of 120 days from the completion
of the Offering, without the prior written consent of J.C. Bradford & Co. See
"Principal Stockholders" and "Underwriting." As a result, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144 under the
Securities Act, shares subject to the Lock-up Agreements generally will not be
eligible for sale until the Lock-up Agreements expire or their terms are waived
by J.C. Bradford & Co. Assuming J.C. Bradford & Co. does not release the
stockholders from the Lock-up Agreements, the following shares of Common Stock
will be eligible for sale in the public market at the following times: upon
completion of the Offering, approximately 4,378,000 shares (of which 103,296
shares are eligible to be sold in accordance with Rule 144) will be immediately
available for sale in the public market; and 120 days after the completion of
the Offering, approximately 56,800 shares will be eligible for sale pursuant to
Rule 701 under the Securities Act and approximately 2,220,846 shares (all of
which are held by affiliates of the Company) will be eligible for sale pursuant
to Rule 144.

In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of "restricted securities"
from the Company or any "affiliate" of the Company, as those terms are defined
under the Securities Act, the holder is entitled to sell within any three-month
period a number of shares of Common Stock that does not exceed the greater of 1%
of the then-outstanding shares of Common Stock (approximately 86,258 shares
immediately after the Offering or approximately 91,508 shares if the
Underwriters' over-allotment option is exercised in full), or the average weekly
trading volume of shares of Common Stock on all exchanges and reported through
the automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain restrictions on the manner of sales, notice
requirements and the availability of current public information about the
Company. If three years have elapsed since the date of acquisition of restricted
shares from the Company or from any "affiliate" of the Company, and the holder
thereof is deemed not to have been an "affiliate" of the Company at any time
during the 90 days preceding a sale, such person would be entitled to sell such
Common Stock in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements described above. A proposal currently pending before the
Commission would reduce the two-and three-year holding periods described above
to one-and two-years, respectively.

As of June 30, 1996, the Company had granted pursuant to the Stock Option
Plan and the Directors Plan and there remains outstanding options to purchase
439,213 shares of Common Stock out of a maximum of 686,668 shares of Common
Stock reserved for those purposes. See "Management -- Option Plans."

59
<PAGE> 60

UNDERWRITING

Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., Wheat, First Securities, Inc. and The Robinson-Humphrey Company, Inc., as
representatives of the several underwriters (the "Representatives"), have
agreed, severally, to purchase from the Company the number of shares of Common
Stock set forth below opposite their respective names.

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
J.C. Bradford & Co........................................................ 525,000
Wheat, First Securities, Inc.............................................. 525,000
The Robinson-Humphrey Company, Inc........................................ 525,000
Advest, Inc............................................................... 33,750
Arnhold and S. Bleichroeder, Inc.......................................... 33,750
Cowen & Company........................................................... 33,750
Dain Bosworth Incorporated................................................ 33,750
Dominick & Dominick, Incorporated......................................... 33,750
EVEREN Securities, Inc.................................................... 33,750
Hanifen, Imhoff Inc....................................................... 33,750
J.J.B. Hilliard, W.L. Lyons, Inc.......................................... 33,750
Hoak Breedlove Wesneski & Co.............................................. 33,750
Interstate/Johnson Lane Corporation....................................... 33,750
Legg Mason Wood Walker, Incorporated...................................... 33,750
McDonald & Company Securities, Inc........................................ 33,750
Morgan Keegan & Company, Inc.............................................. 33,750
Needham & Company, Inc.................................................... 33,750
Piper Jaffray Inc......................................................... 33,750
Principal Financial Securities, Inc....................................... 33,750
Punk, Ziegel & Knoell..................................................... 33,750
Scott & Stringfellow, Inc................................................. 33,750
Sterne, Agee & Leach, Inc................................................. 33,750
Wessels, Arnold & Henderson............................................... 33,750
---------
Total................................................................ 2,250,000
========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.30 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain other dealers. After the public
offering, the public offering price and such concessions may be changed by the
Underwriter.

The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.

The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to an aggregate of
337,500 additional shares of Common Stock to cover over-allotments, if any. To
the extent the Underwriters exercise the option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
table above bears to the total number of shares in such table, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The

60
<PAGE> 61

Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will sell these additional shares on the same terms as those on
which the 2,250,000 shares are being offered.

The Company, its executive officers and directors and certain of its
significant stockholders, owning an aggregate of approximately 3,154,439 shares
of Common Stock, have agreed that they will not offer, sell or otherwise dispose
of any shares of Common Stock, any securities exercisable for or convertible
into the Common Stock or any options to acquire Common Stock owned by them prior
to the expiration of 120 days from the date of this Prospectus, without the
prior written consent of J.C. Bradford & Co., except with respect to the grant
and exercise of stock options granted or to be granted under the Company's stock
option plans. See "Shares Eligible for Future Sale."

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain civil liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.

In connection with this Offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act.
Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period"), determined in light of the timing of the distribution, from bidding
for or purchasing the Common Stock or a related security except to the extent
permitted under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A
allows, among other things, an Underwriter or member of the selling group (if
any) for the Common Stock to effect "passive market making" transactions on the
Nasdaq National Market in the Common Stock during the qualifying period at a
price that does not exceed the highest independent bid for that security at the
time of the transaction. Such a passive market maker must not display a bid for
the subject security at a price in excess of the highest independent bid, and
generally must lower its bid if all independent bids are lowered. Moreover, the
passive market maker's net purchases of such security on each day of the
qualifying period shall not exceed 30% of its average daily trading volume
during a reference period preceding the distribution.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Hogan & Hartson L.L.P., Washington,
D.C. counsel for the Company. Hogan & Hartson L.L.P. also provides legal
services to ITC Holding, its affiliated companies and Campbell B. Lanier, III,
Chairman and Chief Executive Officer of ITC Holding. In particular, Hogan &
Hartson L.L.P. (with the consent of the Company) has represented ITC Holding in
certain transactions with the Company, including the First Loan and the Second
Loan. Anthony S. Harrington, a partner of the firm, beneficially owns 34,800
shares of ITC Holding common stock and 5,000 shares of MindSpring Common Stock.
Certain legal matters are being passed upon for the Underwriters by Nelson
Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia.

EXPERTS

The financial statements and financial statement schedules of the Company
and PSINet Inc. Consumer Internet Services in the United States as of December
31, 1994 and 1995 and included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The financial statements for PSINet Pipeline New York, Inc. (formerly The
Pipeline Network Inc.) as of December 31, 1994 and for the year then ended
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.

61
<PAGE> 62

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, is required to file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of the reports, proxy statements and
other information can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, upon payment of prescribed rates or in
certain cases by accessing the Commission's World Wide Web site at
http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "MSPG", and such reports, proxy statements and
other information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information about the Company and the Common Stock, reference is made to
the Registration Statement and to the financial statements, exhibits and
schedules filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of each such
document may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the charges prescribed by the Commission or, in
the case of certain such documents, by accessing the Commission's World Wide Web
site at http://www.sec.gov.

62
<PAGE> 63

GLOSSARY OF TECHNICAL TERMS

BACKBONE................... A high-speed network that connects smaller,
independent networks.

BANDWIDTH.................. The number of bits of information that can move
over a communications
medium in a given amount of time.

ELECTRONIC MAIL OR
E-MAIL..................... An application that allows a user to send or
receive messages to or from any other user with an
Internet address, commonly termed an e-mail
address.

FTP........................ File Transfer Protocol. A protocol that allows file
transfer between a host and a remote computer.

GRAPHICAL USER INTERFACE... A means of communicating with a computer by
manipulating icons and windows rather than using
text commands.

INTERNET................... An open global network of interconnected
commercial, educational and governmental computer
networks that utilize a common communications
protocol, TCP/IP.

INTERNET BACKBONE.......... The Internet backbone consists of high-speed
networks that link the smaller, independent
networks of the Internet.

ISDN....................... Integrated Services Digital Network. A digital
network that combines voice and digital network
services through a single medium, making it
possible to offer subscribers digital data services
as well as voice connections.

MODEM...................... A piece of equipment that connects a computer to a
data transmission line (typically a telephone
line).

ON-LINE SERVICES........... Commercial information services that offer a
computer user access through a modem to specific
menus of information, entertainment and
communications data. These services are generally
closed systems and many offer limited, if any,
Internet access.

POP........................ Point of Presence. The Company defines a POP as a
local geographic point of presence where
subscribers can access the Company's services via a
local telephone call. To the Company's knowledge,
there is no industry-wide definition of an Internet
access POP, and other companies may define a POP
differently. For purposes of this Prospectus, the
Company has determined all POP numbers using the
Company's definition.

PPP........................ Point to Point Protocol. A communications protocol
that allows direct dial-up access to the Internet
over phone lines. Unlike SLIP, PPP can
automatically retransmit information packets if
they become corrupted.

PROTOCOL................... A formal description of message formats and the
rules two or more machines must follow in order to
exchange such messages.

ROUTER..................... A device that receives and transmits data packets
between segments in a network or different
networks.

SERVER..................... Software that allows a computer to offer a service
to another computer. Other computers contact the
server program by means of matching client
software. In addition, such term means the computer
on which server software runs.

G-1
<PAGE> 64

SLIP....................... Serial Line Interface Protocol. A communications
protocol that allows direct, dial-up access to the
Internet over phone lines.

T-1........................ A data communications line capable of transmission
speeds of 1.54 Mbps.

TCP/IP..................... Transmission Control Protocol/Internet Protocol. A
compilation of network-level and transport-level
protocols that allow computers with different
architectures and operating system software to
communicate with other computers on the Internet.

TERMINAL SERVER............ A specialized computer that supports multiple
communications connections.

WINDOWS.................... A computer operating system developed by Microsoft
Corp. that provides a graphical user interface and
multitasking capabilities.

WINSOCK.................... An industry standard programming interface
definition for Windows which specifies how
TCP/IP-based network applications should
communicate with TCP/IP protocol software. Winsock
has been adopted by most vendors of network
protocol software and network applications software
for Windows.

WORLD WIDE WEB............. A network of computer servers that uses a special
communications protocol to link different servers
throughout the Internet and permits communication
of graphics, video and sound.

G-2
<PAGE> 65

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MINDSPRING ENTERPRISES, INC.
Financial Statements as of December 31, 1994 and December 31, 1995
Report of Independent Public Accountants................................... F-2
Balance Sheets as of December 31, 1994 and 1995............................ F-3
Statements of Operations for the Period from Inception (February 24, 1994)
to December 31, 1994 and for the Year Ended December 31, 1995............ F-4
Statements of Stockholders' Equity for the Period from Inception (February
24, 1994) to December 31, 1994 and for the Year Ended December 31, 1995.. F-5
Statements of Cash Flows for the Period from Inception (February 24, 1994)
to December 31, 1994 and for the Year Ended December 31, 1995............ F-6
Notes to Financial Statements.............................................. F-7
Condensed Financial Statements as of June 30, 1996 (Unaudited)
Condensed Balance Sheets as of December 31, 1995 and June 30, 1996
(Unaudited).............................................................. F-18
Condensed Statements of Operations for the Three-Month Periods Ended June
30, 1995 and 1996 and the Six-Month Periods Ended June 30, 1995 and 1996
(Unaudited).............................................................. F-19
Condensed Statement of Cash Flows for the Six-Month Periods Ended June 30,
1995 and 1996 (Unaudited)................................................ F-20
Notes to Condensed Financial Statements.................................... F-21
PSINET INC. -- CONSUMER INTERNET ACCESS SERVICES IN THE UNITED STATES
Financial Statements as of December 31, 1994 and 1995, and June 30, 1996
(Unaudited)
Report of Independent Public Accountants................................... F-23
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.......... F-24
Statements of Operations for the Period from Inception (July 1, 1994) to
December 31, 1994, the year ended December 31, 1995, and the Six Months
Ended June 30, 1995 and 1996 (Unaudited)................................. F-25
Statements of Accumulated Deficit for the Period from Inception (July 1,
1994) to December 31, 1994, the Year Ended December 31, 1995, and the Six
Months Ended June 30, 1996 (Unaudited)..................................... F-26
Statement of Cash Flows for the Period from Inception (July 1, 1994) to
December 31, 1994, the Year Ended December 31, 1995, and the Six Months
Ended June 30, 1996 (Unaudited).......................................... F-27
Notes to Financial Statements.............................................. F-28
PSINET PIPELINE NEW YORK, INC.
Financial Statements as of December 31, 1994
Report of Independent Accountants.......................................... F-35
Balance Sheet as of December 31, 1994...................................... F-36
Statement of Operations for the Year Ended December 31, 1994............... F-37
Statement of Changes in Shareholders' Equity for the Year Ended December
31, 1994................................................................. F-38
Statement of Cash Flows for the Year Ended December 31, 1994............... F-39
Notes to Financial Statements.............................................. F-40
PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Financial Information....................................... F-44
Pro Forma Combined Balance Sheet as of June 30, 1996 (Unaudited)........... F-45
Pro Forma Combined Statements of Income for the Year Ended December 31,
1995 and the Six-Month Period Ended June 30, 1996 (Unaudited)............ F-47
</TABLE>

F-1
<PAGE> 66

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
MindSpring Enterprises, Inc.:

We have audited the accompanying balance sheets of MINDSPRING ENTERPRISES,
INC. (a Delaware corporation) as of December 31, 1994 and 1995 and the related
statements of operations, stockholders' equity, and cash flows for the period
from inception (February 24, 1994) to December 31, 1994 and for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MindSpring Enterprises, Inc.
as of December 31, 1994 and 1995 and the results of its operations and its cash
flows for the period from inception (February 24, 1994) to December 31, 1994 and
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 16, 1996 (except with
respect to Note 10 as to
which the date is
August 20, 1996)

F-2
<PAGE> 67

MINDSPRING ENTERPRISES, INC.

BALANCE SHEETS
DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31,
1994 1995 1995
-------- ----------- ------------
(NOTE 9)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $584,798 $ 424,834
Trade receivables, net of allowance for doubtful accounts of $15,000 and
$45,563 at December 31, 1994 and 1995, respectively........................ 14,610 519,280
Inventory.................................................................... 0 45,415
Prepaids and other current assets (Note 2)................................... 0 273,658
-------- -----------
Total current assets................................................... 599,408 1,263,187
-------- -----------
PROPERTY AND EQUIPMENT:
Computer and telecommunications equipment.................................... 102,492 3,594,528
Purchased software systems................................................... 0 103,078
Other........................................................................ 0 96,890
-------- -----------
102,492 3,794,496
Less accumulated depreciation and amortization............................... (1,138) (255,560)
-------- -----------
Property and equipment, net............................................ 101,354 3,538,936
-------- -----------
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization of $4,027 and
$14,288 at December 31, 1994 and 1995, respectively.......................... 15,974 34,071
-------- -----------
OTHER ASSETS................................................................... 4,830 8,606
-------- -----------
$721,566 $ 4,844,800
======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan from preferred stockholder (Note 6)..................................... $ 0 $ 2,500,000
Trade accounts payable....................................................... 31,120 994,164
Accrued expenses............................................................. 17,731 532,406
Deferred revenue............................................................. 2,981 336,027
-------- -----------
Total current liabilities.............................................. 51,832 4,362,597
-------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized and 0 shares
issued and outstanding at December 31, 1994 and 1995....................... 0 0 $ 0
Class A convertible preferred stock, $0.64 par value; 1,187,895 shares
authorized, issued, and outstanding at December 31, 1994 and 1995,
respectively............................................................... 744,575 744,575 0
Class B convertible preferred stock, $1.55 par value; 645,596 shares
authorized and 0 and 645,594 shares issued and outstanding at December 31,
1994 and 1995, respectively................................................ 0 1,000,000 0
Class C convertible preferred stock, $0.01 par value; 5,000,000 shares
authorized and 0 and 100,000 shares issued and outstanding at December 31,
1994 and 1995, respectively................................................ 0 638,000 638,000
Common stock, $0.01 par value; 15,000,000 shares authorized and 1,136,247 and
1,267,304 issued and outstanding at December 31, 1994 and 1995,
respectively............................................................... 11,362 12,673 30,119
Additional paid-in-(deficit) capital......................................... (11,142) 120,547 1,847,676
Accumulated deficit.......................................................... (75,061) (2,033,592) (2,033,592)
-------- ----------- -----------
Total stockholders' equity............................................. 669,734 482,203 $ 482,203
-------- ----------- -----------
$721,566 $ 4,844,800
======== ===========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 68

MINDSPRING ENTERPRISES, INC.

STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1994) TO DECEMBER 31, 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
REVENUES:
Access.............................................................. $ 65,423 $ 1,506,695
Subscriber start-up fees............................................ 33,662 594,231
Other............................................................... 4,321 125,918
-------- -----------
Total revenues.............................................. 103,406 2,226,844
COSTS AND EXPENSES:
Selling, general, and administrative................................ 121,376 2,230,102
Cost of revenues -- recurring....................................... 37,329 626,404
Cost of subscriber start-up fees.................................... 14,517 339,369
Depreciation and amortization....................................... 5,245 264,683
-------- -----------
Total costs and expenses.................................... 178,467 3,460,558
-------- -----------
OPERATING LOSS........................................................ (75,061) (1,233,714)
INTEREST EXPENSE, NET................................................. 0 (724,817)
-------- -----------
NET LOSS.............................................................. $(75,061) $(1,958,531)
======== ===========
PRO FORMA NET LOSS PER SHARE (NOTE 2):
Weighted average shares outstanding -- 3,175,376 at December 31,
1995............................................................. $ (0.62)
===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 69

MINDSPRING ENTERPRISES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1994) TO DECEMBER 31, 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN- PREFERRED STOCK TOTAL
------------------- (DEFICIT) ---------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY
--------- ------- ---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, February 24, 1994
(inception)............... 0 $ 0 $ 0 0 $ 0 $ 0 $ 0
Initial issuance of common
stock (Note 3)......... 1,032,951 10,330 (10,130) 0 0 0 200
Issuance of additional
common stock (Note
3)..................... 103,296 1,032 (1,012) 0 0 0 20
Issuance of Class A
convertible preferred
stock, net of related
offering expenses...... 0 0 0 1,187,895 744,575 0 744,575
Net loss.................. 0 0 0 0 0 (75,061) (75,061)
--------- ------- ---------- --------- ---------- ----------- ------------
BALANCE, December 31,
1994...................... 1,136,247 $11,362 $ (11,142) 1,187,895 $ 744,575 $ (75,061) $ 669,734
Issuance of additional
common stock........... 131,057 1,311 131,689 0 0 0 133,000
Issuance of Class B
convertible preferred
stock.................. 0 0 0 645,594 1,000,000 0 1,000,000
Issuance of Class C
convertible preferred
stock warrant.......... 0 0 0 100,000 638,000 0 638,000
Net loss.................. 0 0 0 0 0 (1,958,531) (1,958,531)
--------- ------- ---------- --------- ---------- ----------- ------------
BALANCE, December 31,
1995...................... 1,267,304 $12,673 $ 120,547 1,933,489 $2,382,575 $(2,033,592) $ 482,203
========= ======= ========= ========= ========== =========== ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 70

MINDSPRING ENTERPRISES, INC.

STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1994) TO DECEMBER 31, 1994
AND FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss......................................................... $ (75,061) $(1,958,531)
--------- -----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 5,245 264,683
Provision for doubtful accounts............................... 15,000 40,624
Noncash charge for warrant issuance (Note 6).................. 0 637,000
Changes in operating assets and liabilities:
Trade receivables........................................... (29,610) (545,294)
Inventory................................................... 0 (45,415)
Prepaids and other current assets........................... 0 (273,658)
Trade accounts payable...................................... 31,120 963,044
Accrued expenses............................................ 17,731 514,675
Deferred revenue............................................ 2,981 333,046
--------- -----------
Total adjustments........................................ 42,467 1,888,705
--------- -----------
Net cash used in operating activities.................... (32,594) (69,826)
--------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (102,492) (3,692,004)
Product development costs........................................ (20,001) (28,358)
Other............................................................ (4,910) (3,776)
--------- -----------
Net cash used in investing activities.................... (127,403) (3,724,138)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of loan from preferred stockholder...................... 0 2,500,000
Issuance of common stock......................................... 220 133,000
Issuance of preferred stock...................................... 744,575 1,001,000
--------- -----------
Net cash provided by financing activities................ 744,795 3,634,000
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 584,798 (159,964)
CASH AND CASH EQUIVALENTS, beginning of period..................... 0 584,798
--------- -----------
CASH AND CASH EQUIVALENTS, end of period........................... $ 584,798 $ 424,834
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest........................................... $ 0 $ 0
========= ===========
Cash paid for taxes.............................................. $ 0 $ 0
========= ===========
Noncash charge for warrant issuance (Note 6)..................... $ 0 $ 637,000
========= ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 71

MINDSPRING ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995

1. ORGANIZATION AND NATURE OF BUSINESS

MindSpring Enterprises, Inc. (the "Company") was incorporated in Georgia in
February 1994. The Company is a provider of Internet access, serving primarily
individual subscribers. The Company offers subscribers Internet access comprised
of software and documentation, integrated with local dial-up and dedicated line
access and seven-day customer support.

The Company has experienced operating losses since its inception as a
result of efforts to build its network infrastructure and internal staffing,
develop its systems, and expand into new markets. The Company expects to
continue to focus on increasing its subscriber base and geographic coverage.
Accordingly, the Company expects its cost of revenues, selling, general, and
administrative expenses and capital expenditures will continue to increase
significantly, all of which will have a negative impact on short-term operating
results. In addition, the Company may change its pricing policies to respond to
a changing competitive environment. There can be no assurance that growth in the
Company's revenue or subscriber base will continue or that the Company will be
able to achieve or sustain profitability or positive cash flow.

Effective December 27, 1995, the Company reincorporated from Georgia to
Delaware.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRESENTATION

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company recognizes revenues when services are provided. Services are
generally billed one month in advance. Advance billings and collections relating
to future access services are recorded as deferred revenue and recognized as
revenue when earned.

The Company recognizes revenue on sales of starter kits to retail stores
when the product is shipped, net of a reserve for anticipated returns.

CREDIT RISK

The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services, the use of
preapproved charges to customer credit cards, and the ability to terminate
access on delinquent accounts. The concentration of credit risk is mitigated by
the large number of customers comprising the customer base. The carrying amount
of the Company's receivables approximates their fair value.

CASH AND CASH EQUIVALENTS

The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.

F-7
<PAGE> 72

PREPAIDS AND OTHER CURRENT ASSETS

This account consists of the following:

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred initial public offering fees (Note 9)................. $ 0 $199,830
Prepaid maintenance contract................................... 0 58,045
Other.......................................................... 0 15,783
-------- --------
$ 0 $273,658
======== ========
</TABLE>

INVENTORY

Inventory consists of starter kits and purchased equipment for resale and
is stated at the lower of cost or market using a specific identification method.
Starter kits consist of diskettes, manuals, and other printed material.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are provided for using the straight-line method over the estimated useful lives
of the assets, commencing when assets are installed or placed in service. The
estimated useful life for all assets is five years or, for leasehold
improvements, the life of the lease, if shorter.

PRODUCT DEVELOPMENT COSTS

The Company capitalizes costs incurred for the production of computer
software used in the sale of its services, including direct labor and related
overhead. All costs in the software development process that are classified as
research and development are expensed as incurred until technological
feasibility has been established. Once technological feasibility has been
established, such costs are capitalized until the software is commercially
available. Amortization is provided using the greater of the straight-line
method over three years or the ratio that current gross revenues bear to the
total of current and anticipated future gross revenues, commencing in the month
of product release. It is reasonably possible that the estimates of anticipated
future revenues, the remaining estimated economic life of the product, or both
will be reduced significantly in the near term due to competitive pressures.

LONG-LIVED ASSETS

The Company periodically reviews the values assigned to long-lived assets,
such as property and equipment and product development costs to determine if any
impairments are other than temporary. Management believes that the long-lived
assets in the accompanying balance sheets are appropriately valued.

STOCK-BASED COMPENSATION PLANS

The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Effective in 1995, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that companies which
do not choose to account for stock-based compensation as prescribed by this
statement, shall disclose the pro forma effects on earnings and earnings per
share as if SFAS 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS 123.

BARTER TRANSACTIONS

The Company engages in certain exchanges of services for advertising and
promotional services. The Company records these transactions at the market value
of the services provided.

F-8
<PAGE> 73

ADVERTISING COSTS

The Company expenses all advertising costs as incurred.

INCOME TAXES

Deferred income taxes are recorded using enacted tax laws and rates for the
years in which the taxes are expected to be paid. Deferred income taxes are
provided for items when there is a temporary difference in recording such items
for financial reporting and income tax reporting.

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per share is computed using the weighted average number
of shares of common stock and dilutive common stock equivalent shares ("CSEs")
from convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common stock and CSEs issued at
prices below the expected public offering price during the 12-month period prior
to the Company's expected initial public offering (Note 9) have been included in
the calculation as if they were outstanding for all periods prior to the
offering presented, regardless of whether they are dilutive. Accordingly, all
stock options granted and the Class C convertible preferred stock are included
in the earnings per share calculations for all periods presented, even though
the effect on net loss is antidilutive. The Class A and Class B convertible
preferred stock have been included for the respective weighted periods for which
such shares were outstanding, even though their effect is antidilutive.

SOURCES OF SUPPLIES

The Company relies on local telephone companies and other companies to
provide data communications capacity. Although management feels alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.

Although the Company attempts to maintain multiple vendors for each
required product, its modems, terminal servers, and high-performance routers,
which are important components of its network, are each currently acquired from
only one source. In addition, some of the Company's suppliers have limited
resources and production capacity. If the suppliers are unable to meet the
Company's needs as it builds out its network infrastructure, then delays and
increased costs in the expansion of the Company's network infrastructure could
result, which would affect operating results adversely.

3. STOCKHOLDERS' EQUITY

RECAPITALIZATION

Effective December 27, 1995, the Company recapitalized on the basis of
1.936199 shares of the capital stock of the Georgia corporation for one share of
the Delaware corporation. All amounts in the accompanying financial statements
have been restated to reflect the effect of this recapitalization. As a result
of this recapitalization, the issuances of common stock of the Georgia
corporation in 1994, which were issued at the then par value of $0.0001 per
share for total proceeds of $220, have been restated in the accompanying
financial statements as if issued below the $0.01 par value of the Delaware
corporation common stock.

COMMON STOCK

The Company has authorized 15,000,000 shares of $0.01 par value common
stock. On February 24, 1994, the Company issued 1,032,951 shares of common stock
to the founder of the Company for total proceeds of $200, which represented the
estimated fair value of the stock at the time of issuance. On March 3, 1994, the
Company issued 103,296 shares of its common stock to a third party for total
proceeds of $20. In management's opinion, the estimated fair value of the stock
at the time of the March 1994 issuance was equal to the value per share of the
February 1994 stock issuance.

F-9
<PAGE> 74

During 1995, the Company issued shares of $0.01 par value common stock to
three officers of the Company at amounts equal to the estimated fair value of
the common stock on the date of sale. The following table summarizes these
transactions:

<TABLE>
<CAPTION>
NUMBER PRICE TOTAL
OF PER CONSIDERATION
SHARES SHARE PAID
------- ----- -------------
<S> <C> <C> <C>
January 18............................................... 77,472 $0.64 $ 50,000
July 27.................................................. 48,420 1.55 75,000
August 29................................................ 5,165 1.55 8,000
------- ----------
Total.......................................... 131,057 $ 133,000
======= ==========
</TABLE>

PREFERRED STOCK

On November 15, 1994, the Company issued 1,187,895 shares of its $0.64 par
value Class A convertible preferred stock to ITC Holding Company, Inc. (the
"Preferred Stockholder") in exchange for total consideration of $765,000.
Expenses of $20,425 incurred in connection with the issuance have been deducted
from the total proceeds in the accompanying financial statements. The Preferred
Stockholder is entitled to the same voting rights and powers of the common
stockholders. Accordingly, the Preferred Stockholder held a 51% voting interest
in the Company. Each share of Class A convertible preferred stock is
automatically convertible into one share of common stock at the earlier of
either a public offering of common stock by the Company or on November 15, 1999.
In the event of liquidation of the Company, whether voluntary or involuntary,
the holders of Class A convertible preferred stock are entitled to receive
preferential distributions of $0.64 per share before any distributions to common
stockholders.

In April 1995, the board of directors approved an agreement to issue
645,594 shares of $1.55 par value Class B convertible preferred stock to the
Preferred Stockholder at $1.55 per share in exchange for total consideration of
$1,000,000, which represented the estimated fair value of the Class B
convertible preferred stock as of such date. In June 1995, the Company issued
the Class B convertible preferred stock. This increased the stockholder's
ownership percentage, net of other transactions in 1995, to 59.1%. Each share of
Class B convertible preferred stock is automatically convertible into one share
of common stock at the earlier of either a public offering of common stock by
the Company or on June 30, 2000. In the event of liquidation of the Company,
whether voluntary or involuntary, the holders of convertible preferred stock are
entitled to receive preferential distributions of $1.55 per share after any
distribution to the Class A preferred stockholders but before any distributions
to common stockholders.

On December 22, 1995, the board of directors authorized the issuance of
5,000,000 shares of Class C convertible preferred stock. See Note 6 for issuance
of 100,000 shares of Class C convertible preferred stock to the Preferred
Stockholder, increasing its ownership percentage to approximately 60%. Each
share of Class C convertible preferred stock is automatically convertible into
one share of common stock at the earliest of:

- If the Security and Exchange Commission issues in calendar year 1996 an
order of effectiveness (or evidence thereof satisfactory to the Company)
(an "Effectiveness Order") as to any registration statement for the sale
of any shares of common stock of the Company under the Securities Act of
1933 (or any successor law, other than an order relating to an offering
made primarily or exclusively to employees), the 190th day after issuance;

- The date of issuance after December 31, 1996 of an Effectiveness Order;
or

- December 10, 2000.

In the event of liquidation of the Company, whether voluntary or
involuntary, the holders of Class C convertible preferred stock are entitled to
receive preferential distributions of $6.38 per share after any distribution to
the Class A and B preferred stockholders but before any distributions to common
stockholders.

F-10
<PAGE> 75

STOCKHOLDERS' AGREEMENT

The Company entered into a stockholders' agreement ("Stockholders'
Agreement") with all of the stockholders of the Company. Pursuant to the
Stockholders' Agreement, for so long as the Preferred Stockholder owns any share
of any class or series of capital stock of the Company or any right or option to
acquire any capital stock of the Company ("Equity Securities") with a combined
voting power equal to at least 50.1% of the aggregate voting power of all
outstanding Equity Securities, all of the stockholders have entered into voting
agreements relating to the Company's board of directors. These voting agreements
regard such matters as quorum and voting requirements for the board of
directors, the election to the board of directors of directors designated by the
Preferred Stockholder as shall constitute at least a majority of the directors
serving on the board of directors and the removal and replacement of directors.
None of the parties to the Stockholders' Agreement may transfer any Equity
Securities held by such party to third parties (subject to limited exceptions)
without the consent of the Company and each of the parties to the Stockholders'
Agreement and without having offered rights of first refusal to purchase such
securities to the Company and the other parties to the Stockholders' Agreement.
The Stockholders' Agreement will irrevocably terminate upon the consummation of
an initial public offering.

4. STOCK-BASED COMPENSATION PLANS

EMPLOYEE STOCK OPTION PLAN

Under the Company's 1995 Stock Option Plan (the "Stock Option Plan"), as
adopted on February 21, 1995, amended by the board of directors on April 5, 1995
and December 19, 1995, and approved by the stockholders on December 27, 1995,
616,668 shares of common stock are reserved and authorized for issuance upon the
exercise of options. All employees of the Company are eligible to receive
options under the Stock Option Plan. The Stock Option Plan is administered by
the Compensation Committee of the board of directors. Options granted under the
Stock Option Plan are intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended. Options generally
become exercisable as to 50% two years after the date of grant, or in certain
cases, the commencement date of the holder's employment; as to an additional 25%
three years after the date of grant, or in certain cases, the commencement date
of the holder's employment; and as to the remaining 25% four years after the
date of grant, or in certain cases, the commencement date of the holder's
employment. All options were granted at an exercise price equal to the estimated
fair value of the common stock at the dates of grant as determined by the board
of directors based on equity transactions and other analyses. The options expire
ten years from the date of grant.

DIRECTORS' STOCK OPTION PLAN

Under the Company's Directors' Stock Option Plan (the "Directors' Plan"),
adopted in December 1995, 70,000 shares of Common Stock are authorized for
issuance (in the form of 10,000 options per director) to nonemployee directors
upon their initial election or appointment to the board or the date of adoption
of the plan in the case of directors on the board of directors at such adoption
date. The Directors' Plan does not provide for discretionary option grants.
Options generally become exercisable as to 50% two years after the date of
grant, as to an additional 25% three years after the date of grant, and as to
the remaining 25% four years after the grant date. All options were granted at
an exercise price equal to the estimated fair value of the common stock at the
dates of grant as determined by the board of directors based upon equity
transactions and other analyses. The options expire ten years from the date of
grant.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in this Statement had been applied.

F-11
<PAGE> 76

The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during 1995 using the Black-Scholes
option-pricing model as prescribed by SFAS 123 using the following weighted
average assumptions used for grants in 1995:

<TABLE>
<S> <C>
Risk-free interest rate.......................................... 7%
Expected dividend yield.......................................... 0%
Expected lives................................................... 3 years
Expected volatility.............................................. 84.5%
</TABLE>

The total value of options granted during 1995 was computed as
approximately $409,000, which would be amortized on a pro forma basis over the
four-year vesting period of the options. If the Company had accounted for these
plans in accordance with SFAS 123, the Company's net loss and pro forma net loss
per share for the year ended December 31, 1995 would have increased by the
following pro forma amounts:

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss.................................................. $(1,958,531) $(2,010,357)
Pro forma net loss per share.............................. $ (0.85) $ (0.90)
</TABLE>

A summary of the status of the Company's two stock options plans at
December 31, 1995 and changes during the year then ended are presented in the
following table:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
------- ---------
<S> <C> <C>
Grants............................................................. 375,237 $1.82
Forfeitures........................................................ (17,558) 1.00
-------
Outstanding.............................................. 357,679 1.86
=======
Weighted average fair value of options granted..................... $ 1.12
=======
</TABLE>

The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE NUMBER WEIGHTED AVERAGE
PRICE OF AVERAGE CONTRACTUAL
RANGE SHARES PRICE LIFE
--------- ------- -------- -----------
<C> <C> <C> <S>
$0.64 182,310 $ 0.64 9.1 years
1.55 81,598 1.55 9.5
2.85-6.38 93,771 4.50 9.9
</TABLE>

No options were exercisable at December 31, 1995.

5. RELATED-PARTY TRANSACTIONS

During the period from inception to December 31, 1994, the Company received
cash advances totaling approximately $83,000 from the founder of the Company to
fund operating expenses. These advances were repaid prior to December 31, 1994.
No interest was paid in connection with these advances.

During 1995, the Company loaned excess cash totaling approximately $300,000
to the Preferred Stockholder. This transaction was approved by the board of
directors. The loan was paid back during 1995 at an interest rate of 6.25%.

The Company currently leases telephone lines from and has contracts for
maintenance and installations with a wholly owned subsidiary of the Preferred
Stockholder. The total charges for these services were approximately $41,000 for
the year ended December 31, 1995 and are reflected in cost of revenues --
recurring in the accompanying statements of operations.

F-12
<PAGE> 77

As of January 1, 1995, the Company entered into an agreement with an
affiliate of the Preferred Stockholder providing for the rental of floor space
for the placement of the Company's equipment for its network hub and for the
affiliate's personnel to service and maintain such equipment for a payment of
$3,000 per month. The affiliate may increase this monthly payment if the amount
of technical support services exceeds ten hours per month. The lease runs from
January 1, 1995 through December 31, 1996, but either party may terminate the
lease earlier, without cause, upon 180 days' prior written notice. Unless either
party gives notice to terminate, the lease will renew automatically for
successive six-month terms.

The three external members of the Company's board of directors are also
directors of the Preferred Stockholder, and two of these board members are
executive officers of the Preferred Stockholder.

On January 29, 1995, the Preferred Stockholder pledged all of its stock in
the Company to certain lenders in connection with a credit facility.

See Note 6 for a discussion of the loan facilities with the Preferred
Stockholder.

6. DEBT

In August 1995, the Preferred Stockholder agreed to extend the First Loan
to the Company, of up to $2,000,000 in aggregate principal amount at an annual
interest rate of 11% (the "First Loan") to be used for capital expenditures and
working capital purposes. All amounts outstanding under the First Loan were due
and payable in full on or before December 15, 1995. At December 15, 1995, the
outstanding aggregate principal amount of all advances under the First Loan was
$2,000,000.

At December 15, 1995, the Company had not repaid any amounts outstanding
under the First Loan. In consideration of the Preferred Stockholder's agreement
not to exercise its rights and remedies upon such default under the First Loan,
on December 27, 1995, the Company agreed to pay the Preferred Stockholder a
processing fee of $50,000 and issued to the Preferred Stockholder an immediately
exercisable warrant to purchase 100,000 shares of Class C convertible preferred
stock at a price of $0.01 per share. Accordingly, the Company recorded a charge
of approximately $637,000 in December 1995, representing the fair market value
of the warrant issued, as determined by the Black-Scholes option-pricing model.
By December 31, 1995, the Preferred Stockholder had exercised such warrant in
full. All principal amounts due and owing under the First Loan were paid in full
by December 31, 1995 with proceeds from the Second Loan (as defined below).
Accrued interest on the First Loan of approximately $39,100 and the $50,000
processing fee were paid in full in January 1996.

In December 1995, the Company executed a promissory note in favor of and
entered into the Second Loan Agreement and a security agreement with the
Preferred Stockholder, relating to the Second Loan, pursuant to which agreement
the Company may borrow from time to time up to $4,000,000 (in aggregate
outstanding principal amount) (the "Second Loan"). The unpaid principal amount
of the Second Loan is due and payable in a single payment on July 15, 1996,
together with interest on the unpaid principal amount from the date of each
advance, until paid in full, at an annual rate of 14%. The Second Loan is
secured by substantially all of the assets of the Company. As of February 15,
1996, the outstanding aggregate principal amount of all advances under the
Second Loan was $3,250,000 and accrued but unpaid interest was approximately
$54,700.

According to its terms, advances made pursuant to the Second Loan are to be
used to pay off the entire principal amount (and all accrued and unpaid
interest, as well as any other amounts due thereon) of the First Loan, pay all
costs incurred by all parties in connection with the making and documenting of
the Second Loan, and provide funds for working capital and capital expenditures
for the Company. So long as the Second Loan is outstanding, the Company may not,
without the written consent of the Preferred Stockholder, declare or pay any
dividend of any kind (other than stock dividends payable to all holders of any
class of capital stock), in cash or in property, on any class of the capital
stock of the Company, or purchase, redeem, retire or otherwise acquire for value
any shares of such stock, nor make any distribution of any kind in cash or
property in respect thereof, nor make any return of capital to stockholders, nor
make any payments in cash or property in respect of any stock options, stock
bonus or similar plan, nor grant any preemptive rights with respect to the
capital stock of the Company. In addition, the Company may not incur any other
indebtedness, except indebtedness incurred in the ordinary course of business
which individually does not exceed $25,000.

F-13
<PAGE> 78

In addition to other remedies that the Preferred Stockholder is entitled to
upon an event of default, the Preferred Stockholder has the right (the
"Conversion Privilege"), upon an event of default, to convert $2,000,000
(whether principal, interest, premium, penalty, or otherwise) of the outstanding
balance of the Second Loan into that number of fully paid and nonassessable
shares of the Class C convertible preferred stock that would give the Preferred
Stockholder, as of the date of such conversion, an aggregate equity interest in
the Company equal to 80% of all capital stock of the Company outstanding as of
such date on a fully diluted basis, except for any shares of such capital stock
sold in a registered public offering prior to such date. In the event that the
Preferred Stockholder exercises such Conversion Privilege, upon the issuance of
such Class C convertible preferred stock, the unpaid balance of the Second Loan
automatically shall be reduced by the amount of the balance of the Second Loan
that is converted into Class C convertible preferred stock, deemed to be the
restated principal of the Second Loan, and converted into a two-year term loan
(the "Term Loan"), with an annual rate of 14%. The principal amount of the Term
Loan shall be due and payable in a single payment on the second anniversary
after the date of conversion into the Term Loan.

7. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

Lease expense relates to the lease of office and equipment space. Rental
expense was approximately $65,000 and $1,250 for the year ended December 31,
1995 and the period from inception (February 24, 1994) to December 31, 1994,
respectively.

At December 31, 1995, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more than one
year were as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------------------------------------------
<S> <C>
1996.................................................... $103,948
1997.................................................... 113,784
1998.................................................... 118,786
1999.................................................... 30,009
--------
Total........................................... $366,527
========
</TABLE>

PURCHASE COMMITMENTS

The Company has entered into an agreement with a software licensing firm to
purchase a minimum of $150,000 of connection software by November 1996.

LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. There are no pending legal proceedings to which the
Company is a party.

F-14
<PAGE> 79

8. INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 29,500 $ 527,800
Deferred debt costs........................................... 0 242,100
Allowance for doubtful accounts............................... 5,700 17,300
Accrued vacation.............................................. 0 4,750
Other......................................................... 1,100 0
-------- ---------
Total deferred tax assets............................. 36,300 791,950
Deferred tax liabilities:
Depreciation.................................................. (6,800) (16,300)
Other......................................................... 0 (4,825)
-------- ---------
Total deferred tax liabilities........................ (6,800) (21,125)
Net deferred tax asset.......................................... 29,500 770,825
Valuation allowance for deferred tax assets..................... (29,500) (770,825)
-------- ---------
Net deferred taxes.............................................. $ 0 $ 0
======== =========
</TABLE>

The Company's net operating loss carryforwards will expire between 2009 and
2010, unless utilized. Due to the fact that the Company has incurred losses
since inception, the Company has not recognized the income tax benefit of the
net operating loss carryforwards. Management has provided a 100% valuation
reserve against its net deferred tax asset, consisting primarily of net
operating loss carryforwards. In addition, the Company's ability to recognize
the benefit from the net operating loss carryforwards could be limited under
Section 382 of the Internal Revenue Code if ownership of the Company changes by
more than 50%, as defined.

A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision for the year ended December 31, 1995 and for
the period from inception (February 24, 1994) to December 31, 1994, is as
follows:

<TABLE>
<CAPTION>
AMOUNT PERCENT
--------- -------
<S> <C> <C>
1995:
Income tax benefit at statutory rate.................................... $ 665,900 34%
State income taxes, net of federal benefit.............................. 78,340 4
Other................................................................... (2,915) 0
Deferred tax asset valuation allowance.................................. (741,325) (38)
--------- -----
$ 0 0%
========= =====
1994:
Income tax benefit at statutory rate.................................... $ 25,500 34%
State income taxes, net of federal benefit.............................. 3,000 4
Other................................................................... 1,000 1
Deferred tax asset valuation allowance.................................. (29,500) (39)
--------- -----
$ 0 0%
========= =====
</TABLE>

F-15
<PAGE> 80

9. SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING

In March 1996, the Company completed an initial public offering of its
Common Stock. The Company issued 1,950,000 shares at an initial public offering
price of $8.00 per share. The total proceeds of the offering, net of
underwriting discounts and offering expenses, were approximately $13,672,000. In
April 1996, the Company's underwriters exercised a portion of the over-allotment
option granted in connection with the Company's initial public offering,
electing to purchase 75,000 additional shares of Common Stock. The net proceeds
to the Company were approximately $478,000.

DEBT

The Company borrowed an additional $750,000 under the Second Loan
subsequent to year-end. The Company repaid the Second Loan in full with a
portion of the net proceeds of the Company's initial public offering.

PRO FORMA STOCKHOLDERS' EQUITY

The Pro Forma Stockholders' Equity at December 31, 1995 gives effect to the
conversion of 1,187,895 shares of Class A convertible preferred stock and
645,594 shares of Class B convertible preferred stock into common stock upon the
close of the Company's initial public offering. This conversion would result in
3,100,793 shares of common stock issued and outstanding at the effective date of
the initial public offering.

STOCK OPTIONS GRANTED SUBSEQUENT TO YEAR-END

Subsequent to year-end, the Company granted an additional 64,382 options at
$6.38 per share. These shares are reflected in the pro forma net loss per share
calculations for all periods as prescribed by Security and Exchange Commission
Staff Accounting Bulletins as discussed in Note 2.

Pursuant to SFAS 123 as discussed in Note 4, the total value of these
options was computed as approximately $240,000, which would be amortized on a
pro forma basis over the four-year vesting period of the options.

10. ACQUISITIONS AND POTENTIAL STOCK OFFERING

On June 28, 1996, the Company entered into a Purchase Agreement with PSINet
(as amended, the "Purchase Agreement") pursuant to which the Company agreed to
acquire up to 100,000 subscriber accounts and other assets from PSINet (the
"Acquisition"). The maximum aggregate purchase price for the Acquisition is
$21,129,000 (excluding accrued interest and increases in principal amounts under
promissory notes issued to PSINet), assuming the acquisition of 100,000
subscribers. The actual aggregate purchase price will depend on the number of
acquired subscriber accounts that remain MindSpring subscriber accounts for a
specified period. Management currently expects that approximately 66,000
subscriber accounts will actually be purchased. The Company acquired 15,000 of
these subscriber accounts for $1,000,000 in cash and a $2,000,000 one-year
promissory note on June 28, 1996. The Company acquired substantially all of the
remaining subscriber accounts and related assets, as of September 1, 1996, at
which time the Company issued an additional one-year promissory note in the
amount of $9,929,000. The Company will be required to apply a certain percentage
of the net proceeds from the Offering to pay amounts due to PSINet in connection
with the Acquisition, depending on the amount of the net proceeds from the
Offering.

F-16
<PAGE> 81

On August 6, 1996, the Company and The News and Observer Publishing Company
("N&O") entered into a definitive agreement, which was amended and restated on
September 11, 1996, pursuant to which the Company agreed to acquire certain
individual dial-up subscriber accounts in North Carolina (currently expected to
number between 4,000 and 6,000) in connection with N&O's Nando.net Internet
access business (the "Nando.net Transaction"). The Nando.net Transaction was
consummated on September 30, 1996, subject to the fulfillment of certain
customary closing conditions.

In the third quarter of 1996, the Company is planning an offering of its
common stock to finance the above acquisitions and meet general expansion and
working capital requirements (the "Offering"). The Company plans to issue
2,250,000 shares in the Offering. There can, however, be no assurance that the
Offering can be completed. There are significant potential risks associated with
this offering as well as the Company's ability to compete profitably in this
industry. See the "Risk Factors" section (pages 6 to 18) in the foregoing
prospectus related to the proposed offering for a discussion of these risks.

The Company estimates that its cash and financing needs through mid-1997
will be met by the net proceeds of the Offering. However, any increases in the
Company's growth rate, shortfalls in anticipated revenues, increases in
anticipated expenses, increases in the number of PSINet subscribers acquired, or
significant acquisition opportunities could have a material adverse effect on
the Company's liquidity and capital resources and would require the Company to
raise additional capital from public or private equity or debt sources in order
to finance operating losses, anticipated growth and contemplated capital
expenditures. If such sources of financing are insufficient or unavailable, the
Company will be required to modify its growth and operating plans in accordance
with the extent of available funding and attempt to attain profitability in its
existing markets (including those accessible pursuant to the Services
Agreement). The Company may need to raise additional funds in order to take
advantage of unanticipated opportunities, such as acquisitions of complementary
businesses or the development of new products, or otherwise respond to
unanticipated competitive pressures. There can be no assurance that the Company
will be able to raise any such capital on terms acceptable to the Company or at
all.

F-17
<PAGE> 82

MINDSPRING ENTERPRISES, INC.

CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 JUNE 30, 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 424,834 $ 5,693,611
Trade receivables, net................................................. 519,280 1,159,367
Prepaids and other current assets...................................... 273,658 347,129
Inventory.............................................................. 45,415 36,478
----------- -----------
Total current assets.............................................. 1,263,187 7,236,585
----------- -----------
PROPERTY AND EQUIPMENT:
Computer and telecommunications equipment.............................. 3,594,528 7,321,409
Purchased software systems............................................. 103,078 134,996
Other.................................................................. 96,890 260,523
----------- -----------
3,794,496 7,716,928
Less: accumulated depreciation......................................... (255,560) (843,055)
----------- -----------
Property and equipment, net....................................... 3,538,936 6,873,873
----------- -----------
PRODUCT DEVELOPMENT COSTS, NET............................................. 34,071 95,920
----------- -----------
OTHER ASSETS:
Acquired customer base................................................. 0 3,000,000
Other.................................................................. 8,606 8,481
----------- -----------
Total other assets................................................ 8,606 3,008,481
----------- -----------
$ 4,844,800 $17,214,859
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan from preferred stockholder........................................ $ 2,500,000 $ 0
Notes Payable.......................................................... 0 2,000,000
Trade accounts payable................................................. 994,164 1,680,910
Accrued expenses....................................................... 532,406 708,938
Deferred revenue....................................................... 336,027 692,332
----------- -----------
Total current liabilities......................................... 4,362,597 5,082,180
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized and 0
shares issued and outstanding at December 31, 1995 and June 30, 1996,
respectively.......................................................... 0 0
Class A convertible preferred stock, $0.64 par value; 1,187,895 shares
authorized, and 1,187,895 and 0 issued and outstanding at December 31,
1995 and June 30, 1996, respectively.................................. 744,575 0
Class B convertible preferred stock, $1.55 par value; 645,596 shares
authorized and 645,594 and 0 shares issued and outstanding at December
31, 1995 and June 30, 1996, respectively.............................. 1,000,000 0
Class C convertible preferred stock, $0.01 par value; 5,000,000 shares
authorized and 100,000 issued and outstanding at December 31, 1995 and
June 30, 1996, respectively........................................... 638,000 638,000
Common stock, $0.01 par value; 15,000,000 shares authorized and
1,267,304 and 5,125,793 issued and outstanding at December 31, 1995
and June 30, 1996, respectively....................................... 12,673 51,258
Additional paid-in capital............................................. 120,547 15,976,226
Accumulated deficit.................................................... (2,033,592) (4,532,805)
----------- -----------
Total stockholders' equity........................................ 482,203 12,132,679
----------- -----------
$ 4,844,800 $17,214,859
=========== ===========
</TABLE>

The accompanying condensed notes to financial statements
are an integral part of these statements.

F-18
<PAGE> 83

MINDSPRING ENTERPRISES, INC.

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1995 1996 1995 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Access................................. $ 235,633 $ 1,506,315 $ 347,363 $ 2,671,634
Subscriber start-up fees............... 91,242 478,672 146,642 845,768
Business services...................... 24,905 396,850 31,530 671,155
Other.................................. (12,359) 112,972 (14,228) 117,966
---------- ----------- ---------- -----------
Total revenues.................... 339,421 2,494,809 511,307 4,306,523
COSTS AND EXPENSES:
Cost of revenues -- recurring.......... 98,084 754,569 160,479 1,296,203
Cost of subscriber start-up fees....... 41,192 351,783 62,833 616,120
Selling................................ 56,512 991,487 84,972 1,570,411
General and administrative............. 280,249 1,611,503 419,197 2,770,542
Depreciation and amortization.......... 33,625 362,435 48,125 596,343
---------- ----------- ---------- -----------
Total operating expenses.......... 509,662 4,071,777 775,606 6,849,619
---------- ----------- ---------- -----------
OPERATING LOSS.............................. $ (170,241) $(1,576,968) $ (264,299) $(2,543,096)
INTEREST (EXPENSE) INCOME, NET.............. 1,166 117,015 2,364 43,883
---------- ----------- ---------- -----------
NET LOSS.................................... $ (169,075) $(1,459,953) $ (261,935) $(2,499,213)
========== =========== ========== ===========
NET LOSS PER SHARE.......................... $ (0.06) $ (0.29) $ (0.09) $ (0.58)
========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................... 2,871,229 5,111,782 2,857,119 4,309,859
========== =========== ========== ===========
</TABLE>

The accompanying condensed notes to financial statements
are an integral part of these statements.

F-19
<PAGE> 84

MINDSPRING ENTERPRISES, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss.......................................................... $ (261,935) $(2,499,213)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization.................................. 48,125 596,343
Changes in operating assets and liabilities:
Trade receivables............................................ (166,285) (640,087)
Other current assets......................................... (1,650) (57,242)
Trade accounts payable....................................... 151,439 686,746
Accrued expenses............................................. 45,919 176,532
Deferred revenue............................................. 109,575 356,305
---------- -----------
Net cash used in operating activities..................... (74,812) (1,380,616)
---------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment............................... (710,514) (3,922,432)
Purchase of customer base......................................... -- (3,000,000)
Product development costs......................................... (74,964) (77,989)
Other............................................................. (1,012) 125
---------- -----------
Net cash used in investing activities..................... (786,490) (7,000,296)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of loan from preferred stockholder....................... -- 1,000,000
Payments of loan from preferred stockholder....................... -- (3,500,000)
Proceeds from Note Payable........................................ -- 2,000,000
Issuance of common stock.......................................... 50,000 14,149,689
Issuance of preferred stock....................................... 1,000,000 --
---------- -----------
Net cash provided by financing activities................. 1,050,000 13,649,689
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................... 188,698 5,268,777
CASH AND CASH EQUIVALENTS, beginning of period...................... 584,798 424,834
---------- -----------
CASH AND CASH EQUIVALENTS, end of period............................ $ 773,496 $ 5,693,611
========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid..................................................... $ 0 $ 136,127
========== ===========
</TABLE>

The accompanying condensed notes to financial statements
are an integral part of these statements.

F-20
<PAGE> 85

MINDSPRING ENTERPRISES, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Article 10 of Regulation
S-X of the Securities and Exchange Commission. The accompanying unaudited
condensed financial statements reflect, in the opinion of management, all
adjustments necessary to achieve a fair statement of financial position and
results for the interim periods presented. All such adjustments are of a normal
and recurring nature. It is suggested that these condensed financial statements
be read in conjunction with the annual financial statements of the Company and
the notes thereto.

2. On June 28, 1996, the Company entered into a Purchase Agreement with
PSINet (as amended, the "Purchase Agreement") pursuant to which the Company
agreed to acquire up to 100,000 subscriber accounts and other assets from PSINet
(the "Acquisition"). The maximum aggregate purchase price for the Acquisition is
$21,129,000 (excluding accrued interest and increases in principal amounts under
promissory notes issued to PSINet), assuming the acquisition of 100,000
subscribers. The actual aggregate purchase price will depend on the number of
acquired subscriber accounts that remain MindSpring subscriber accounts for a
specified period. Management currently expects that approximately 66,000
subscriber accounts will actually be purchased. The Company acquired 15,000 of
these subscriber accounts for $1,000,000 in cash and a $2,000,000 one-year
promissory note on June 28, 1996. The Company acquired substantially all of the
remaining subscriber accounts and related assets as of September 1, 1996, at
which time the Company issued an additional one-year promissory note in the
amount of $9,929,000. The Company will be required to apply a certain percentage
of the net proceeds from the Offering to pay amounts due to PSINet in connection
with the Acquisition, depending on the amount of the net proceeds from the
Offering.

On August 6, 1996, the Company and The News and Observer Publishing Company
("N&O") entered into a definitive agreement, which was amended and restated on
September 11, 1996, pursuant to which the Company agreed to acquire certain
individual dial-up subscriber accounts in North Carolina (currently expected to
number between 4,000 and 6,000) in connection with N&O's Nando.net Internet
access business (the "Nando.net Transaction"). The Nando.net Transaction was
consummated on September 30, 1996, subject to the fulfillment of certain
customary closing conditions.

F-21
<PAGE> 86

complementary businesses or the development of new products, or otherwise
respond to unanticipated competitive pressures. There can be no assurance that
the Company will be able to raise any such capital on terms acceptable to the
Company or at all.

3. In March 1996, the Company completed an initial public offering of its
Common Stock. The Company issued 1,950,000 shares at an initial public offering
price of $8.00 per share. The total proceeds of the offering, net of
underwriting discounts and offering expenses, were approximately $13,672,000. In
April 1996, the Company's underwriters exercised a portion of the over-allotment
option granted in connection with the Company's initial public offering,
electing to purchase 75,000 additional shares of Common Stock. The net proceeds
to the Company were approximately $478,000.

4. The Company used a portion of the proceeds from the initial public
offering to repay outstanding principal amounts of $3,500,000 loaned to the
Company by ITC Holding Company, Inc. ("ITC Holding") plus accrued interest (at
the rate of 14% per annum) of approximately $97,000.

5. The net loss per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). For the quarter and six months ended
June 30, 1996, the Class C Preferred Stock and stock options are excluded from
the calculation as their effect is antidilutive. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common stock and common stock
equivalent shares issued by the Company at prices below the public offering
price during the twelve month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding for
all periods prior to the offering, regardless of whether they are dilutive
(using the treasury stock method and an initial public offering price of $8.00
per share). Accordingly, all stock options granted and the Class C Preferred are
included in the earnings per share calculations for all periods presented prior
to the effective date of the initial public offering (March 13, 1996), even
though the effect on net loss is antidilutive. The Class A Preferred Stock and
Class B Preferred Stock have been included for the respective weighted average
periods for which such shares were outstanding, even though their effect is
antidilutive. Concurrently with the completion of the initial public offering,
all outstanding shares of Class A Preferred Stock and Class B Preferred Stock
converted into shares of Common Stock, on the basis of one for one.

6. There was no provision for or cash payment of income taxes for the three
months and six months ended June 30, 1996 and 1995, respectively, as the Company
had a net taxable loss for these periods and anticipates a net taxable loss for
the year ended December 31, 1996.

F-22
<PAGE> 87

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
PSINet Inc.:

We have audited the accompanying balance sheets of PSINET INC. CONSUMER
INTERNET ACCESS SERVICES IN THE UNITED STATES as of December 31, 1994 and 1995
and the related statements of operations, accumulated deficit, and cash flows
for the period from inception (July 1, 1994) to December 31, 1994 and for the
year ended December 31, 1995. These financial statements are the responsibility
of the Consumer Access Business's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Consumer Access Business
as of December 31, 1994 and 1995 and the results of its operations and its cash
flows for the period from inception (July 1, 1994) to December 31, 1994 and for
the year ended December 31, 1995 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
July 30, 1996

F-23
<PAGE> 88

PSINET INC.
CONSUMER INTERNET ACCESS SERVICES
IN THE UNITED STATES

BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996

DECEMBER 31,
-------------------------
1994 1995 JUNE 30, 1996
--------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................... $ 0 $ 1,014,029 $ 527,247
Accounts receivable, net of allowance for doubtful accounts
of $0, $328,656, and $20,340, at December 31, 1994 and
1995, and June 30, 1996 respectively....................... 3,408 422,478 363,304
Prepaid expenses and other assets............................ 0 10,566 36,512
--------- ------------ -------------
Total current assets.................................. 3,408 1,447,073 927,063
--------- ------------ -------------
PROPERTY AND EQUIPMENT:
Computer and telecommunications equipment.................... 0 1,233,234 1,614,730
Less accumulated amortization and depreciation............... 0 (132,158) (274,872)
--------- ------------ -------------
Property and equipment, net........................... 0 1,101,076 1,339,858
--------- ------------ -------------
OTHER ASSETS:
Software development costs, net of accumulated amortization
of $0, $80,946, and $119,792, at December 31, 1994 and 1995
and June 30, 1996, respectively............................ 31,624 99,720 60,874
Goodwill and other intangibles, net of accumulated
amortization of $0, $3,160,159, and $4,729,802, at December
31, 1994 and 1995 and June 30, 1996, respectively.......... 0 6,666,937 5,097,294
Other........................................................ 0 43,000 43,000
--------- ------------ -------------
Total other assets.................................... 31,624 6,809,657 5,201,168
--------- ------------ -------------
Total assets.......................................... $ 35,032 $ 9,357,806 $ 7,468,089
========= ============ =============
LIABILITIES AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Current maturities of capital lease obligations.............. $ 0 $ 280,351 $ 398,170
Current portion of long-term debt............................ 0 51,607 54,648
Trade accounts payable....................................... 0 207,692 703,211
Accrued expenses............................................. 0 147,241 77,430
Deferred revenue............................................. 201,498 542,588 899,774
Due to parent company........................................ 185,047 20,926,686 28,684,996
--------- ------------ -------------
Total current liabilities............................. 386,545 22,156,165 30,818,229
--------- ------------ -------------
Long-term capital lease obligations.......................... 0 569,792 601,353
Long-term debt............................................... 0 95,439 67,315
--------- ------------ -------------
0 665,231 668,668
--------- ------------ -------------
Total liabilities..................................... 386,545 22,821,396 31,486,897
COMMITMENTS AND CONTINGENCIES (Notes 1, 4, and 8)
ACCUMULATED DEFICIT............................................ (351,513) (13,463,590) (24,018,808)
--------- ------------ -------------
Total liabilities and accumulated deficit............. $ 35,032 $ 9,357,806 $ 7,468,089
========= ============ =============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-24
<PAGE> 89

PSINET INC.
CONSUMER INTERNET ACCESS SERVICES
IN THE UNITED STATES

STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1994) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995, AND THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996

SIX MONTHS SIX MONTHS
ENDED ENDED
1994 1995 JUNE 30, 1995 JUNE 30, 1996
--------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Membership revenue...................... $ 408,578 $ 5,701,749 $ 1,793,030 $ 7,793,705
Start-up revenue........................ 90,794 786,542 462,110 161,761
--------- ------------ ------------ -------------
Total revenues.................. 499,372 6,488,291 2,255,140 7,955,466
--------- ------------ ------------ -------------
COSTS AND EXPENSES:
Selling, general, and administrative.... 599,104 11,321,248 3,302,353 12,017,951
Cost of revenue......................... 251,781 4,873,604 1,525,882 4,678,895
Depreciation and amortization........... 0 3,373,263 1,511,142 1,751,203
--------- ------------ ------------ -------------
850,885 19,568,115 6,339,377 18,448,049
--------- ------------ ------------ -------------
OPERATING LOSS............................ (351,513) (13,079,824) (4,084,237) (10,492,583)
INTEREST EXPENSE.......................... 0 32,253 1,443 62,635
--------- ------------ ------------ -------------
NET LOSS.................................. $(351,513) $(13,112,077) $ (4,085,680) $ (10,555,218)
========= ============ ============ =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-25
<PAGE> 90

PSINET INC.
CONSUMER INTERNET ACCESS SERVICES
IN THE UNITED STATES

STATEMENTS OF ACCUMULATED DEFICIT
FOR THE PERIOD FROM INCEPTION (JULY 1, 1994) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995, AND THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
------------
<S> <C>
BALANCE, July 1, 1994 (inception)............................................. $ 0
Net loss.................................................................... (351,513)
------------
BALANCE, December 31, 1994.................................................... (351,513)
Net loss.................................................................... (13,112,077)
------------
BALANCE, December 31, 1995.................................................... (13,463,590)
Net loss.................................................................... (10,555,218)
------------
BALANCE, June 30, 1996 (unaudited)............................................ $(24,018,808)
============
</TABLE>

The accompanying notes are an integral part of these statements.

F-26
<PAGE> 91

PSINET INC.
CONSUMER INTERNET ACCESS SERVICES
IN THE UNITED STATES

STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1994) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995, AND THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1994 1995 1995 1996
--------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(351,513) $(13,112,077) $(4,085,680) $(10,555,218)
--------- ------------ ----------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 0 3,373,263 1,511,142 1,751,203
Changes in current assets and
liabilities:
Accounts receivables, net.............. (3,408) (215,670) 53,616 59,174
Other current assets................... 0 (3,366) (21,864) (25,946)
Trade accounts payable................. 0 207,692 293,968 495,519
Accrued expenses....................... 0 147,241 72,006 (69,811)
Deferred revenue....................... 201,498 341,090 (4,814) 357,187
--------- ------------ ----------- ------------
Total adjustments.................... 198,090 3,850,250 1,904,054 2,567,326
--------- ------------ ----------- ------------
Net cash used in operating
activities......................... (153,423) (9,261,827) (2,181,626) (7,987,892)
--------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
software development costs................ (31,624) (425,491) (259,941) (20,378)
Other....................................... 0 (43,000) (43,000) 0
--------- ------------ ----------- ------------
Net cash used in investing
activities......................... (31,624) (468,491) (302,941) (20,378)
--------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from parent company, net........... 185,047 10,665,637 2,893,521 7,758,310
Proceeds from the issuance of long-term
debt...................................... 0 190,055 59,770 0
Principal payments on notes payable......... 0 (43,009) (14,393) (25,083)
Principal payments on capital leases........ 0 (68,336) (2,364) (211,739)
--------- ------------ ----------- ------------
Net cash provided by financing
activities......................... 185,047 10,744,347 2,936,534 7,521,488
--------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 0 1,014,029 451,967 (486,782)
CASH AND CASH EQUIVALENTS, beginning of
period...................................... $ 0 $ 0 $ 0 $ 1,014,029
--------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period...... $ 0 $ 1,014,029 $ 451,967 $ 527,247
========= ============ =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest...................... $ 0 $ 32,253 $ 1,443 $ 62,635
========= ============ =========== ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-27
<PAGE> 92

PSINET INC. CONSUMER INTERNET ACCESS SERVICES
IN THE UNITED STATES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1995 AND 1996

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

PSINet Inc. (formerly Performance Systems International, Inc.) ("PSINet")
was organized in October 1988 and is engaged in providing Internet access,
services, and software. The financial statements and related footnotes contained
herein reflect the operations of PSINet's customer base of consumer Internet
access subscribers in the United States, which includes subscribers to PSINet's
"Pipeline New York," "Pipeline U.S.A.," and "InterRamp" services. InterRamp
service began in July 1994; PSINet Pipeline New York, Inc. (formerly the
Pipeline Network Inc., "Pipeline"), was acquired February 7, 1995 by PSINet
Inc.; and Pipeline U.S.A. service began in June 1995. The accompanying financial
statements present the financial position and results of operations of the
PSINet Inc. Consumer Internet Access Services in the United States by PSINet
Inc. (the "Consumer Access Business"). The Consumer Access Business, including
the Harrisburg customer service facility, is being acquired in a transaction
accounted for as a purchase by MindSpring Enterprises, Inc. ("MindSpring") (Note
8).

The Consumer Access Business has experienced operating losses since its
inception as a result of costs related to acquisitions, efforts to build its
network infrastructure, development of its systems, and expansion into new
markets. The Consumer Access Business expects to continue to focus on increasing
its subscriber base and geographic coverage. Accordingly, the Consumer Access
Business expects that its cost of revenues; selling, general, and administrative
expenses; and capital expenditures will continue to increase significantly, all
of which will have a negative impact on short-term operating results. In
addition, the Consumer Access Business may change its pricing policies to
respond to a changing competitive environment. There can be no assurance that
growth in the Consumer Access Business' revenue or subscriber base will continue
after the acquisition by MindSpring or that the Consumer Access Business will be
able to achieve or sustain profitability or positive cash flow.

See "Risk Factors" located elsewhere in this prospectus.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRESENTATION

The Consumer Access Business is not a separate subsidiary of PSINet nor has
it been operated as a separate division of PSINet. The financial statements of
the Consumer Access Business have been derived from the consolidated financial
statements of PSINet and have been prepared to present its financial position,
results of operations, and cash flows on a stand-alone basis. Accordingly, the
accompanying financial statements include certain costs and expenses which have
been allocated to the Consumer Access Business from PSINet (Note 6). These costs
have been allocated on a pro rata basis based primarily on revenues. Such
allocated expenses may not be indicative of what such expenses would have been
had the Consumer Access Business been operated as a separate entity.

The interim financial data is unaudited. However, in the opinion of
management, the interim financial data includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and

F-28
<PAGE> 93

liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Consumer Access Business
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. The cash and cash equivalents reflected
in the accompanying balance sheets represent specific accounts associated with
the Consumer Access Business. Certain other cash accounts are commingled with
PSINet funds and the PSINet portion is reflected in "Due to parent company" in
the accompanying balance sheets.

REVENUE RECOGNITION

The Consumer Access Business recognizes revenues when services are
provided. Advance billings are reflected as deferred revenue in the accompanying
financial statements.

During 1994, InterRamp offered a program whereby subscribers could prepay
for several months of service. This revenue was deferred until the services were
provided. This program was discontinued as of January 1, 1995. Accordingly,
there is no deferred revenue from this program at December 31, 1995 or June 30,
1996.

CREDIT RISK

The Consumer Access Business' accounts receivable potentially subject it to
credit risk, as collateral is generally not required. The Consumer Access
Business' risk of loss is limited due to advance billings to customers for
services, the use of preapproved charges to customer credit cards, and the
ability to terminate access on delinquent accounts. The concentration of credit
risk is mitigated by the large number of customers comprising the customer base.
The carrying amount of the Consumer Access Business' receivables approximates
their fair value.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated using the
straight-line method over an estimated useful life of five years. The Consumer
Access Business' portion of the assets acquired as part of the Pipeline
acquisition were recorded at the estimated fair value at the acquisition date
and depreciated over the estimated remaining useful lives of the assets.

EQUIPMENT UNDER CAPITAL LEASE

The Consumer Access Business leases certain of its data communications
equipment under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the assets under lease. These leases are initially recorded as
noncash transactions in the Consumer Access Business' statements of cash flows.
Assets under these capital leases are depreciated over their estimated useful
lives of five years, which are generally longer than the terms of the leases.

The following is a detail of assets under capital lease as of December 31,
1995 and June 30, 1996:

<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Cost................................................ $ 956,785 $1,317,903
Accumulated Amortization............................ (103,687) (217,510)
--------- ----------
$ 853,098 $1,100,393
========= ==========
</TABLE>

F-29
<PAGE> 94

SOFTWARE DEVELOPMENT COSTS

The Consumer Access Business capitalizes costs incurred for the production
of computer software used in the sale of its services, including direct labor
and related overhead. All costs in the software development process that are
classified as research and development are expensed as incurred until
technological feasibility has been established. Once technological feasibility
has been established, such costs are capitalized until the software is
commercially available. Amortization is provided using the greater of the
straight-line method over three years or the ratio that current gross revenues
bear to the total of current and anticipated future gross revenues, commencing
in the month of product release. It is reasonably possible that the estimates of
anticipated future revenues, the remaining estimated economic life of the
product, or both will be reduced significantly in the near term due to
competitive pressures.

GOODWILL AND OTHER INTANGIBLES

Goodwill is being amortized over three years, and other intangibles
including subscriber lists, trademarks, and non-compete agreements are being
amortized over two to three years. The Consumer Access Business' portion of the
goodwill and other intangibles were acquired in connection with PSINet's
acquisition of Pipeline on February 7, 1995.

LONG-LIVED ASSETS

The Consumer Access Business periodically reviews the values assigned to
long-lived assets such as property and equipment, software development costs,
and goodwill and other intangibles to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.

DUE TO PARENT COMPANY

PSINet either advances funds to or borrows funds from the Consumer Access
Business. Funds advanced to the Consumer Access Business are used to cover fixed
asset expansion, acquisitions, and working capital requirements. The advances
and borrowings are netted and are reflected in Due to parent company in the
accompanying balance sheets (Note 6).

ACCUMULATED DEFICIT

The Consumer Access Business' accumulated deficit represents an amount
equivalent to the net assets of the Consumer Access Business at inception (July
1, 1994), decreased by the net loss in each period.

ADVERTISING COSTS

The Consumer Access Business expenses all advertising costs as incurred.

INCOME TAXES

The income tax returns of PSINet include the operations of the Consumer
Access Business. For purposes of these financial statements, income taxes
related to the Consumer Access Business have been computed and recorded on a
separate return basis based on the statutory rates in effect (Note 5).

SOURCES OF SUPPLIES

The Consumer Access Business has few long-term contracts with its
suppliers. The Consumer Access Business is dependent on third party suppliers
for its leased line connections, or bandwidth. Certain of these suppliers are or
may become competitors of the Consumer Access Business, and such suppliers are
not subject

F-30
<PAGE> 95

to any restrictions upon their ability to compete with the Consumer Access
Business. To the extent that these suppliers change their pricing structures,
the Consumer Access Business may be adversely affected. Regulatory proposals are
pending that may affect the prices charged by certain suppliers to the Consumer
Access Business. Although management feels alternative telecommunications
facilities could be found in a timely manner, any disruption of these services
could have an adverse effect on operating results.

The Consumer Access Business is also dependent on certain third-party
suppliers of hardware components. Although the Consumer Access Business attempts
to maintain a minimum of two vendors for each required product, certain
components used by the Consumer Access Business in providing its networking
services are currently acquired or available from only one source. A failure by
a supplier to deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in delays which
could materially adversely affect the Consumer Access Business. As the Consumer
Access Business's suppliers revise and upgrade their equipment technology, the
Consumer Access Business may encounter difficulties in integrating the new
technology into its network.

3. LONG-TERM DEBT

PSINet has entered into a borrowing facility with a bank for the
acquisition of equipment. While the Consumer Access Business does not
specifically enter into debt arrangements, the debt reflected in the
accompanying table relates to borrowings associated with equipment retained at
the Harrisburg customer service facility at December 31, 1995:

<TABLE>
<S> <C>
Allocation of PSINet's borrowing facility with a bank, interest at prime
plus 2.5%; monthly principal installments of $4,729 plus interest....... $147,046
Less current portion...................................................... 51,607
--------
Long-term portion......................................................... $ 95,439
========
</TABLE>

Borrowings under this facility are repayable in 36 monthly installments
from the dates of equipment purchases and are secured by a lien on the
equipment. Interest is payable monthly at a rate of prime plus 2.5%; the
interest rate was 11% at December 31, 1995.

The fair value of long-term debt, including current maturities, at December
31, 1995 is estimated to be approximately $151,808, based on a valuation
technique that considers cash flows discounted at current rates.

Maturities of long-term debt relating to the equipment retained at the
Harrisburg customer service facility outstanding at June 30, 1996 are as
follows:

<TABLE>
<S> <C>
1996 (six months ended December 31)....................................... $ 22,731
1997...................................................................... 59,289
1998...................................................................... 39,101
1999...................................................................... 842
--------
Total maturities of long-term debt at June 30, 1996............. $121,963
========
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

LEASES

PSINet leases certain equipment under agreements which are classified as
capital leases. These leases have original terms of three years and contain
bargain purchase options at the end of the original lease terms. While the
Consumer Access Business does not specifically enter into capital lease
arrangements, the capital leases reflected in the accompanying table relate
specifically to leases associated with equipment retained at the Harrisburg
customer service facility.

F-31
<PAGE> 96

Future minimum payments, by year and in the aggregate, under noncancelable
capital leases and operating leases with initial or remaining terms of one year
or more consist of the following at June 30, 1996:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- --------
<S> <C> <C>
1996 (six months ended December 31)............................ $ 243,207 $129,000
1997........................................................... 523,275 79,800
1998........................................................... 400,731
1999........................................................... 22,510
--------- --------
Total minimum lease payments......................... 1,189,723 $208,800
========
Amounts representing interest.................................. 190,200
---------
Present value of net minimum payments.......................... 999,523
---------
Current portion................................................ 398,170
---------
Long-term capitalized lease obligations........................ $ 601,353
=========
</TABLE>

The Consumer Access Business' rental expense for operating leases relates
to the lease of office and equipment space. Rental expense was approximately $0,
$183,000, $54,000 and $132,000 for the period from inception (July 1, 1994) to
December 31, 1994, the year ended December 31, 1995, and the six months ended
June 30, 1995 and 1996, respectively.

LEGAL PROCEEDINGS

PSINet and the Consumer Access Business are subject to legal proceedings
and claims which arise in the ordinary course of business.

5. INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Consumer Access
Business is included in the consolidated return of PSINet. No tax-sharing
arrangement exists between PSINet and the Consumer Access Business, as the
Individual Internet Access Business is not a separate legal entity. The
significant components of the Consumer Access Business' allocated deferred tax
assets and liabilities as of December 31, 1994 and 1995 are as follows (in
thousands):

<TABLE>
<CAPTION>
1994 1995
---- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $102 $ 3,730
Other.......................................................... 7 168
---- -------
Total deferred tax assets................................. 109 3,898
---- -------
Deferred tax liabilities:
Acquired intangibles........................................... 0 (670)
Depreciation/amortization...................................... (12) (101)
---- -------
Total deferred tax liabilities............................ (12) (771)
---- -------
Net deferred tax asset.............................................. 97 3,127
Valuation allowance................................................. (97) (3,127)
---- -------
Net deferred taxes.................................................. $ 0 $ 0
==== =======
</TABLE>

The Consumer Access Business' portion of PSINet's net operating loss
carryforwards will expire between 2009 and 2010 unless utilized. Due to the fact
that the Consumer Access Business has incurred losses since inception, the
Consumer Access Business has not recognized the income tax benefit of the net
operating loss

F-32
<PAGE> 97

carryforwards. Management has provided a 100% valuation reserve against its net
deferred tax asset, consisting primarily of net operating loss carryforwards.

A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision for the period from inception (July 1, 1994)
to December 31, 1994 and for the year ended December 31, 1995, is as follows:

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Income tax benefit at statutory rate.................................... 34% 34%
State income taxes, net of federal benefit.............................. 4 4
Nondeductible goodwill.................................................. 0 (10)
Deferred tax asset valuation allowance.................................. (38) (28)
--- ---
0% 0%
=== ===
</TABLE>

The Consumer Access Business paid no taxes in the periods presented herein.

6. RELATED-PARTY TRANSACTIONS

Transactions of the Consumer Access Business are performed and certain
management and administrative services are executed by PSINet. Services provided
to the Consumer Access Business include support in major functional areas such
as accounting, finance, human resources, legal, risk management, network
management, engineering, payroll, and taxes. Costs attributable to these support
functions are included in selling, general, and administrative expenses. These
costs are allocated to the Consumer Access Business based on various factors,
primarily revenue streams, as management feels this best represents relative
cost streams. The costs allocated to the Consumer Access Business were
approximately $633,000, $6,475,000, $1,851,000, and $7,797,000 for the period
from inception (July 1, 1994) to December 31, 1994, the year ended December 31,
1995, and the six months ended June 30, 1995 and 1996, respectively.

Certain costs, such as payroll for the Harrisburg customer service
facility, advertisements for the Consumer Access Business, and depreciation and
amortization, have been specifically identified, are reflected in the
accompanying statements of operations and are excluded from the cost allocation
model described previously.

Revenues reflected in the accompanying statements of operations represent
specifically identified revenues and that there have been no allocations of
revenues from PSINet.

7. ACQUISITION

On February 7, 1995, PSINet issued an aggregate of approximately 2,690,218
shares of its common stock to shareholders of Pipeline, a New York-based
Internet service provider, in exchange for all of the outstanding common stock
and preferred stock of Pipeline. The Pipeline shareholders were also granted
certain registration rights in respect of PSINet's common stock issued to them.
In addition, in exchange for their options to purchase Pipeline common stock,
certain employees of Pipeline were issued approximately 98,255 shares of
PSINet's common stock and options to purchase approximately 133,627 shares of
PSINet's common stock at an exercise price of $4.15 per share.

The acquisition was accounted for using the purchase method of accounting.
At February 7, 1995, the fair value of the 2,788,473 shares of PSINet's common
stock exchanged was based on $4.15 per share, or $11,572,000. Based on the ratio
of corporate revenue to individual subscriber revenue at the time of the
acquisition, $10,415,000 of this amount related to the Consumer Access Business
and is reflected on the

F-33
<PAGE> 98

accompanying balance sheets. The following table summarizes the net assets
allocated to the Consumer Access Business in connection with the acquisition and
the amount allocated to goodwill (in thousands):

<TABLE>
<S> <C>
Purchase price............................................................. $10,415
Assets..................................................................... (1,000)
Liabilities................................................................ 412
Identifiable intangibles................................................... (2,847)
-------
Goodwill................................................................... $ 6,980
=======
</TABLE>

The acquisition of these assets has been accounted for as a non-cash
transaction for purposes of the cash flow statements.

The following presents the Consumer Access Business' unaudited pro forma
condensed consolidated income statement data for the period from inception (July
1, 1994) to December 31, 1994 and for the year ended December 31, 1995 as if the
acquisition had occurred at the beginning of the periods presented. The revenue
and net loss below are not intended to reflect the results of operations that
would actually have been obtained if the acquisition had occurred at the
beginning of the periods presented:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Revenue.............................................. $ 1,115 $ 7,205
Net loss............................................. (704) (11,302)
</TABLE>

8. SUBSEQUENT EVENT

On June 28, 1996, MindSpring (the "Company") entered into a Purchase
Agreement with PSINet (as amended, the "Purchase Agreement") pursuant to which
the Company agreed to acquire up to 100,000 subscriber accounts and other assets
from PSINet (the "Acquisition"). The maximum aggregate purchase price for the
Acquisition is $21,129,000 (excluding accrued interest and increases in
principal amount under promissory notes issued to PSINet), assuming the
acquisition of 100,000 subscribers. The actual aggregate purchase price will
depend on the number of acquired subscriber accounts that remain MindSpring
subscriber accounts for a specified period. Management currently expects that
approximately 66,000 subscriber accounts will actually be purchased. The Company
acquired 15,000 of these subscriber accounts for $1,000,000 in cash and a
$2,000,000 one-year promissory note on June 28, 1996. The Company expects to
acquire substantially all of the remaining subscriber accounts and related
assets as of September 1, 1996, at which time the Company issued an additional
one-year promissory note in the amount of $9,929,000. The Company will be
required to apply a certain percentage of the net proceeds from the Offering to
pay amounts due to PSINet in connection with the Acquisition, depending on the
amount of the net proceeds from the Offering.

F-34
<PAGE> 99

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of PSINet Pipeline New York, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of PSINet Pipeline New
York, Inc. (formerly The Pipeline Network Inc.) at December 31, 1994, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Washington, D.C.
February 24, 1995

F-35
<PAGE> 100

PSINET PIPELINE NEW YORK, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 322
Accounts and other receivables, net of allowance for doubtful accounts of
$80,000................................................................... 226
Prepaid expenses............................................................. 8
------
Total current assets................................................. 556
Property and equipment, net.................................................... 555
Capitalized software costs, net of accumulated amortization of $24,000......... 155
Other assets and deferred charges.............................................. 26
------
$1,292
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................ $ 288
Deferred revenue............................................................. 49
------
Total current liabilities............................................ 337
Accrued stock compensation................................................... 383
------
Total liabilities.................................................... 720
------
Commitments (Note 6)
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 129 shares authorized, issued
and outstanding........................................................... 0
Common stock, $0.01 par value, 3,000 shares authorized, 1,240 issued and
outstanding............................................................... 0
Capital in excess of par value............................................... 1,064
Retained deficit............................................................. (492)
------
Total shareholders' equity........................................... 572
------
$1,292
======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-36
<PAGE> 101

PSINET PIPELINE NEW YORK, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
Revenue:
Service.................................................................... $ 940
Licensing.................................................................. 180
Royalty.................................................................... 40
------
Total revenue...................................................... 1,160
------
Operating costs and expenses:
Data communications and operations......................................... 729
Sales and marketing........................................................ 238
General and administrative................................................. 557
Depreciation and amortization.............................................. 95
------
Total operating costs and expenses................................. 1,619
------
Loss from operations......................................................... (459)
Interest income.............................................................. 11
------
Loss before income taxes..................................................... (448)
Income taxes................................................................. --
------
Net Loss..................................................................... $ (448)
======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-37
<PAGE> 102

PSINET PIPELINE NEW YORK, INC.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CAPITAL
IN TOTAL
PREFERRED PAR COMMON PAR EXCESS OF RETAINED SHAREHOLDERS'
STOCK VALUE STOCK VALUE PAR VALUE DEFICIT EQUITY
--------- ----- ------ ----- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993......... 0 $ 0 1,000 $ 0 $ 95 $ (44) $ 51
Issuance of common stock pursuant
to exercise of options........ 240 0 0 0
Issuance of convertible preferred
stock......................... 129 0 969 969
Net loss......................... (448) (448)
---- ---- ----- --- ------- ------- -----
Balance, December 31, 1994......... 129 $ 0 1,240 $ 0 $ 1,064 $ (492) $ 572
==== ==== ===== === ======= ======= =====
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-38
<PAGE> 103

PSINET PIPELINE NEW YORK, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $(448)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................. 95
Provision for doubtful accounts........................................... 80
Increase in accounts receivable........................................... (294)
Increase in prepaid expenses.............................................. (7)
Increase in other assets and deferred charges............................. (16)
Increase in accounts payable and accrued expenses......................... 263
Increase in deferred revenue.............................................. 40
Increase in accrued stock compensation.................................... 383
-----
Net cash provided by operating activities............................ 96
-----
Cash flows from investing activities:
Purchase of property and equipment, net...................................... (553)
Capitalized software costs................................................... (178)
-----
Net cash used in investing activities................................ (731)
-----
Cash flows from financing activities:
Proceeds from loan from shareholder.......................................... 200
Repayments of loan from shareholder.......................................... (250)
Proceeds from issuance of Series A convertible preferred stock............... 969
Proceeds from exercise of common stock options............................... 0
-----
Net cash provided by financing activities............................ 919
-----
Net increase in cash........................................................... 284
Cash, beginning of year........................................................ 38
-----
Cash, end of year.............................................................. $ 322
=====
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-39
<PAGE> 104

PSINET PIPELINE NEW YORK, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

PSINet Pipeline New York Inc. (formerly The Pipeline Network Inc.) (the
"Company") was incorporated in the state of New York in June 1993. The Company
provides Internet access services, principally in New York City.

Revenue Recognition

Service revenue is recognized over the period services are provided.
Licensing revenue is recognized when the software is installed at the licensee's
site. Royalty revenue is recognized in the month earned. Cash received in
advance of revenues earned is recorded as deferred revenue.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the
straight-line method over an estimated useful life of five years.

Software Development Costs

The Company capitalizes internal software development costs in accordance
with Statement of Financial Accounting Standards No. 86. Significant development
costs incurred beyond the point of demonstrated technological feasibility are
capitalized until the product or service is available for general release to
customers. Amortization is computed on an individual product basis and is the
greater of: (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for the product or (b) the
straight-line method over the estimated economic life of the product. Currently,
the Company is using an economic life of three years for all capitalized
software costs.

The Company capitalized software development costs of $178,000 in 1994.
Amortization of these costs was $24,000 in 1994.

Income Taxes

The Company was an S Corporation from its inception through August 22,
1994. Because the individual shareholders and not the entity are subject to
income taxes on S Corporation taxable income, no provision for federal income
taxes has been recorded through August 22, 1994. On August 22, 1994, the
Company's S Corporation status was terminated. Accordingly, during the period
form August 23, 1994 through December 31, 1994, the Company was taxed as a C
corporation for federal and state purposes.

Income taxes are provided using the asset and liability approach. Under
this approach, deferred taxes represent the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of the assets
and liabilities.

F-40
<PAGE> 105

NOTE 2 -- PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
Data communications equipment and software..................... $488
Office and other equipment..................................... 144
----
632
Less accumulated depreciation and amortization................. (77)
----
Property and equipment, net.................................... $555
====
</TABLE>

Total depreciation expense during 1994 was $70,000.

NOTE 3 -- CONVERTIBLE PREFERRED STOCK

On August 22, 1994, the Company entered into a securities purchase
agreement with investors. Pursuant to this agreement, the investors purchased
129 shares of Series A convertible participating preferred stock (Series A) for
a purchase price of $7,752 per share. Each share of Series A is convertible into
one share of common stock at any time (subject to adjustment under certain
conditions). Holders of Series A are entitled to vote as a class on all actions
to be taken by the shareholders of the Company. Stock issuance costs of $31,000
have been charged to capital in excess of par.

Liquidation Privileges -- In the event of liquidation, consolidation,
merger or winding up of the Company prior to conversion, all holders of
preferred stock are entitled to receive, in preference to the holders of the
common stock, an equal amount to their liquidation amount or a pro rata share of
the remaining assets based on their ownership of the Company.

Automatic Conversion -- Each share of the preferred stock automatically
converts to one share of common stock (subject to adjustment under certain
conditions) at the earlier of (i) August 18, 1995 or (ii) the closing of the
sale of shares of common stock by the Company pursuant to a firm commitment
underwritten public offering.

NOTE 4 -- STOCK OPTIONS

In 1994, the Company established the 1994 Stock Incentive Plan under which
it is authorized to grant up to 120 of either incentive stock options or
non-qualified stock options. Options become exercisable over one to three years
following the date of grant and all options expire ten years after the date of
grant. The Company did not grant any stock appreciation rights or restricted
stock during 1994 as allowed under the Plan. At December 31, 1994, there were
120 shares reserved for issuance under this Plan, of which 62 shares were
subject to options outstanding and 58 shares were available for future grants of
options. Compensation expense of $383,000 was recorded for certain options
granted in 1994. At December 31, 1994, no options were exercisable.

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF OPTION PRICE
COMMON STOCK PER SHARE
------------ --------------
<S> <C> <C>
Balance, December 31, 1993........................... 240 $0.10
Granted............................................ 62 100.00-7,752
Exercised.......................................... (240) 0.10
Forfeited.......................................... --
-----
Balance, December 31, 1994........................... 62 $100.00-$7,752
=====
</TABLE>

F-41
<PAGE> 106

NOTE 5 -- INCOME TAXES

At its inception, the Company elected to be treated as an S Corporation as
permitted under the Internal Revenue Code. Accordingly, in lieu of corporate
income taxes, the shareholders were taxed on their share of the Company's
distributive share of the Company's income or loss. On August 22, 1994, the
Company changed from S Corporation status to C Corporation status. Accordingly,
during 1994, the Company was treated as an S Corporation from January 1, 1994
through August 22, 1994 and a C Corporation from August 23, 1994 through
December 31, 1994.

Deferred tax liabilities (assets) were comprised of the following at
December 31, 1994:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Depreciation......................................................... $ 22
Software development................................................. 61
------
Gross deferred tax liabilities....................................... 83
------
Other................................................................ (19)
Expense on options................................................... (149)
Loss carryforwards................................................... (32)
------
Gross deferred tax assets............................................ (200)
------
Net deferred tax asset............................................... (117)
Valuation allowance.................................................. 117
------
Deferred tax asset after valuation allowance......................... $ 0
======
</TABLE>

A full valuation allowance has been placed on the net deferred tax asset
since realization of these benefits cannot be reasonably assured. Accordingly,
the net change in the valuation allowance for deferred tax assets was an
increase of $117,000.

At December 31, 1994, the Company had net operating loss carryforwards of
approximately $81,000 for income tax purposes.

Pro forma income taxes for the periods the Company operated as an S
Corporation would not differ materially from the C Corporation income taxes
because of the operating losses experienced by the Company.

NOTE 6 -- COMMITMENTS

The Company leases its facilities under non-cancellable operating leases
expiring in various years through 2000. Total rent expense for all operating
leases amounted to $27,000 in 1994.

Future minimum lease payments under non-cancellable operating leases as of
December 31, 1994 are as follows:

YEAR ENDING OPERATING
DECEMBER 31, LEASES
----------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
$ 76
1996................................................. 76
1997................................................. 76
1998................................................. 68
1999................................................. 57
Thereafter........................................... 14
----
$367
====
</TABLE>

F-42
<PAGE> 107

NOTE 7 -- SUBSEQUENT EVENTS

Sale of the Company to PSINet Inc. (formerly Performance Systems
International, Inc.)

On February 7, 1995, the Company and its shareholders completed an
agreement whereby all of the Company's outstanding shares of common stock and
preferred stock were exchanged for shares of common stock of PSINet Inc.

F-43
<PAGE> 108

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial
statements have been prepared to give effect to the Acquisition. The
accompanying pro forma condensed statements of operations of the Company for the
six-month period ended June 30, 1996 and the year ended December 31, 1995 give
effect to the Acquisition as if it had occurred at the beginning of the
respective periods. The accompanying pro forma condensed consolidated balance
sheet as of June 30, 1996 has been prepared as if the Acquisition had occurred
as of that date. The pro forma adjustments are based upon available information
and certain assumptions that management believes to be reasonable. Final
purchase adjustments may differ from the pro forma adjustments herein.

The pro forma condensed consolidated financial statements set forth below
should be read in conjunction with "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto and other financial
information and operating information included elsewhere in this Prospectus. The
pro forma condensed consolidated financial statements and notes thereto are
provided for informational purposes only and do not purport to be indicative of
actual results had the Acquisition been completed on the dates indicated or of
future results.

The Company is currently acquiring certain other subscriber accounts.
Including the balance of the purchase price to be paid in connection with the
Nando.net Transaction, the Company currently estimates that it will need to use
approximately $740,000 (excluding $100,000 expected to be paid at the closing of
the Nando.net Transaction) of the net proceeds from the Offering if such
transactions, as currently contemplated, are consummated.

F-44
<PAGE> 109

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996

<TABLE>
<CAPTION>
HISTORICAL PSINET
HISTORICAL CONSUMER TRANSACTION MINDSPRING
MINDSPRING(A) SERVICES(A) ADJUSTMENTS PRO FORMA
------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents.............. $ 5,693,611 $ 527,247 $ 4,389,402(f) $ 8,568,013
(527,247)(e)
(1,515,000)(b)
Trade receivables.................... 1,159,367 363,304 (363,304)(e) 1,159,367
Inventory............................ 36,478 0 0 36,478
Prepaids and other................... 347,129 36,512 (36,512)(e) 347,129
------------- ----------------- ------------ ------------
Total current assets............ 7,236,585 927,063 1,947,339 10,110,987
------------- ----------------- ------------ ------------
PROPERTY AND EQUIPMENT:
Property............................. 7,716,928 1,795,396 1,515,000(b) 10,361,229
(394,664)(e)
(271,431)(h)
Less: accumulated depreciation and
amortization....................... (843,055) (394,664) 394,664(e) (843,055)
------------- ----------------- ------------ ------------
Property and equipment, net.......... 6,873,873 1,400,732 1,243,569 9,518,174
------------- ----------------- ------------ ------------
Product development costs................ 95,920 0 0 95,920
Intangibles, net......................... 3,000,000 5,097,294 10,932,000(c) 13,932,000
(5,097,294)(e)
Other assets............................. 8,481 43,000 (43,000)(e) 8,481
------------- ----------------- ------------ ------------
Total assets.................... $17,214,859 $ 7,468,089 $ 8,982,614 $ 33,665,562
============== ================ ============= ============
CURRENT LIABILITIES:
Notes payable to PSINet.............. $ 2,000,000 $ 0 $ (2,000,000)(g)$ 0
Current amount of capital lease
obligations........................ 0 398,170 (398,170)(e) 0
Current portions of long term debt... 0 54,648 (54,648)(e) 0
Due to parent........................ 0 28,684,996 (28,684,996)(e) 0
Trade accounts payable............... 1,680,910 703,211 (703,211)(e) 1,680,910
Accrued expenses..................... 708,938 77,430 (77,430)(e) 708,938
Deferred revenue..................... 692,332 899,774 (899,774)(e) 692,332
------------- ----------------- ------------ ------------
Total current liabilities....... 5,082,180 30,818,229 (32,818,229) 3,082,180
------------- ----------------- ------------ ------------
LONG TERM LIABILITIES:
Long term capital lease
obligations........................ 0 601,353 (601,353)(e) 0
Long term notes payable.............. 0 67,315 (67,315)(e) 0
------------- ----------------- ------------ ------------
Total long term liabilities..... 0 668,668 (668,668) 0
------------- ----------------- ------------ ------------
Total liabilities............... 5,082,180 31,486,897 (33,486,897) 3,082,180
------------- ----------------- ------------ ------------
STOCKHOLDERS' EQUITY:
Class C preferred stock.............. 638,000 0 (638,000)(i) 0
Common stock......................... 51,258 0 16,584(d) 74,758
1,847(b)
4,069(f)
1,000(i)
Additional paid-in capital........... 15,976,226 0 13,582,717(d) 35,041,429
1,513,153(b)
3,332,333(f)
637,000(i)
Accumulated deficit.................. (4,532,805) (24,018,808) 24,018,808(e) (4,532,805)
------------- ----------------- ------------ ------------
Total equity.................... 12,132,679 (24,018,808) 42,469,511 30,583,382
------------- ----------------- ------------ ------------
Total liabilities &
stockholders' equity.......... $17,214,859 $ 7,468,089 $ 8,982,614 $ 33,665,562
============== ================ ============= ============
</TABLE>

- ---------------
(a) Derived from the financial statements of the Company and the PSINet Consumer
Services appearing elsewhere in this Prospectus.

F-45
<PAGE> 110

(b) Additional capital expenditures recorded by the Company to support the
PSINet subscribers being acquired to be financed by a portion of the
2,250,000 shares of Common Stock offered hereby.

(c) Reflects the allocation of the purchase price to tangible and intangible
assets based on the estimated fair value of such assets and to identifiable
liabilities. The intangible asset resulting from the acquisition has been
determined to relate primarily to the acquired customer base, and will be
amortized over a three year period.

(d) Reflects the portion of the 2,250,000 shares of Common Stock offered hereby
utilized for the acquisition of PSINet. The Company's indebtedness to PSINet
under the First PSINet Note is estimated to be approximately $2,160,000
(including accrued interest and increases in principal amount) as of the
completion of the Offering. Assumes that the Company acquires 66,000 PSINet
subscriber accounts and the Harrisburg Facility at the Second Closing,
resulting in principal and interest outstanding under the remaining PSINet
Notes of approximately $11,439,000. The pro forma intangible assets have
been adjusted to reflect this assumption. It is the Company's intention to
repay the PSINet Notes in full with the net proceeds from the Offering. Cost
of the acquisition also includes the cost of certain contractual obligations
of the Company entered into in connection with the acquisition to convert
PSINet subscribers to MindSpring's operating system.

(e) Reflects the removal of assets and liabilities of the PSINet Consumer
Services that are not being acquired and/or assumed by MindSpring as part of
the Acquisition.

(f) Reflects net proceeds of the Offering hereby after repayment of debt and
capital expenditures discussed in (d) and (b) that are available for general
corporate purposes (see "Use of Proceeds").

(g) Reflects repayment of debt with net proceeds of Offering hereby as discussed
in (d).

(h) Reflects adjustments to fixed asset total determined at the Second Closing
as discussed elsewhere herein.

(i) Reflects the conversion on September 19, 1996 of 100,000 shares of Class C
Preferred into shares of Common Stock on a one-for-one basis.

F-46
<PAGE> 111

UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL PSINET
HISTORICAL CONSUMER TRANSACTION MINDSPRING
MINDSPRING(A) SERVICES(A) ADJUSTMENTS PRO FORMA
------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $ 2,226,844 $ 6,786,291 $ 0 $ 9,013,135
Costs and expenses
Selling, general and
administrative expenses......... 2,230,102 11,397,248 (4,626,340)(c) 9,001,010
Cost of revenues.................. 965,773 5,039,604 (1,646,458)(g) 4,358,919
Depreciation...................... 264,683 229,105 303,000(e) 796,788
Amortization...................... 0 3,160,158 (3,160,158)(h) 4,644,000
4,644,000(f)
------------- ----------------- ----------- ------------
Total costs and expenses.............. 3,460,558 19,826,115 (4,485,956) 18,800,717
------------- ----------------- ----------- ------------
Income (loss) from operations......... (1,233,714) (13,039,824) 4,485,956 (9,787,582)
Interest income (expense)............. (724,817) (29,523) 29,253(d) (724,817)
------------- ----------------- ----------- ------------
Net income (loss)..................... $(1,958,531) $ (13,069,077) $ 4,515,209 $(10,512,399)
============== ================ ============ =============
Weighted average common shares
outstanding..................... 3,175,376 3,175,376
Offering Shares................... 2,250,000 2,250,000
------------
Total pro forma common shares
outstanding..................... 3,175,376 5,425,376
Historical net loss per
share(b)........................ $ (0.62)
==============
Pro Forma net loss per share(b)... $ (1.94)
=============
</TABLE>

<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED JUNE 30, 1996
-----------------------------------------------------------------
HISTORICAL PSINET
HISTORICAL CONSUMER TRANSACTION MINDSPRING
MINDSPRING SERVICES(A) ADJUSTMENTS PRO FORMA
------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $ 4,306,523 $ 7,955,466 $ 0 $ 12,261,989
Costs and expenses
Selling, general and
administrative expenses......... 4,340,953 12,017,951 (3,997,270)(c) 12,361,634
Cost of revenues.................. 1,912,323 4,678,895 (701,162)(g) 5,890,056
Depreciation...................... 596,343 181,560 151,500(e) 929,403
Amortization...................... 0 1,569,643 (1,569,643)(h) 2,322,000
2,322,000(f)
------------- ----------------- ----------- ------------
Total costs and expenses.............. 6,849,619 18,448,049 (3,794,576) 21,503,093
------------- ----------------- ----------- ------------
Income (loss) from operations......... (2,543,096) (10,492,583) 3,794,576 (9,241,103)
Interest income (expense)............. 43,883 (62,635) 62,635(d) 43,883
------------- ----------------- ----------- ------------
Net income (loss)..................... $(2,499,213) $ (10,555,218) $ 3,857,211 $ (9,197,220)
============== ================ ============ =============
Weighted average common shares
outstanding..................... 4,309,859 4,309,859
Class C Preferred Conversion...... 100,000(j)
Offering Shares................... 2,250,000 2,250,000
------------
Total pro forma common shares
outstanding(i).................. 4,309,859 6,659,859
Historical net loss per
share(i)........................ $ (0.58)
==============
Pro Forma net loss per share(i)... $ (1.38)
=============
</TABLE>

- ---------------
(a) Derived from the financial statements of the Company and the PSINet Consumer
Services appearing elsewhere in this Prospectus. The 1995 PSINet Consumer
Services amounts include the results of operations of PSI Pipeline New York
Inc. for the period (January 1 through February 6, 1995) prior to its
acquisition by PSINet Consumer Services.

F-47
<PAGE> 112

(b) Historical net loss per share is computed using the weighted average number
of shares of Common Stock and dilutive Common Stock equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). Common Stock and Common Stock
equivalent shares issued at prices below the initial public offering price
during the twelve-month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding
for all periods prior to the initial public offering, regardless of whether
they are dilutive. Accordingly, all stock options granted and the Class C
Preferred are included in the earnings per share calculations for all
periods presented, even though the effect on net loss is antidilutive. The
Class A Preferred and the Class B Preferred have been included for the
respective weighted average periods for which such shares were outstanding,
even though their effect is antidilutive. The shares of Common Stock offered
hereby have been included in the pro forma calculations as if they were
outstanding for the entire period.

(c) Reflects reduction of PSINet historical selling, general, and administrative
expenses to the historical relationship of such expenses experienced by
MindSpring as a percentage of revenues. A majority of PSINet's historical
selling, general, and administrative expenses result from functions not
being acquired by MindSpring, including certain allocations of PSINet
corporate level expenses (see historical PSINet financial statements
elsewhere in this Prospectus). The impact of expected economies of scale to
reduce selling, general, and administrative expenses below MindSpring's
historical relationship of such expenses to revenue have not been reflected,
as the amount is not determinable on a pro forma historical basis.

(d) Reflects the reversal of interest expense since the fixed assets to be
acquired by the Company as a result of the Acquisition will be free of any
encumbrances pursuant to the Purchase Agreement and the Company will not be
financing asset purchases with debt.

(e) Reflects additional depreciation expense associated with capital
expenditures detailed in Note (b) to the Unaudited Pro Forma Balance Sheet
appearing elsewhere in this Prospectus.

(f) Reflects the amortization of the excess of the purchase price over the
estimated fair value of the tangible and intangible assets to be acquired in
the Acquisition. The assigned lives of the acquired tangible and intangible
assets is three years. The above is based on the assumption that 66,000
subscriber accounts are acquired.

(g) Reflects the difference between the Company's historical costs and the costs
that would have been incurred under the terms of the Services Agreement. See
"Recent Transactions -- Acquisition of PSINet Assets" elsewhere in the
Prospectus for a discussion of the Services Agreement.

(h) Reflects the elimination of PSINet historical amortization associated with
the Pipeline NY acquisition.

(i) Historical loss per share is computed using the weighted average number of
shares of Common Stock adjusted for the dilutive effect of Common Stock
equivalents (Class C Preferred and stock options). Such Common Stock
equivalents are excluded from this calculation as their effect is
antidilutive. Common Stock equivalents are calculated using the treasury
stock method. The shares of Common Stock offered hereby have been included
in the pro forma calculation as if they were outstanding for all of the
period.

(j) Reflects the conversion on September 19, 1996 of 100,000 shares of Class C
Preferred into shares of Common Stock on a one-for-one basis.

F-48
<PAGE> 113

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Recent Transactions................... 19
Use of Proceeds....................... 22
Price Range of Common Stock and
Dividend Policy..................... 23
Capitalization........................ 24
Selected Financial and Operating
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 35
Management............................ 49
Certain Transactions.................. 55
Principal Stockholders................ 56
Description of Capital Stock.......... 57
Shares Eligible for Future Sale....... 59
Underwriting.......................... 60
Legal Matters......................... 61
Experts............................... 61
Available Information................. 62
Glossary of Technical Terms........... G-1
Index to Financial Statements......... F-1
</TABLE>

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

2,250,000 SHARES

[LOGO] MindSpring

COMMON STOCK

------------------------------
P R O S P E C T U S
------------------------------

J.C. Bradford & Co.
Wheat First Butcher Singer
The Robinson-Humphrey Company, Inc.

October 10, 1996

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