<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MindSpring Enterprises, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE, SUITE 400
ATLANTA, GEORGIA 30309
April 29, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of MindSpring Enterprises, Inc., to be held on Wednesday, May 28,
1997 at 10:00 a.m. (local time) at the High Museum of Art, Hill Auditorium,
1280 Peachtree Street, NE, Atlanta, Georgia.
At this meeting, you will be asked to vote, in person or by proxy, on
the following matters: (i) the election of two Class I directors and two Class
II directors to the Board of Directors; (ii) the approval of an amendment to
the Company's 1995 Stock Option Plan to increase the number of shares of the
Company's Common Stock that may be issued thereunder; (iii) the ratification of
the appointment of Arthur Andersen LLP as the Company's independent auditors;
and (iv) any other business as may properly come before the meeting or any
adjournments thereof. The official Notice of Meeting, proxy statement and form
of proxy are included with this letter. The matters listed in the Notice of
Meeting are described in detail in the proxy statement.
Regardless of your plans for attending in person, it is important that
your shares be represented and voted at the 1997 Annual Meeting. Accordingly,
you are urged to complete, sign and mail the enclosed proxy card as soon as
possible.
Sincerely,
CHARLES M. BREWER
Chairman and Chief Executive Officer
<PAGE> 3
MINDSPRING ENTERPRISES, INC.
1430 West Peachtree, Suite 400
Atlanta, Georgia 30309
(404) 815-0770
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders
(the "Annual Meeting") of MindSpring Enterprises, Inc. (the "Company") will be
held on Wednesday, May 28, 1997 at 10:00 a.m. (local time) at the High Museum
of Art, Hill Auditorium, 1280 Peachtree Street, NE, Atlanta, Georgia, to
consider and act upon the following proposals:
1. To elect two Class I directors and two Class II directors to
the Board of Directors;
2. To approve an amendment to the Company's 1995 Stock Option
Plan to increase the number of shares of the Company's Common
Stock that may be issued thereunder;
3. To ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1997; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 31,
1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. Only holders of Common Stock of
record at the close of business on that date will be entitled to notice of and
to vote at the Annual Meeting or any adjournments thereof. A list of the
Company's stockholders entitled to vote at the Annual Meeting will be open to
the examination of any stockholder for any purpose germane to the meeting
during ordinary business hours for a period of ten days before the Annual
Meeting at the Company's offices. All stockholders are cordially invited to
attend the Annual Meeting.
By Order of the Board of Directors
CHARLES M. BREWER
Chairman and Chief Executive Officer
Atlanta, Georgia
April 29, 1997
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY
TIME PRIOR TO THE TIME IT IS VOTED.
- --------------------------------------------------------------------------------
<PAGE> 4
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE, SUITE 400
ATLANTA, GEORGIA 30309
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are being furnished, on or about April 29, 1997, to the stockholders
of MindSpring Enterprises, Inc. (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company to be used at
the 1997 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
to be held on Wednesday, May 28, 1997 at 10:00 a.m. (local time) at the High
Museum of Art, Hill Auditorium, 1280 Peachtree Street, NE, Atlanta, Georgia,
and any adjournment thereof.
If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions thereon. EXECUTED
BUT UNMARKED PROXIES WILL BE VOTED: (I) FOR THE ELECTION OF TWO CLASS I
DIRECTORS AND TWO CLASS II DIRECTORS TO THE BOARD OF DIRECTORS; (II) FOR
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN (THE "1995
STOCK OPTION PLAN") TO INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON
STOCK THAT MAY BE ISSUED THEREUNDER; AND (III) FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS. If
any other matters are properly brought before the Annual Meeting, proxies will
be voted in the discretion of the proxy holders. The Company is not aware of
any such matters that are proposed to be presented at its Annual Meeting.
The cost of soliciting proxies in the form enclosed herewith will be
borne entirely by the Company. In addition to the solicitation of proxies by
mail, proxies may be solicited by directors, officers and regular employees of
the Company, without extra remuneration, by personal interviews, telephone,
telegraph or otherwise. The Company will request persons, firms and
corporations holding shares in their name or in the names of their nominees,
which are beneficially owned by others, to send proxy materials to and obtain
proxies from the beneficial owners and will reimburse the holders for their
reasonable expenses in doing so. The Company has retained Corporate
Communications, Inc. to assist the Company in a variety of investor relations
matters, including the solicitation of proxies. The Company pays Corporate
Communications, Inc. a monthly fee of $4,000 for these services, plus
reimbursement of out-of-pocket expenses.
The securities that may be voted at the Annual Meeting consist of
shares of Common Stock, par value $.01 per share ("Common Stock"), of the
Company. Each outstanding share of Common Stock entitles its owner to one vote
on each matter as to which a vote is taken at the Annual Meeting. The close of
business on March 31, 1997 has been fixed by the Board of Directors as the
record date (the "Record Date") for determination of stockholders entitled to
vote at the Annual Meeting. On the record date, 7,480,434 shares of Common
Stock were outstanding and entitled to vote. The presence, in person or by
proxy, of at least a majority of the shares of Common Stock issued and
outstanding and entitled to vote on the Record Date is necessary to constitute
a quorum at the Annual Meeting. Under Delaware corporate law and the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), directors are elected by a plurality of votes cast by the
shares present (in person or by proxy) and entitled to vote. Unless otherwise
required by law or the Company's Certificate of Incorporation or the Company's
Amended and Restated Bylaws (the "Bylaws"), any other matter put to a
stockholder vote will be decided by the affirmative vote of a majority of the
votes cast on the matter. Abstentions and broker non-votes are
<PAGE> 5
not included as votes cast and accordingly will be excluded from the total
number of votes upon which a majority is based. Thus, votes to abstain and
broker non-votes will have no effect on the vote tabulation for such proposals.
The presence of a stockholder at the Annual Meeting will not
automatically revoke the stockholder's proxy. A stockholder may, however,
revoke a proxy at any time prior to its exercise by filing with the Secretary
of the Company a written notice of revocation, by delivering to the Company a
duly executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.
-----------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
PROPOSALS SET FORTH IN THIS PROXY STATEMENT.
-----------------------------
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<PAGE> 6
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Bylaws provide that the Board of Directors shall consist of not
fewer than three directors nor more than fifteen directors and that the number
of directors, within such limits, shall be determined by resolution of the
Board of Directors. The Board of Directors currently consists of six
directors, divided into three classes of directors serving staggered three-year
terms. At the Annual Meeting, two directors will be elected, each for a
three-year term, to fill positions in Class II, the term of which expires at
the Annual Meeting. In addition, two directors will be elected, each for a
two-year term, to fill positions in Class I. The term of the Class I directors
was due to expire in 1996 but, due to the timing of the Company's initial
public offering, the Board of Directors chose not to nominate replacements for
such directors until the 1997 Annual Meeting, thereby permitting public
stockholders to participate in the election of such nominees. Each of the
nominees for Class I, if elected, will serve for two years (the balance of the
term for Class I directors) until the 1999 annual meeting of stockholders. As
described below, the Board of Directors' nominees for Class I are Michael G.
Misikoff and O. Gene Gabbard, and the Board of Directors' nominees for Class II
are Michael S. McQuary and William H. Scott, III.
Unless otherwise instructed on the proxy, properly executed proxies
will be voted for the election as directors of Messrs. Misikoff, Gabbard,
McQuary and Scott. The Board of Directors believes that all such nominees will
stand for election and will serve if elected. However, if any of the persons
nominated by the Board of Directors fails to stand for election or is unable to
accept election, proxies will be voted by the proxy holders for the election of
such other person or persons as the Board of Directors may recommend.
Directors will be elected by a plurality vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
ITS NOMINEES FOR DIRECTORS.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
Set forth below is certain information with respect to the nominees of
the Board of Directors for election as directors at the Annual Meeting and
other directors whose terms do not expire until subsequent annual meetings.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE SINCE(1) POSITION EXPIRES
---- --- -------- -------- -------
<S> <C> <C> <C> <C>
NOMINEES FOR TWO-YEAR TERM
Michael G. Misikoff . . . . . . . . 44 1995 Vice Pres., Chief Financial Officer 1996
O. Gene Gabbard (3) . . . . . . . . 56 1995 1996
NOMINEES FOR THREE-YEAR TERM
Michael S. McQuary . . . . . . . . 37 1995 President; Chief Operating Officer 1997
William H. Scott, III (2)(3) . . . 49 1994 1997
CONTINUING DIRECTORS
Charles M. Brewer (2) . . . . . . . 38 1994 Chairman; Chief Executive Officer 1998
Campbell B. Lanier, III (2)(3) . . 46 1994 1998
</TABLE>
- --------------------------
(1) The dates shown reflect the year in which these persons were first elected
as directors of the Company or its predecessor.
- 3 -
<PAGE> 7
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
The principal occupations for the past five years or more of each of
the four nominees for director and the two directors whose terms of office will
continue after the Annual Meeting are set forth below.
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
Masters in Business Administration from Stanford 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
Company, Inc. ("ITC Holding"), and several of its subsidiaries, InterCel, Inc.
("InterCel") (a wireless telecommunications company), CyberNet Holding, Inc.
("CyberNet") (a broadband telecommunications services company), and three
telecommunications technology companies, Dynatech Corporation, Adtran, Inc. and
Telogy Network, Inc. From August 1990 through January 1993, he served as
Executive Vice President and Chief Financial Officer of MCI Communications
Corporation ("MCI"). He served in various senior executive capacities,
including Chairman of the Board, President and Chief Executive Officer of
Telecom*USA, Inc. ("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, Inc. ("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
CyberNet, 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 provider of 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 Corporation ("Async"), a provider of voice
messaging services. 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 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.
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
- 4 -
<PAGE> 8
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 Masters in Business Administration 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 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 from its startup in February 1985 until March
1991. From March 1979 to February 1985, Mr. Misikoff served as Vice President
of Finance 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.
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. In addition, Mr.
Scott is an officer and director of several ITC Holding subsidiaries. Mr.
Scott is a director of InterCel, AvData and CyberNet. 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
that company from 1984 to 1987.
OTHER EXECUTIVE OFFICERS
The principal occupation during the past five years or more of the
Company's other executive officers are set forth below.
ESA AHOLA, 36, has served as the Company's Vice President of
Engineering Systems since January 1997. Mr. Ahola served as a Senior Engineer
with the Company from February 1995 to December 1996. Prior to joining the
Company, Mr. Ahola was a Senior Software Engineer with AudioFax from January
1993 to January 1995. From March 1992 to December 1992, Mr. Ahola served as a
Senior Technical Advisor with Gerber Alley Healthcare, a medical software
company. He served as a Programmer/Analyst for Medical Systems Development
Corporation, a medical software development company, from June 1986 to February
1992. Mr. Ahola received a Bachelor of Science in Information and Computer
Science from Georgia Institute of Technology.
JAMES T. MARKLE, 37, 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 Communications, a telecommunications company. Mr. Markle served in various
operation positions at SouthernNet/Telecom*USA, including Director of
Operations for a multi-state region, from July 1985 until July 1990. Mr.
Markle attended Maryville College.
SUSAN F. NICHOLSON, 36, 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
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<PAGE> 9
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, 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, 40, 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, 23, 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. STRANDBERG, 52, 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.
Strandberg served as Executive Vice President and Chief Operating Officer for
Medical Systems Development Corporation, a medical software development
company. Mr. Strandberg 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. Strandberg worked for American Enka Company, a textile manufacturer, as a
Senior Programmer and Acting Programming Manager. Mr. Strandberg received a BS
in Business Administration from Western Illinois University in 1966 and a MBA
from Western Carolina University in 1976.
GREGORY J. STROMBERG, 44, 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 Masters
in Business Administration from the University of Utah.
ALAN J. TAETLE, 33, has been the Company's Vice President of Marketing
since September 1996, having joined the Company as its Vice President of
Marketing 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
- 6 -
<PAGE> 10
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 Masters in Business Administration from Harvard
Business School.
LANCE WEATHERBY, 36, 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 Services, 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.
Executive officers are elected annually and serve at the discretion of
the Board of Directors.
CORPORATE GOVERNANCE AND OTHER MATTERS
The Board of Directors conducts its business through meetings and
through its committees. The Board of Directors acts as a nominating committee
for selecting candidates to stand for election as directors. Pursuant to the
Bylaws, other candidates may also be nominated by any stockholder, provided
such other nomination(s) are submitted in writing to the Secretary of the
Company no later than 90 days prior to the meeting of stockholders at which
such directors are to be elected, together with the identity of the nominator
and the number of shares of the Company's stock owned, directly and indirectly,
by the nominator. No such nominations have been received as of the date hereof
in connection with the Annual Meeting.
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. The current members of the
Compensation Committee are Messrs. Lanier, Scott and Gabbard.
During the year ended December 31, 1996, the Board of Directors held
13 meetings. During the same period, the Compensation Committee met five times
and the Audit Committee met once. No incumbent director attended fewer than
75% of the total number of meetings of the Board of Directors and committees of
the Board of Directors on which he served.
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 Company's Directors Stock Option Plan (the
"Directors Plan"). Under the Directors Plan, 70,000 shares of
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<PAGE> 11
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, or, in the case of Messrs. Lanier, Scott and Gabbard,
who joined the Board prior to the creation of the Directors Plan, upon the
adoption of the Directors Plan by the Board. Options are exercisable at the
fair market value of the Common Stock (as determined by the Board) on the date
of grant. The Directors Plan does not provide for discretionary option grants.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table. The following table sets forth certain
information concerning the cash and non-cash compensation during fiscal years
1995 and 1996 earned by or awarded to Charles M. Brewer, the Company's Chief
Executive Officer, and Michael S. McQuary, the only other executive officer of
the Company to receive a combined salary and bonus in excess of $100,000 during
the fiscal year ended December 31, 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL SECURITIES UNDERLYING
COMPENSATION OPTIONS (1)
------------ -------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS (1)
---------------------------- ---- ------ ---------
<S> <C> <C> <C> <C>
Charles M. Brewer 1996 $84,000 $20,000 --
Chairman and Chief Executive Officer 1995 60,000 10,000 --
Michael S. McQuary 1996 $84,000 $36,035 38,746(2)
President and Chief Operating Officer 1995 $47,750 $23,978 51,647
</TABLE>
- -------------------
(1) A portion of bonuses paid to Named Executive Officers of the Company are
paid or awarded in the first quarter of the fiscal year following the year
in which the bonus was earned.
(2) Options to purchase 12,912 shares of the Company's' Common Stock were
granted to Mr. McQuary in February 1997 for services performed in 1996.
Option Grants. The following table sets forth information with
respect to grants of stock options to each of the Named Executive Officers
during the year ended December 31, 1996. All such grants were made under the
Company's 1995 Stock Option Plan.
OPTION GRANTS DURING 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
------------------------------------------------------------------- ------------------------------
PERCENT
OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES
OPTION IN FISCAL EXERCISE EXPIRATION
NAME GRANTED (1) YEAR PRICE GRANT DATE DATE 5% 10%
---- ----------- ---- ----- ---------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Charles M. Brewer -- -- -- -- -- -- --
Michael S. McQuary 15,482 6% $6.38 1/24/96 1/24/06 $62,119 $157,422
10,352 4% $9.75 8/20/96 8/20/06 63,476 160,860
</TABLE>
- --------------------------
(1) All options represent shares of Common Stock. These options become
exercisable as follows: (i) 50% of the options become exercisable two
years after the date of grant, (ii) an additional 25% of the options become
exercisable three years after the date of grant, and (iii) the remaining
25% of the options become exercisable four years after the date of grant.
- 8 -
<PAGE> 12
Option Exercises and Fiscal Year-End Values. The following table sets
forth information regarding the value of all unexercised options held at
December 31, 1996 by the Named Executive Officers. No Named Executive Officer
exercised any stock options during the fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
----------------- --------------------
NAME AND PRINCIPAL POSITIONS UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---------------------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Charles M. Brewer -- -- -- --
Michael S. McQuary 77,481 -- $236,285 --
</TABLE>
- ---------
(1) Based on a per share price of $6.13 on December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The members of the Compensation Committee for the year ended December
31, 1996 were Messrs. Lanier, Scott and Gabbard.
As of March 31, 1997, ITC Holding owned approximately 25.8% 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 March 31, 1997, Messrs. Lanier, Scott and
Gabbard beneficially owned approximately 28%, 4% and less than 1%,
respectively, of the common stock of ITC Holding. As of March 31, 1997,
Messrs. Brewer and Misikoff each owned less than 1% of the common stock of ITC
Holding.
In August 1995, ITC Holding agreed to lend to the Company an aggregate
principal amount of up to $2,000,000 at an annual interest rate of 11% (the
"First Loan"). 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 a warrant to purchase shares of Class C
Preferred Stock, par value $.01 per share. In addition, ITC Holding agreed to
lend to the Company up to an additional $4,000,000 (the "Second Loan"). By
December 31, 1995, all principal amounts due and owing under the First Loan
were paid in full with proceeds from the Second Loan. Accrued interest on the
First Loan of approximately $39,100 and the $50,000 processing fee were paid in
full in January 1996.
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.
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
$5,000 per month for these leased telephone lines. Charges from Interstate
Telephone for telephone lines and installation charges totaled approximately
$67,000 for the year ended December 31, 1996, of which the Company had paid
approximately $63,000 as of December 31, 1996.
- 9 -
<PAGE> 13
The Company also leases a T-1 telecommunications line for data
transport for some of its points of presence from Interstate FiberNet Company
("Interstate FiberNet"), a wholly owned subsidiary of ITC Holding. The Company
pays Interstate FiberNet approximately $4,000 per month for these services.
Charges from Interstate FiberNet totaled approximately $46,000 for the year
ended December 31, 1996, of which the Company had paid approximately $41,000 as
of December 31, 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. Charges from Deltacom totaled approximately
$677,000 for the year ended December 31, 1996 of which the Company had paid
approximately $513,000 as of December 31, 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 has been renewed through June 30, 1997. Unless either party gives
180 days prior written 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has prepared the
following report on the Company's policies with respect to the compensation of
executive officers for 1996.
Decisions on compensation of the Company's executive officers
generally are made by the Compensation Committee. The Compensation Committee
also administers the Company's 1995 Stock Option Plan. No member of the
Compensation Committee is an employee of the Company. During 1996, the
Compensation Committee consisted of Messrs. Gabbard, Lanier and Scott. In
certain instances during 1996, decisions relating to the compensation of the
Company's executive officers were made by the full Board of Directors.
Policies Regarding Compensation of Executive Officers
The Company's executive compensation policies are designed to (i)
attract, motivate and retain experienced and qualified executives, (ii)
increase the overall performance of the Company, (iii) increase stockholder
value and (iv) enhance the performance of individual executives. The Company
seeks to pay competitive salaries based upon individual performance combined
with annual cash bonuses based on the Company's overall performance relative to
corporate objectives, taking into account individual contributions and
performance levels. The Compensation Committee believes that the level of base
salaries plus bonuses should generally fall between the mid-point to the high
end of the range of executive compensation paid by comparable
telecommunications companies. In addition, it is the Company's policy to grant
stock options to executives upon commencement of their employment with the
Company and periodically thereafter as appropriate in order to strengthen the
alliance of interest between such executives and the Company's stockholders.
The following describes in more specific terms the elements of
compensation that implement the Company's executive compensation policies, with
specific reference to compensation reported for 1996:
- 10 -
<PAGE> 14
Base Salaries
Base salaries for executive officers are initially determined by
evaluating the responsibilities of the position, the experience and knowledge
of the individual, and the competitive marketplace for executive talent,
including a comparison to base salaries paid for similar positions at other
companies which are deemed appropriate comparisons for compensation purposes.
Base salaries for executive officers are reviewed annually by the Compensation
Committee and the Board of Directors.
Annual salary adjustments are recommended by the Chief Executive
Officer and President after evaluating the previous year's performance and
considering the new responsibilities of each executive officer. The
Compensation Committee performs the same review of the Chief Executive
Officer's performance and the President's performance. Individual performance
evaluations take into account such factors as achievement of specific goals
that are driven by the Company's strategic plan and attainment of specific
individual objectives. The weight given to the various factors affecting an
executive officer's base salary level is determined by the Compensation
Committee on a case-by-case basis.
Annual Cash Bonuses
The Company's annual cash bonuses to its executive officers are based
on both corporate and individual performance. Corporate performance is
measured by reference to factors which reflect objective performance criteria
over which management generally has the ability to exert some degree of
control. These corporate performance factors consist of revenue and earnings
targets established in the Company's strategic plan. Bonuses for 1996 were
based upon the achievement of such financial objectives and certain operating
objectives, taking into account the impact of certain events which occurred
during the year and were not anticipated by the Company's strategic plan,
including the completion of several acquisitions of subscriber accounts from
other service providers.
Stock Option Grants
Pursuant to the Company's 1995 Stock Option Plan, executive officers
and other key employees are eligible to receive compensation in the form of
options to purchase shares of the Company's Common Stock.
The Compensation Committee grants stock options to the Company's
executive officers in order to align their interests with the interests of the
stockholders. Stock options are considered by the Compensation Committee to be
an effective long-term incentive because the executives' gains are linked to
increases in the stock value, which in turn provides stockholder gains. The
Compensation Committee generally grants options to new executive officers and
other key employees upon commencement of their employment with the Company and
periodically thereafter upon the attainment of certain performance goals
established by the Compensation Committee. The options generally are granted
at an exercise price equal to the market price of the Common Stock on the date
of grant (or 110% of the market price in the case of an optionee beneficially
owning more than 10% of the outstanding Common Stock). Options granted to
executive officers generally vest over a period of four years following the
date of grant. The maximum option term is ten years (or five years in the case
of an optionee beneficially owning more than 10% of the outstanding Common
Stock). The greater the appreciation of the stock price in future periods, the
greater the benefit to the holder of the options, thus providing an additional
incentive to executive officers to create additional value for the Company's
stockholders. Management of the Company believes that stock options have been
helpful in attracting and retaining skilled executive personnel.
In determining grants of options for executive officers, the
Compensation Committee has reviewed competitive data of long-term incentive
practices at other companies which are deemed appropriate comparisons for
compensation purposes.
- 11 -
<PAGE> 15
Other Compensation
The Company has adopted a contributory retirement plan (the "401(k)
Plan") for all of its employees (including executive officers) age 21 and over
with at least six months of service to the Company. The 401(k) Plan provides
that each participant may contribute up to 15% of his or her salary (not to
exceed the annual statutory limit).
Chief Executive Officer Compensation
The executive compensation policy described above is followed in
setting Mr. Brewer's compensation. Mr. Brewer generally participates in the
same executive compensation plans and arrangements available to the other
senior executives. Accordingly, his compensation consists of an annual base
salary, an annual cash bonus and, potentially, long-term equity-linked
compensation in the form of stock options. The Compensation Committee's
general approach in establishing Mr. Brewer's compensation is to be competitive
with peer companies, but to have a large percentage of his target compensation
based upon objective performance criteria and targets established in the
Company's strategic plan.
Mr. Brewer's compensation for the year ended December 31, 1996
consisted of a base salary of $84,000 and a $20,000 cash bonus. Mr. Brewer's
salary and bonus compensation for 1996 were based on, among other factors, the
Company's performance and the compensation of chief executive officers of
comparable companies, although his compensation was not targeted to any
particular group of these companies. At December 31, 1996, Mr. Brewer
beneficially owned 1,032,951 shares of the Company's Common Stock, or
approximately 13.8% of the outstanding shares. In view of the extent of Mr.
Brewer's equity ownership in the Company, he did not receive grants of stock
options in 1996, although the Company may make grants of stock options to Mr.
Brewer in the future.
Compensation Deductibility Policy
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and applicable Treasury regulations, no tax deduction is allowed
for annual compensation in excess of $1 million paid to any of its five most
highly compensated executive officers. However, performance-based compensation
that has been approved by stockholders is excluded from the $1 million limit
if, among other requirements, the compensation is payable only upon attainment
of pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" as defined for
purposes of Section 162(m). All of the members of the Compensation Committee
qualify as "outside directors." The Compensation Committee intends to maximize
the extent of tax deductibility of executive compensation under the provisions
of Section 162(m) so long as doing so is compatible with its determinations as
to the most appropriate methods and approaches for the design and delivery of
compensation to the Company's executive officers.
Respectfully submitted,
Compensation Committee
O. Gene Gabbard
Campbell B. Lanier, III
William H. Scott, III
- 12 -
<PAGE> 16
STOCK PERFORMANCE CHART
The following chart sets forth comparative information regarding the
Company's cumulative stockholder return on its Common Stock since the initial
public offering completed in March 1996. Total stockholder return is measured
by dividing total dividends (assuming dividend reinvestment) plus share price
change for a period by the share price at the beginning of the measurement
period. The Company's cumulative stockholder return based on an investment of
$100 at March 14, 1996, when the Common Stock was first traded on the Nasdaq
National Market, at its closing price of $8.875, is compared to the cumulative
total return of the Nasdaq Stock Market (U.S. Companies) and the Nasdaq
Computer and Data Processing Stocks index during that same period.
COMPARISON OF NINE MONTH CUMULATIVE TOTAL RETURN*
AMONG MINDSPRING ENTERPRISES, INC., THE NASDAQ STOCK MARKET
(U.S. COMPANIES) AND NASDAQ COMPUTER AND DATA PROCESSING STOCKS
[GRAPH CHART APPEARS HERE]
<TABLE>
<CAPTION>
MindSpring NASDAQ Stock NASDAQ Computer and
Enterprises, Inc. Market (U.S. Companies) DP Stocks
<S> <C> <C> <C>
March 14, 1996 $100.00 $100.00 $100.00
March 29, 1996 88.73 101.07 101.01
June 28, 1996 119.72 109.32 112.28
September 30, 1996 123.94 113.21 114.51
December 31, 1996 69.01 118.76 119.09
</TABLE>
$100 invested on March 14, 1996, including reinvestment of dividends.
Fiscal year ending December 31, 1996.
- 13 -
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED 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
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation."
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons who beneficially own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the
"Commission"). Directors, officers and greater than ten percent beneficial
owners are required by the Commission's regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of copies of such forms furnished to the
Company and certain of the Company's internal records, or upon written
representations that no Form 5s were required, the Company believes that during
the year ended December 31, 1996, except as described below, all Section 16(a)
filing requirements applicable to its directors, officers and greater than ten
percent beneficial owners were complied with.
Each of Messrs. Gabbard, Lanier, McQuary, Nixon, Scott, Stromberg and
Taetle filed a Form 5 to report a grant of stock options made by the Company to
each of them in the six months prior to their becoming subject to Section 16
and which was not previously reported on a Form 4. Mr. Scott reported on the
same Form 5 a purchase of Common Stock made by his wife in the six months prior
to his becoming subject to Section 16 and which was not previously reported on
a Form 4.
- 14 -
<PAGE> 18
APPROVAL OF AN AMENDMENT TO THE
1995 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK
THAT MAY BE ISSUED THEREUNDER
(PROPOSAL 2)
On March 26, 1997, the Board of Directors adopted an amendment to the
Company's 1995 Stock Option Plan, subject to stockholder approval at the Annual
Meeting, to increase the number of shares of Common Stock that may be issued
thereunder to 900,000 shares from 616,668 shares. At the Annual Meeting, the
stockholders of the Company will be asked to consider and vote on the proposed
amendment to the 1995 Stock Option Plan. Unless otherwise instructed on the
proxy, properly executed proxies will be voted in favor of approving the
proposed amendment to the 1995 Stock Option Plan. The affirmative vote of a
majority of the votes cast at the Annual Meeting is required to approve
Proposal 2.
The purpose of the 1995 Stock Option Plan is to advance the interests
of the Company by providing eligible individuals an opportunity to acquire or
increase a proprietary interest in the Company, which thereby will create a
stronger incentive to expend maximum effort for the growth and success of the
Company and will encourage such eligible individuals to remain in the employ of
the Company. The Board of Directors believes that stock options are important
to attract and to encourage the continued employment and service of officers
and other key employees by facilitating their purchase of a stock interest in
the Company and that increasing the aggregate number of stock options available
under the 1995 Stock Option Plan will afford the Company additional flexibility
in making awards deemed necessary in the future. The only change proposed by
the amendment is an increase in the number of shares that may be issued under
the 1995 Stock Option Plan. The amendment does not alter the considerations of
the Compensation Committee with respect to grants under the 1995 Stock Option
Plan. Because the award of options are completely within the discretion of the
Compensation Committee, it is not possible to determine at this time the awards
that may be made to officers or other employees.
The following is a summary description of the 1995 Stock Option Plan,
which was originally approved by the stockholders of the Company effective
December 27, 1995.
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
Under the Company's 1995 Stock Option Plan, 900,000 shares of Common
Stock are reserved and authorized for issuance upon the exercise of options
issued pursuant to the 1995 Stock Option Plan. All employees of the Company
are eligible to receive options under the 1995 Stock Option Plan, which is
administered by the Compensation Committee of the Board of Directors. Options
granted under the 1995 Stock Option Plan are intended to qualify as incentive
stock options under Section 422 of the Code, unless they exceed certain
limitations or are specifically designated otherwise. As of the Record Date,
options to purchase 616,972 shares of Common Stock had been granted under the
1995 Stock Option Plan, at exercise prices ranging from $.64 to $12.375 per
share.
The option exercise price for incentive stock options granted under the
1995 Stock Option Plan may not be less than 100% of the fair market value of
the Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding Common Stock). In the case of an option not intended to
constitute an incentive stock option, the option price shall be not less than
the par value of the stock covered by the option. The maximum option term is
10 years (or five years in the case of an incentive stock option granted to an
optionee beneficially owning more than 10% of the outstanding Common Stock).
Options generally become exercisable as follows: (i) 50% of the options become
exercisable two years after the
- 15 -
<PAGE> 19
date of grant, or in certain cases, the commencement date of the holder's
employment; (ii) an additional 25% of the options become exercisable three
years after the date of grant, or in certain cases, the commencement date of
the holder's employment; and (iii) the remaining 25% of the options become
exercisable four years after the date of grant, or in certain cases, the
commencement date of the holder's employment.
Payment for shares purchased under the 1995 Stock Option Plan may be made
either in cash or, if permitted by the particular option agreement, by
exchanging shares of Common Stock of the Company with a fair market value equal
to the total option exercise price plus cash for any difference. Options may,
if permitted by the particular option agreement, be exercised by directing that
certificates for the shares purchased be delivered to a licensed broker as
agent for the optionee, provided that the broker tenders to the Company cash or
cash equivalents equal to the option exercise price.
The Board of Directors may terminate or suspend the 1995 Stock Option Plan
at any time. Unless previously terminated, the 1995 Stock Option Plan will
terminate automatically on February 21, 2005, the tenth anniversary of the
date of adoption of the 1995 Stock Option Plan by the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCE
The grant of an option is not a taxable event for the optionee or the
Company.
Incentive Stock Options. An optionee will not recognize taxable income
upon exercise of an incentive stock option (except that the alternative minimum
tax may apply), and any gain realized upon a disposition of shares of Common
Stock received pursuant to the exercise of an incentive stock option will be
taxed as long-term capital gain if the optionee holds the shares of Common
Stock for at least two years after the date of grant and for one year after the
date of exercise (the "holding period requirement"). The Company will not be
entitled to any business expense deduction with respect to the exercise of an
incentive stock option, except as discussed below.
For the exercise of an incentive stock option to qualify for the foregoing
tax treatment, the optionee generally must be an employee of the Company from
the date the option is granted through a date within three months before the
date of exercise of the option. In the case of an optionee who is disabled,
the three-month period is extended to one year. In the case of an employee who
dies, the three-month period and the holding period requirement for shares of
Common Stock received pursuant to the exercise of the option are waived.
If all of the requirements for incentive option treatment are met except
for the holding period requirement, the optionee will recognize ordinary income
upon the disposition of shares of Common Stock received pursuant to the
exercise of an incentive stock option in an amount equal to the excess of the
fair market value of the shares of Common Stock at the time the option was
exercised over the exercise price. The balance of the realized gain, if any,
will be long- or short-term capital gain, depending upon whether or not the
shares of Common Stock were sold more than one year after the option was
exercised. The Company will be allowed a business expense deduction to the
extent the optionee recognizes ordinary income, subject to Section 162(m) of
the Code as summarized below.
If an optionee exercises an incentive stock option by tendering shares of
Common Stock with a fair market value equal to part or all of the option
exercise price, the exchange of shares will be treated as a nontaxable exchange
(except that this treatment would not apply if the optionee had acquired the
shares being transferred pursuant to the exercise of an incentive stock option
and had not satisfied the holding period requirement summarized above). If the
exercise is treated as a tax free exchange, the optionee would have no taxable
income from the exchange and exercise (other than alternative minimum taxable
income as noted above) and the tax basis of the shares of Common Stock
exchanged would be treated as the substituted basis for the shares of Common
Stock received. If the optionee used shares received pursuant to the exercise
of an incentive stock option (or another
- 16 -
<PAGE> 20
statutory option) as to which the optionee had not satisfied the holding period
requirement, the exchange would be treated as a taxable disqualifying
disposition of the exchanged shares, and the excess of the fair market value of
the shares tendered over the optionee's basis in the shares would be taxable.
Non-Qualified Options. Upon exercising an option that is not an incentive
stock option, an optionee will recognize ordinary income in an amount equal to
the difference between the exercise price and the fair market value of the
shares of Common Stock on the date of exercise (except that, if the optionee is
subject to certain restrictions imposed by securities laws, the measurement
date will be deferred, unless the optionee makes a special tax election within
30 days after exercise to have income determined without regard to the
restrictions). Upon a subsequent sale or exchange of shares of Common Stock
acquired pursuant to the exercise of a non-qualified stock option, the optionee
will have taxable gain or loss, measured by the difference between the amount
realized on the disposition and the tax basis of the shares of Common Stock
(generally, the amount paid for the shares of Common Stock plus the amount
treated as ordinary income at the time the option was exercised).
If the Company complies with applicable reporting requirements and
with the restrictions of Section 162(m) of the Code, it will be entitled to a
business expense deduction in the same amount and generally at the same time as
the optionee recognizes ordinary income. Under Section 162(m) of the Code, if
the optionee is one of certain specified executive officers, then, unless
certain exceptions apply, the Company is not entitled to deduct compensation
with respect to the optionee, including compensation related to the exercise of
stock options, to the extent such compensation in the aggregate exceeds
$1,000,000 for the taxable year. The options are intended to comply with the
exception to Section 162(m) for "performance-based" compensation.
If the optionee surrenders shares of Common Stock in payment of part or
all of the exercise price for non-qualified stock options, no gain or loss will
be recognized with respect to the shares of Common Stock surrendered
(regardless of whether the shares were acquired pursuant to the exercise of an
incentive stock option) and the optionee will be treated as receiving an
equivalent number of shares of Common Stock pursuant to the exercise of the
option in a nontaxable exchange. The basis of the shares of Common Stock
surrendered will be treated as the substituted tax basis for an equivalent
number of option shares received and the new shares will be treated as having
been held for the same holding period as had expired with respect to the
transferred shares. The difference between the aggregate option exercise price
and the aggregate fair market value of the shares of Common Stock received
pursuant to the exercise of the option will be taxed as ordinary income. The
optionee's basis in the additional shares of Common Stock will be equal to the
amount included in the optionee's income.
PLAN BENEFITS
The table below indicates options granted as of March 31, 1997 under the
1995 Stock Option Plan. The option exercise price of options granted under the
1995 Stock Option Plan have not been less than the fair market value of the
Company's Common Stock on the date of grant, as determined pursuant to the 1995
Stock Option Plan.
- 17 -
<PAGE> 21
PLAN BENEFITS
<TABLE>
<CAPTION>
1995 STOCK OPTION PLAN
----------------------
AVERAGE PER SHARE NUMBER
NAME AND POSITION(S) EXERCISE PRICE($) OF OPTIONS (#)
-------------------- ----------------- --------------
<S> <C> <C>
Charles M. Brewer $-0- -0-
Chairman and Chief Executive Officer
Michael S. McQuary $4.40 90,393
President and Chief Operating Officer
Michael G. Misikoff $0.64 51,647
Vice President, Chief Financial Officer
Secretary & Treasurer
Executive Group (12 persons) $2.52 332,970
Non-Executive Director
Group (3 persons)(1) $-0- -0-
Non-Executive Officer Employee Group
(288 persons) $7.65 283,822
</TABLE>
- ---------
(1) Non-employee directors are not eligible to receive option grants under
the 1995 Stock Option Plan.
Based on the closing price of $8.00 per share on April 17, 1997, the
aggregate market value of the 568,251 shares of Common Stock that are issuable
pursuant to outstanding options under the 1995 Option Plan is $4,456,008.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
- 18 -
<PAGE> 22
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL 3)
The Board of Directors has appointed Arthur Andersen LLP ("Arthur
Andersen") as the Company's independent auditors for the fiscal year ending
December 31, 1997, subject to ratification by stockholders at the Annual
Meeting. Representatives of Arthur Andersen will be present at the Annual
Meeting and will have the opportunity to make a statement if they so desire and
be available to respond to appropriate questions. Unless otherwise instructed
on the proxy, properly executed proxies will be voted in favor of ratifying the
appointment of Arthur Andersen to audit the books and accounts of the Company
for the fiscal year ending December 31, 1997. The affirmative vote of a
majority of the votes cast at the Annual Meeting is required to approve
Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
- 19 -
<PAGE> 23
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of the Record Date
concerning beneficial ownership of Common Stock by (1) each person or entity
known by the Company to beneficially own more than 5% of the outstanding Common
Stock, (2) each director and nominee for director of the Company, (3) each
Named Executive Officer, and (4) 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>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP (1) STOCK OUTSTANDING
------------------------ -------------- -----------------
<S> <C> <C>
ITC Holding Company, Inc. (2)(3) . 1,933,489 25.8%
Charles M. Brewer(4) . . . . . . . 1,032,951 13.8
O. Gene Gabbard(5) . . . . . . . 5,000 *
Campbell B. Lanier, III(5) . . . . 6,200 *
Michael S. McQuary . . . . . . . 63,920 *
Michael G. Misikoff (6) . . . . . 103,796 1.4
William H. Scott, III(5) . . . . . 6,500 *
All executive officers and . . . . 1,288,407 17.2%
directors as a group (15
persons)(7)
</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 the Record Date. 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) The address of ITC Holding Company, Inc. is 1239 O.G. Skinner Drive,
West Point, Georgia 31833.
(3) On January 29, 1996, ITC Holding pledged all of its stock in the
Company to certain lenders in connection with a credit facility.
(4) The address for Charles M. Brewer is MindSpring Enterprises, Inc.,
1430 West Peachtree, Suite 400, Atlanta, Georgia 30309.
(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 by his wife. Mr. Scott is
the President and a director of ITC Holding and is a beneficial owner
of approximately 4% of its common stock. Mr. Scott's beneficial
ownership of MindSpring includes 500 shares of Common Stock held by
his wife and 1,000 shares of Common Stock held in trust for Mr.
Scott's minor daughter, of which Mr. Scott's wife is trustee. 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) Includes 25,824 shares of Common Stock that Mr. Misikoff has the right
to purchase within 60 days from the Record Date pursuant to options.
(7) Includes 81,869 shares of Common Stock that such persons have the
right to purchase within 60 days from the Record Date pursuant to
options.
- 20 -
<PAGE> 24
DATE OF SUBMISSION OF STOCKHOLDER PROPOSALS
TO BE INCLUDED IN PROXY MATERIALS
Any proposal or proposals intended to be presented by any stockholder
at the 1998 Annual Meeting of Stockholders must be received by the Company by
December 31, 1997 to be considered for inclusion in the Company's proxy
statement and form of proxy relating to that meeting.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this proxy statement, the Board of Directors knows
of no other business which may come before the Annual Meeting. If any other
business is properly brought before the Annual Meeting, it is the intention of
the proxy holders to vote or act in accordance with their best judgment with
respect to such matters.
By Order of the Board of Directors
CHARLES M. BREWER
Chairman and Chief
Executive Officer
Atlanta, Georgia
April 29, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1996 ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY IS
REQUIRED TO FILE AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1996 WITH THE SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN,
FREE OF CHARGE, A COPY OF THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K
(WITHOUT EXHIBITS) BY WRITING TO MINDSPRING ENTERPRISES, INC., ATTENTION: SUSAN
NICHOLSON, 1430 WEST PEACHTREE, SUITE 400, ATLANTA, GEORGIA 30309. THE COMPANY
WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON PAYMENT OF A
REASONABLE FEE.
- 21 -
<PAGE> 25
MINDSPRING ENTERPRISES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of MindSpring Enterprises, Inc. (the
"Company") hereby appoints Campbell B. Lanier, III, Charles M. Brewer, and
Michael G. Misikoff, or any of them, with full power of substitution, as
proxies to cast all votes, as designated below, which the undersigned
stockholder is entitled to cast at the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") to be held on Wednesday, May 28, 1997 at 10:00 a.m. (local
time) at the High Museum of Art, Hill Auditorium, 1280 Peachtree Street, NE,
Atlanta, Georgia, upon the following matters and any other matter as may
properly come before the Annual Meeting or any adjournments thereof.
1. Election of two Class I Directors and two Class II directors to the
Board of Directors:
Class I Directors:
Michael G. Misikoff
O. Gene Gabbard
Class II Directors:
Michael S. McQuary
William H. Scott, III
[ ] FOR all the nominees listed above (except as marked to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed above.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED
BELOW.)
--------------------------------------------------------------
2. Proposal to approve the amendment to the 1995 Stock Option Plan to
increase the number of shares of the Company's Common Stock that may
be issued thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
<PAGE> 26
(continued from other side)
This proxy, when properly executed, will be voted as directed by the
undersigned stockholder and in accordance with the best judgment of the proxies
as to other matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
THE NOMINEES LISTED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND IN ACCORDANCE
WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN PROPOSAL
1, AND "FOR" PROPOSALS 2 AND 3.
The undersigned hereby acknowledges prior receipt of the Notice of
Annual Meeting of Stockholders and proxy statement dated April 29, 1997 and the
1997 Annual Report to Stockholders, and hereby revokes any proxy or proxies
heretofore given. This Proxy may be revoked at any time before it is voted by
delivering to the Secretary of the Company either a written revocation of proxy
or a duly executed proxy bearing a later date, or by appearing at the Annual
Meeting and voting in person.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
Date: , 1997.
-----------------
-------------------------------------
-------------------------------------
Signature of Stockholder or Authorized
Representative
Please date and sign exactly as name appears
hereon. Each executor, administrator,
trustee, guardian, attorney-in-fact and other
fiduciary should sign and indicate his or her
full title. In the case of stock ownership
in the name of two or more persons, all
persons should sign.
[ ] I PLAN TO ATTEND THE MAY 28, 1997 ANNUAL STOCKHOLDERS MEETING
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
