<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] 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:
<PAGE> 2
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GEORGIA 30309
May __, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of MindSpring Enterprises, Inc., to be held on Wednesday, June 17,
1998 at 9:00 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 directors to serve on the Board
of Directors, each for a three-year term; (ii) the approval of, as separate
matters, amendments to the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock and to eliminate the Company's Class C Preferred Stock; (iii) 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; (iv) the approval of an amendment to the Company's Directors Stock
Option Plan to provide for discretionary grants of options to non-employee
Directors of the Company; (v) the ratification of the appointment of Arthur
Andersen LLP as the Company's independent auditors; and (vi) 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 accompanying Proxy Statement.
Regardless of your plans for attending in person, it is important that
your shares be represented and voted at the 1998 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 Street, Suite 400
Atlanta, Georgia 30309
(404) 815-0770
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") of MindSpring Enterprises, Inc. (the "Company") will be
held on Wednesday, June 17, 1998 at 9:00 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 directors to serve on the Board of Directors,
each for a three-year term and until their respective
successors are elected and qualified;
2. To approve and adopt an amendment to Article 4 of the
Company's Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of the Company's
Common Stock;
3. To approve and adopt an amendment to Article 4 of the
Company's Amended and Restated Certificate of Incorporation to
eliminate the Company's Class C Preferred Stock;
4. 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;
5. To approve an amendment to the Company's Directors Stock
Option Plan to provide for discretionary grants of options to
non-employee Directors of the Company;
6. To ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1998; and
7. 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 May 5, 1998
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
May __, 1998
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
<PAGE> 4
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> 5
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GEORGIA 30309
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1998
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 May ___, 1998, 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 1998 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
to be held on Wednesday, June 17, 1998 at 9:00 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" PROPOSAL 1 TO ELECT THE BOARD OF
DIRECTORS' TWO NOMINEES FOR DIRECTOR; (II) "FOR" PROPOSALS 2 AND 3 TO APPROVE,
AS SEPARATE ITEMS, AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S
COMMON STOCK AND TO ELIMINATE THE COMPANY'S CLASS C PREFERRED STOCK; (III)
"FOR" PROPOSAL 4 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; (IV) "FOR" PROPOSAL 5 TO APPROVE AN AMENDMENT TO THE
COMPANY'S DIRECTORS STOCK OPTION PLAN TO PROVIDE FOR DISCRETIONARY GRANTS OF
OPTIONS TO NON-EMPLOYEE DIRECTORS OF THE COMPANY; AND (V) "FOR" PROPOSAL 6 TO
RATIFY THE BOARD OF DIRECTORS' 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 May 5, 1998 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, 7,572,830 shares of Common Stock were
outstanding and entitled to vote. The
<PAGE> 6
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.
Assuming the presence of a quorum at the Annual Meeting, a plurality of
the votes cast at the Annual Meeting is required for election of directors, a
majority of the votes of the outstanding shares of Common Stock is required to
approve the amendments to the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), and a majority of the votes
cast at the Annual Meeting is required to approve the amendments to the
Company's 1995 Stock Option Plan and Directors Stock Option Plan and to ratify
the appointment of Arthur Andersen LLP as the Company's independent public
accountants for the 1998 fiscal year. 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 will be treated as shares that are
present, in person or by proxy, and entitled to vote for purposes of determining
the presence of a quorum at the Annual Meeting. Because abstentions will be
counted for purposes of determining the shares present or represented at the
Annual Meeting and entitled to vote, abstentions will have the same effect as a
vote "against" Proposals 2, 3, 4, 5 and 6. Abstentions on Proposal 1 will not
have any effect on the approval of Proposal 1. Broker non-votes on a
particular matter are not deemed to be shares present and entitled to vote on
such matter and, assuming presence of a quorum, will not affect whether any
proposal other than Proposals 2 and 3 is approved at the Annual Meeting. Broker
non-votes on Proposals 2 and 3 will have the same effect as a vote "against"
Proposals 2 and 3.
The presence of a stockholder at the Annual Meeting will not
automatically revoke such stockholder's proxy. Stockholders 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> 7
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 III, the term of which expires at
the Annual Meeting. As described below, the Board of Directors' nominees for
Class III are Charles M. Brewer and Campbell B. Lanier, III.
Unless otherwise instructed on the proxy, properly executed proxies
will be voted for the election as directors of Messrs. Brewer and Lanier. 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
The following table sets forth certain information regarding the Board
of Directors' two nominees for election as directors and those directors who
will continue to serve as such after the Annual Meeting.
<TABLE>
<CAPTION>
AGE AT DIRECTOR POSITION(S) HELD TERM
NAME MARCH 31, 1998 SINCE (1) WITH THE COMPANY EXPIRES
---- -------------- --------- ---------------- -------
<S> <C> <C> <C> <C>
NOMINEES
Charles M. Brewer . . . . . . . . . . . . . 39 1994 Chairman, Chief Executive Officer 1998
Campbell B. Lanier, III (2)(3) . . . . . . 47 1994 1998
CONTINUING DIRECTORS
Michael S. McQuary . . . . . . . . . . . . 38 1995 President, Chief Operating Officer 2000
William H. Scott, III (2)(3) . . . . . . . 50 1994 2000
Michael G. Misikoff . . . . . . . . . . . . 45 1995 Vice President, Chief Financial
Officer, Secretary and Treasurer 1999
O. Gene Gabbard (2)(3) . . . . . . . . . . 57 1995 1999
</TABLE>
- -------------------------
(1) The dates shown reflect the year in which these persons were first elected
as directors of the Company or its predecessor.
(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 two nominees for director and the four 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
- 3 -
<PAGE> 8
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. 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, as well as
ITC/\DeltaCom, Inc. ("ITC/\DeltaCom") (a carriers' carrier and retail
telecommunications company), Powertel, Inc. ("Powertel") (a wireless
telecommunications company) (formerly known as InterCel, Inc.), KNOLOGY
Holdings, Inc. ("KNOLOGY") (a broadband telecommunications services company)
(formerly known as CyberNet Holding, Inc.), and two telecommunications
technology companies, Dynatech Corporation and Adtran, 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
Telecom'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. Mr.
Gabbard has served as a Managing Director of South Atlantic Private Equity Fund
IV, Limited Partnership since 1997.
CAMPBELL B. LANIER, III has served as a Director of the Company since
November 1994. Mr. Lanier has served as Chairman of the Board and Chief
Executive Officer of ITC Holding (or its predecessors) since its inception in
1985. In addition, Mr. Lanier is an officer and director of several ITC
Holding subsidiaries. He is also the Chairman of ITC/\DeltaCom and is a
director of ITC/\DeltaCom, KNOLOGY, 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
Powertel. 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. Mr. Lanier has served as Managing
Director of South Atlantic Private Equity Fund IV, Limited Partnership since
1997.
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. 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
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<PAGE> 9
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. 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 (or its
predecessors) since December 1991 and has been a director of ITC Holding (or
its predecessors) since May 1989. In addition, Mr. Scott is an officer and
director of several ITC Holding subsidiaries. Mr. Scott is a director of
ITC/\DeltaCom, KNOLOGY, Powertel and AvData. From 1989 to 1991, he served as
Executive Vice President of ITC Holding. 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.
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. Gabbard, 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 "1995 Stock Option
Plan"). The current members of the Compensation Committee are Messrs. Gabbard,
Lanier and Scott.
During the year ended December 31, 1997, the Board of Directors held
12 meetings. During the same period, the Compensation Committee met twelve
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 Stock Option Plan"). Under the Directors Stock Option Plan, 70,000
shares of Common Stock are authorized for issuance to non-employee directors
(in the form of 10,000 options per director) upon their initial election or
appointment to the Board, or, in the case of Messrs. Gabbard, Lanier and Scott,
who joined the Board prior to the creation of the Directors Stock Option Plan,
upon the adoption of the Directors Stock Option 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 Stock Option Plan was amended in
March 1998, subject to stockholder approval at
- 5 -
<PAGE> 10
the Annual Meeting, to provide for discretionary option grants. Each of
Messrs. Gabbard, Lanier and Scott received a grant of 5,000 options upon
adoption of this amendment.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table. The following table sets forth the
compensation paid during the periods indicated to the Chief Executive Officer
of the Company and to each of the four other most highly compensated executive
officers of the Company during the fiscal year ended December 31, 1997 (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 (2) 1997 $150,000 $65,550 2,438
Chairman and Chief Executive Officer 1996 84,000 20,000 --
1995 60,000 10,000 --
Michael S. McQuary (3) 1997 $125,000 $43,700 2,438
President and Chief Operating Officer 1996 84,000 36,035 38,746
1995 47,750 23,978 51,647
Michael G. Misikoff (4) 1997 $105,000 $22,943 1,024
Vice President, Chief Financial 1996 84,000 6,300 --
Officer, Secretary, Treasurer and 1995 55,000 1,500 51,647
Director
James T. Markle (5) 1997 $96,000 $20,976 936
Vice President of Network Operations 1996 96,000 6,030 --
1995 84,000 15,750 25,823
Alan J. Taetle (6) (7) 1997 $92,833 $22,312 981
Senior Vice President of Marketing 1996 77,000 7,826 --
1995 70,000 13,125 36,653
</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) Mr. Brewer was granted options to purchase 2,438 shares of the Company's
Common Stock in January 1998 for services performed in 1997.
(3) Mr. McQuary was granted options to purchase 2,438 shares of the Company's
Common Stock in January 1998 for services performed in 1997 and options to
purchase 12,912 shares of the Company's Common Stock in February 1997 for
services performed in 1996.
(4) Mr. Misikoff was granted options to purchase 1,024 shares of the Company's
Common Stock in January 1998 for services performed in 1997.
(5) Mr. Markle was granted options to purchase 936 shares of the Company's
Common Stock in January 1998 for services performed in 1997.
(6) Mr. Taetle was granted options to purchase 981 shares of the Company's
Common Stock in January 1998 for services performed in 1997.
(7) Mr. Taetle resigned his position as executive officer of the Company
effective April 13, 1998.
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, 1997. All such grants were made under the
Company's 1995 Stock Option Plan.
- 6 -
<PAGE> 11
<TABLE>
<CAPTION>
OPTION GRANTS DURING 1997
-------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED 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 12,912 8.5% $9.125 2/26/97 2/26/07 $ 74,098 $ 187,778
Michael G. Misikoff -- -- -- -- -- -- --
James T. Markle -- -- -- -- -- -- --
Alan J. Taetle -- -- -- -- -- -- --
</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.
Option Exercises and Fiscal Year-End Values. The following table sets
forth information with respect to the Named Executive Officers concerning the
exercise of options during the fiscal year ended December 31, 1997, the number
of securities underlying unexercised options at 1997 year-end and the year-end
value of all unexercised in-the-money options held by such individuals.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(2)(3)
ACQUIRED ON VALUE ----------------- -----------------------
EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Brewer -- -- -- -- -- --
Michael S. McQuary -- -- 25,824 64,569 $ 828,305 $1,813,578
Michael G. Misikoff 25,823 $ 199,741 -- 25,824 -- 851,805
James T. Markle -- -- 12,912 12,911 425,902 425,869
Alan J. Taetle 18,077 139,826 -- 18,576 -- 609,859
</TABLE>
- ----------------------------
(1) Represents the difference between the exercise price and the closing price
of the Common Stock on the Nasdaq National Market upon the date of
exercise.
(2) Represents the difference between the exercise price and the closing price
of the Common Stock on the Nasdaq National Market at December 31, 1997.
(3) Based on a per share price of $33.625 on December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The members of the Compensation Committee for the year ended December
31, 1997 were Messrs. Gabbard, Lanier and Scott.
As of April 15, 1998, ITC Holding owned approximately 30% 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 October 20, 1997, Messrs. Lanier, Scott and
Gabbard beneficially owned approximately 21.4%, 2.0% and less than 1.0%,
respectively, of the common
- 7 -
<PAGE> 12
stock of ITC Holding. As of October 20, 1997, Messrs. Brewer and Misikoff each
owned less than 1.0% of the common stock of ITC Holding.
The Company has entered into certain business relationships with
subsidiaries of ITC Holding. The Company leases T-1 telecommunications lines
for data transport for some of its points of presence and purchases long
distance telephone services, maintenance and installation services and wide
area network transport service from ITC/\DeltaCom, Inc., which until October
20, 1997 was owned by ITC Holding and is now owned by substantially the same
stockholders as ITC Holding. The Company pays ITC/\DeltaCom approximately
$168,000 per month for these services. Charges from ITC/\DeltaCom totaled
approximately $2,143,000 for the year ended December 31, 1997, of which the
Company had paid approximately $1,888,000 as of December 31, 1997.
The Company leases telephone lines from, and has contracts for
maintenance and installation with, Interstate Telephone Company, Inc.
("Interstate Telephone"), a wholly-owned subsidiary of ITC Holding. The
Company pays Interstate Telephone approximately $11,000 per month for these
leased telephone lines. Charges from Interstate Telephone for telephone lines
and installation charges and payments made to Interstate Telephone totaled
approximately $133,000 for the year ended December 31, 1997.
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 1997.
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 1997, the
Compensation Committee consisted of Messrs. Gabbard, Lanier and Scott.
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 1997:
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.
<PAGE> 13
Annual salary adjustments are recommended by the Chief Executive
Officer and the 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 1997 were
based upon the achievement of such financial objectives and certain operating
objectives.
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.
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).
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<PAGE> 14
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 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, 1997
consisted of a base salary of $150,000 and a $65,550 cash bonus. In January,
1998, Mr. Brewer was granted stock options to purchase 2,438 shares of Common
Stock for services performed in 1997. Mr. Brewer's salary and bonus
compensation for 1997 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.
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 the Company's
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
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<PAGE> 15
STOCK PERFORMANCE CHART
The following chart sets forth comparative information regarding the
Company's cumulative stockholder return on its Common Stock since March 14,
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 CRSP
Total Return Index for the Nasdaq National Market (U.S. Companies) (the "Nasdaq
Market Index") and the CRSP Total Return Index for Nasdaq Computer and Data
Processing Services Stocks (the "C&DP Index") during that same period.
COMPARISON OF TWENTY-ONE MONTH CUMULATIVE TOTAL RETURN*
AMONG MINDSPRING ENTERPRISES, INC.,
THE NASDAQ MARKET INDEX AND THE C&DP INDEX
<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
March 31, 1997 80.28 112.33 110.52
June 30, 1997 118.31 132.93 141.71
September 30, 1997 243.66 155.41 154.98
December 31, 1997 378.87 145.78 146.29
</TABLE>
* $100 invested on March 14, 1996, including reinvestment of dividends.
Fiscal year ending December 31, 1997.
- 11 -
<PAGE> 16
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."
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997, all Section 16(a) filing requirements
applicable to its directors, officers and greater than ten percent beneficial
owners were satisfied with the exception that Mr. Esa Ahola, Mr. Lance
Weatherby and Ms. Susan Nicholson each failed to file one report on a timely
basis.
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<PAGE> 17
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL 2)
On April 28, 1998, the Board of Directors adopted an amendment to
Article 4 of the Certificate of Incorporation, subject to stockholder approval
at the Annual Meeting, to increase the number of authorized shares of Common
Stock to 60,000,000 shares from 15,000,000 shares, and as a result, to increase
the Company's total authorized shares of capital stock to 61,000,000 from
21,000,000 (assuming approval of Proposal 3 to eliminate the Company's Class C
Preferred Stock, par value $.01 per share (the "Class C Preferred Stock")). At
the Annual Meeting, the stockholders of the Company will be asked to consider
and vote on the proposed amendment to Article 4 of the Certificate of
Incorporation, substantially in the form included in Attachment A hereto. The
Board of Directors recommends that the stockholders of the Company adopt
Proposal 2. If Proposal 2 is approved by the stockholders at the Annual
Meeting, the proposed amendment to the Certificate of Incorporation will become
effective upon the filing of a Certificate of Amendment of Certificate of
Incorporation with the Secretary of State of the State of Delaware, which is
expected to occur promptly after the Annual Meeting. Unless otherwise
instructed on the proxy, properly executed proxies will be voted in favor of
approving the proposed amendment to Article 4 of the Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
60,000,000. The affirmative vote of a majority of the voting rights of the
shares of Common Stock outstanding as of the Record Date is required to approve
Proposal 2.
The Certificate of Incorporation currently authorizes 21,000,000
shares of capital stock, divided into three classes as follows: (i) 15,000,000
shares of Common Stock; (ii) 5,000,000 shares of Class C Preferred Stock; and
(iii) 1,000,000 shares of serial preferred stock, par value $.01 per share (the
"Preferred Stock"), of which 7,572,830 shares of Common Stock and no shares of
Class C Preferred Stock and no shares of Preferred Stock were issued and
outstanding on the Record Date. As of the Record Date, 598,739 shares of Common
Stock were subject to issuance upon exercise of outstanding options previously
issued by the Company.
The Board of Directors believes that the proposed increase in the
authorized shares of Common Stock is desirable to enhance the Company's
flexibility in connection with possible future actions, such as stock splits,
stock dividends, acquisitions, financing transactions, employee benefit plan
issuances, and such other corporate purposes as may arise. Having such
authorized Common Stock available for issuance in the future will give the
Company greater flexibility and will allow additional shares of Common Stock to
be issued without the expense and delay of a stockholders' meeting. Such a
delay might deny the Company the flexibility the Board views as important in
facilitating the effective use of the Company's securities. The rules of the
National Association of Securities Dealers, Inc. ("NASD") currently require
stockholder approval by issuers of securities quoted on the Nasdaq National
Market, on which the Common Stock is currently quoted, as to the issuance of
shares of common stock or securities convertible into common stock in several
instances, including actions resulting in a change of control of the company,
acquisition transactions involving directors, officers or substantial security
holders where the present or potential issuance of such securities could result
in an increase in outstanding common shares or voting power of 5% or more,
acquisition transactions generally where the present or potential issuance of
such securities could result in an increase in the voting power or outstanding
common shares of 20% or more, and certain other sales or issuances of common
stock (or securities convertible into or exercisable for common stock) in a
non-public offering equal to 20% or more of the voting power outstanding before
the issuance for less than the greater of book or market value of the stock.
Exceptions to these rules may be made upon application to the NASD. In other
instances, the issuance of additional shares of Common Stock remains within the
discretion of the Board of Directors, without the requirement of further action
by stockholders except as otherwise required by applicable law or any stock
exchange
- 13 -
<PAGE> 18
on which the Company's securities may then be listed. The Company is not
currently engaged in any negotiations with respect to the use of any shares of
the additional authorized Common Stock, nor are there currently any
commitments, arrangements, understandings or plans with respect to the issuance
of such shares.
If the proposal to increase the authorized shares of Common Stock is
approved, the additional authorized shares will be part of the existing class
of such Common Stock and will increase the number of shares of Common Stock
available for issuance by the Company, but will have no effect upon the terms
of the Common Stock or the rights of the holders of such shares. If and when
issued, the proposed additional authorized shares of Common Stock will have the
same rights and privileges as the shares of Common Stock currently outstanding.
Holders of Common Stock will not have preemptive rights to purchase additional
shares of Common Stock.
The future issuance of additional shares of Common Stock on other than
a pro rata basis may dilute the ownership of current stockholders. Such
additional shares also could be used to block an unsolicited acquisition
through the issuance of large blocks of stock to persons or entities considered
by the Company's officers and directors to be opposed to such acquisition,
which might be deemed to have an anti-takeover effect (i.e., might impede the
completion of a merger, tender offer or other takeover attempt). In fact, the
mere existence of such a block of authorized but unissued shares, and the
Board's ability to issue such shares without stockholder approval, might deter
a bidder from seeking to acquire shares of the Company on an unfriendly basis.
While the authorization of additional shares of Common Stock might have such
effects, the Board of Directors of the Company does not intend or view the
proposed increase in authorized Common Stock as an anti-takeover measure, nor
is the Company aware of any proposed transactions of this type.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
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<PAGE> 19
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE
OF INCORPORATION TO ELIMINATE
THE CLASS C PREFERRED STOCK
(PROPOSAL 3)
On April 28, 1998, the Board of Directors adopted amendments to
Article 4 of the Certificate of Incorporation, subject to stockholder approval
at the Annual Meeting, to eliminate the 5,000,000 authorized shares of the
Company's Class C Preferred Stock. At the Annual Meeting, the stockholders of
the Company will be asked to consider and vote on the proposed amendments to
Article 4 of the Certificate of Incorporation, substantially in the form
included in Attachment A hereto. The Board of Directors recommends that the
stockholders of the Company adopt Proposal 3. If Proposal 3 is approved by the
stockholders at the Annual Meeting, the proposed amendment to the Certificate
of Incorporation will become effective upon the filing of a Certificate of
Amendment of Certificate of Incorporation with the Secretary of State of the
State of Delaware, which is expected to occur promptly after the Annual
Meeting. Unless otherwise instructed on the proxy, properly executed proxies
will be voted in favor of approving the proposed amendment to Article 4 of the
Certificate of Incorporation to eliminate the Class C Preferred Stock. The
affirmative vote of a majority of the voting rights of the shares of Common
Stock outstanding as of the Record Date is required to approve Proposal 3.
The Board of Directors believes that the elimination of the Class C
Preferred Stock is in the best interests of the Company and its stockholders.
The Class C Preferred Stock was originally included in the Certificate of
Incorporation specifically for issuance to ITC Holding in connection with a loan
made to the Company by ITC Holding. All 100,000 shares of the Class C Preferred
Stock that were issued to ITC Holding automatically converted into shares of
the Company's Common Stock upon completion of the Company's initial public
offering, pursuant to the conversion terms of the Class C Preferred Stock.
Because the Company is not required to issue any additional shares of Class C
Preferred Stock to ITC Holding or otherwise, and because the Class C Preferred
Stock was authorized for one specific transaction, the Board of Directors
believes that the Class C Preferred Stock can be eliminated. The Certificate of
Incorporation authorizes the Board of Directors to provide for the issuance of
up to 1,000,000 shares of one or more series of preferred stock, having such
rights and preferences, including voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges, as the Board of
Directors may determine to be appropriate. The Board of Directors believes that
this authority, combined with the authority to issue Common Stock and various
types of debt instruments, provides adequate flexibility for financing,
acquisition or other transactions that may arise in the future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3
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<PAGE> 20
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 4)
On February 25, 1998, 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 1,000,000 shares from 900,000 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 4.
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 is 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 and an amendment to which was approved by the stockholders of
the Company on May 28, 1997.
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
Under the Company's 1995 Stock Option Plan, 1,000,000 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 March 31, 1997,
options to purchase 679,826 shares of Common Stock had been granted (net of
forfeitures) under the 1995 Stock Option Plan, at exercise prices ranging from
$.64 to $65.56 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
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<PAGE> 21
exercisable two years after the 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 CONSEQUENCES
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
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<PAGE> 22
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 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. 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.
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<PAGE> 23
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 4.
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<PAGE> 24
APPROVAL OF AN AMENDMENT TO THE
DIRECTORS STOCK OPTION PLAN TO PROVIDE
FOR DISCRETIONARY GRANTS OF OPTIONS TO
NON-EMPLOYEE DIRECTORS OF THE COMPANY
(PROPOSAL 5)
On March 25, 1998, the Board of Directors adopted an amendment to the
Directors Stock Option Plan, subject to stockholder approval at the Annual
Meeting, to provide for discretionary grants of options to non-employee
Directors of the Company. At the Annual Meeting, the stockholders of the
Company will be asked to consider and vote on the proposed amended Directors
Stock Option Plan, substantially in the form included in Attachment B hereto.
Unless otherwise instructed on the proxy, properly executed proxies will be
voted in favor of approving the proposed amended Directors Stock Option Plan.
The affirmative vote of a majority of the votes cast at the Annual Meeting is
required to approve Proposal 5.
The purpose of the Directors 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
service of the Company. The Board of Directors believes that stock options are
important to attract and to encourage the continued service of non-employee
Directors by facilitating their purchase of a stock interest in the Company and
that providing for discretionary grants of options under the Directors Stock
Option Plan will afford the Company additional flexibility in making awards
deemed necessary to achieve the purpose of the Directors Stock Option Plan.
The only modifications to the Directors Stock Option Plan that are being
proposed relate to the provision of discretionary grants of options to
non-employee Directors. Such modifications include providing for stockholder
approval of amendments to the Directors Stock Option Plan only if such approval
is required by applicable law or stock market regulations. The award of
discretionary options may be made to any non-employee Director of the Company.
The Board of Directors has not made any determinations with respect to future
discretionary grants of such options
The following is a summary description of the Directors Stock Option
Plan, which was originally approved by stockholders of the Company effective
December 1995.
DESCRIPTION OF THE DIRECTORS STOCK OPTION PLAN
Under the Company's Directors Stock Option Plan, 70,000 shares of
Common Stock are reserved and authorized for issuance upon the exercise of
options issued pursuant to the Directors Stock Option Plan. All non-employee
Directors of the Company are eligible to receive options under the Directors
Stock Option Plan, which is administered by the Board of Directors. Options are
issued to non-employee Directors of the Company under the Directors Stock Option
Plan upon their initial election or appointment to the Board of Directors (in
the form of 10,000 options per director) ("Formula Grants") and at the
discretion of and in an amount determined by the Board of Directors thereafter
("Discretionary Grants"). As of the Record Date, options to purchase 45,000
shares of Common Stock had been granted under the Directors Stock Option Plan,
at exercise prices ranging from $6.38 to $65.56 per share.
The option exercise price for stock options granted pursuant to
Formula Grants under the Directors Stock Option Plan is equal to the fair
market value of the Common Stock (as determined by the Board of Directors) on
the date of grant of the option. The maximum option term of options granted
pursuant to Formula Grants is 10 years and 30 days. Options granted pursuant
to Formula Grants generally 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. The exercise price, option term and vesting schedule
of options granted pursuant to Discretionary Grants under the Directors Stock
Option Plan are established by the Board of Directors, in its discretion, at
the time of grant.
Payment for shares purchased under the Directors Stock Option Plan may
be made, as determined by the Board of Directors and set forth in the option
agreement pertaining to the option, either in cash or 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
option agreement relating to such options, be exercised by directing that
certificates for the shares purchased be
- 20 -
<PAGE> 25
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 Directors Stock
Option Plan at any time. Unless previously terminated, the Directors Stock
Option Plan will terminate automatically on December 22, 2005, the tenth
anniversary of the date of adoption of the Directors Stock Option Plan by the
Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option is not a taxable event for the optionee or the
Company.
Upon exercising an 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. 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, 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.
If the optionee surrenders shares of Common Stock in payment of part
or all of the exercise price for the stock options, no gain or loss will be
recognized with respect to the shares of Common Stock surrendered 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
Employees of the Company are not eligible to receive options under the
Directors Stock Option Plan. The only individuals eligible to receive stock
options under this plan are the Company's non-employee Directors. As of March
31, 1998, each of the Company's non-employee Directors had been granted an
aggregate of 15,000 options under the Directors Stock Option Plan (including
5,000 options each that were granted in connection with the amendment to the
Directors Stock Option Plan). The average per share exercise price of these
options is $26.11. The exercise price of options granted under the Director
Stock Option Plan has not been less than the fair market value of the Company's
Common Stock on the date of grant, as determined pursuant to the Director Stock
Option Plan. Based on the closing price of $64.25 per share on March 31, 1998,
the aggregate market value of the 15,000 shares of Common Stock underlying the
options granted in connection with the amendment to the Directors Stock Option
Plan is $963,750.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 5.
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<PAGE> 26
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL 6)
The Board of Directors has appointed Arthur Andersen LLP ("Arthur
Andersen") as the Company's independent auditors for the fiscal year ending
December 31, 1998, 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, 1998. The affirmative vote of a
majority of the votes cast at the Annual Meeting is required to approve
Proposal 6.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 6.
- 22 -
<PAGE> 27
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of April 15, 1998
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 PERCENT OF
BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP (1) STOCK OUTSTANDING
------------------------ -------------- -----------------
<S> <C> <C>
ITC Service Company, Inc. 2,274,689 30.1%
(2)(3)
Charles M. Brewer(4) 840,001 11.1
O. Gene Gabbard(5)(6) 10,000 *
Campbell B. Lanier, III(6)(7) 10,000 *
James T. Markle (8) . 19,427 *
Michael S. McQuary(9) 85,485 1.1
Michael G. Misikoff (10) 94,707 1.3
William H. Scott, III(6)(11) 11,500 *
Alan J. Taetle(12) . 23,288 *
All executive officers and 1,124,554 14.6
directors as a group (10
persons)(13)
- ----------
</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 April 15, 1998. 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) ITC Holding Company, Inc. indirectly owns these shares through its
indirect, wholly owned subsidiary, ITC Service Company. The address
of both ITC Holding Company, Inc. and ITC Service Company is 1239 O.G.
Skinner Drive, West Point, Georgia 31833.
(3) ITC Holding has pledged all of its stock in the Company to certain
lenders in connection with a credit agreement dated October 20, 1997.
(4) The address for Charles M. Brewer is MindSpring Enterprises, Inc.,
1430 West Peachtree Street, Suite 400, Atlanta, Georgia 30309.
(5) Includes 5,000 shares of Common Stock that Mr. Gabbard has the right
to purchase within 60 days from April 15, 1998 pursuant to options.
(6) Mr. Lanier is Chairman of the Board, Chief Executive Officer and a
beneficial owner of approximately 21.4% of the common stock of ITC
Holding (as of October 20, 1997). Mr. Scott is the President and a
director of ITC Holding and is a beneficial owner of 2.0% of its
common stock (as of October 20, 1997). 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 (as of October 20, 1997). Each of Messrs.
Lanier, Scott and Gabbard disclaims beneficial ownership of the shares
of the Company's Common Stock held by ITC Holding.
- 23 -
<PAGE> 28
(7) Includes 5,000 shares of Common Stock that Mr. Lanier has the right to
purchase within 60 days from April 15, 1998 pursuant to options.
(8) Includes 19,367 shares of Common Stock that Mr. Markle has the right
to purchase within 60 days from April 15, 1998 pursuant to options.
(9) Includes 33,565 shares of Common Stock that Mr. McQuary has the right
to purchase within 60 days from April 15, 1998 pursuant to options.
(10) Includes 12,912 shares of Common Stock that Mr. Misikoff has the right
to purchase within 60 days from April 15, 1998 pursuant to options.
(11) Includes 5,000 shares of Common Stock that Mr. Scott has the right to
purchase within 60 days from April 15, 1998 pursuant to options.
(12) Includes 9,038 shares of Common Stock that Mr. Taetle has the right to
purchase within 60 days from April 15, 1998 pursuant to options. Mr.
Taetle resigned his position as executive officer of the Company
effective April 13, 1998.
(13) Includes 119,828 shares of Common Stock that such persons have the
right to purchase within 60 days from April 15, 1998 pursuant to
options.
- 24 -
<PAGE> 29
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 1999 Annual Meeting of Stockholders must be received by the Company by
January __, 1999 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
May __, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1997 ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY IS
REQUIRED TO FILE AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997 WITH THE SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN,
FREE OF CHARGE, A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K
(WITHOUT EXHIBITS) BY WRITING TO MINDSPRING ENTERPRISES, INC., ATTENTION:
INVESTOR RELATIONS, 1430 WEST PEACHTREE STREET, SUITE 400, ATLANTA, GEORGIA
30309. THE COMPANY WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON
PAYMENT OF A REASONABLE FEE.
- 25 -
<PAGE> 30
MINDSPRING ENTERPRISES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1998
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 1998 Annual Meeting of Stockholders (the
"Annual Meeting") to be held on Wednesday, June 17, 1998 at 9:00 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 III Directors to serve on the Board of
Directors:
Class III Directors:
Charles M. Brewer
Campbell B. Lanier, 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 Article 4 of the Company's
Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the amendment to Article 4 of the Company's
Amended and Restated Certificate of Incorporation to eliminate the
Company's Class C Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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
5. Proposal to approve an amendment to the Directors Stock Option Plan to
provide for discretionary grants of options to non-employee Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- 26 -
<PAGE> 31
6. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
- 27 -
<PAGE> 32
(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, 3, 4, 5 AND 6, 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, 3, 4, 5 AND 6.
The undersigned hereby acknowledges prior receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated May __, 1998 and the
1998 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: _________________ , 1998.
-------------------------------------
-------------------------------------
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 JUNE 17, 1998 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.
- 28 -
<PAGE> 33
ATTACHMENT A
MINDSPRING ENTERPRISES, INC.
AMENDED ARTICLE 4 TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE 4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of capital stock that the Corporation shall be
authorized to issue is 61,000,000 divided into two classes as follows: (i)
Sixty million (60,000,000) shares of common stock having a par value of $.01
per share ("Common Stock"), and (ii) One Million (1,000,000) shares of serial
preferred stock in series having a par value of $.01 per share (the "Preferred
Stock").
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth herein and in
the certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative
rights as and be identical in all respects to all the other shares of Common
Stock.
4.2.2. DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation.
<PAGE> 34
4.2.3. DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock,
and holders of any class or series of stock entitled to participate therewith,
in whole or in part, as to the distribution of assets in such event, shall
become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation 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.
4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation 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.
4.3. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed
by the Delaware General Corporation Law and the provisions of this Amended and
Restated Certificate of Incorporation to provide, by resolution or resolutions
from time to time and filing a certificate pursuant to the applicable provision
of the Delaware General Corporation Law, for the issuance of the shares of
Preferred Stock in series, to establish from time to time the number of shares
to be included in each such series, to fix the powers, designation,
preferences, relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof.
- 2 -
<PAGE> 35
ATTACHMENT B
MINDSPRING ENTERPRISES, INC.
DIRECTORS STOCK OPTION PLAN
AS AMENDED AS OF MARCH 25, 1998
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. EFFECTIVE DATE AND TERM OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. GRANT OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.1. Formula Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.2. Discretionary Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. OPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. OPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. TERM AND EXERCISE OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9.2. Option Period and Limitations on Exercise . . . . . . . . . . . . . . . . . . . . . 4
9.3. Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. TRANSFERABILITY OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. SERVICE TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. RIGHTS IN THE EVENT OF DEATH OR DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . 6
12.1. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12.2. Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
14. SECURITIES ACT OF 1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
15. SECURITIES EXCHANGE ACT OF 1934: RULE 16B-3 . . . . . . . . . . . . . . . . . . . . . . . . 7
15.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15.2. Additional Restriction on Transfer of Stock . . . . . . . . . . . . . . . . . . . . 7
16. AMENDMENT AND TERMINATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17. EFFECT OF CHANGES IN CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
17.1. Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
17.2. Reorganization With Corporation Surviving . . . . . . . . . . . . . . . . . . . . . 8
17.3. Other Reorganizations; Sale of Assets/Stock . . . . . . . . . . . . . . . . . . . . 9
17.4. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.5. No Limitations on Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
18. DISCLAIMER OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
19. NONEXCLUSIVITY OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 37
MINDSPRING ENTERPRISES, INC.
DIRECTORS STOCK OPTION PLAN
MindSpring Enterprises, Inc., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this Directors Stock Option Plan
(the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 4 below) an
opportunity to acquire (or increase) a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries and will encourage
such eligible individuals to remain in the employ or service of the Corporation
or that of one or more of its affiliates. No stock option granted under the Plan
(an "Option") is intended to be an "incentive stock option" ("Incentive Stock
Option") within the meaning of Section 422 of the Internal Revenue Code of 1986,
or the corresponding provision of any subsequently enacted tax statute, as
amended from time to time (the "Code").
2. ADMINISTRATION
2.1. BOARD
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to take
all actions and to make all determinations required or provided for under the
Plan or any Option granted or Option Agreement (as defined in Section 7 below)
entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. The interpretation
and construction by the Board of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final and
conclusive.
2.2. NO LIABILITY
No member of the Board shall be liable for any action or determination
made, or any failure to take or make an action or determination, in good faith
with respect to the Plan or any Option granted or Option Agreement entered
into hereunder.
<PAGE> 38
3. STOCK
The stock that may be issued pursuant to Options granted under the
Plan shall be shares of Common Stock of the Corporation (the "Stock"), which
shares may be treasury shares or authorized but unissued shares. The number of
shares of Stock that may be issued pursuant to Options granted under the Plan
shall not exceed in the aggregate 70,000 shares of Stock, which number of shares
is subject to adjustment as provided in Section 17.4 below. If any Option
expires, terminates or is terminated for any reason prior to exercise in full,
the shares of Stock that were subject to the unexercised portion of such Option
shall be available for future Options granted under the Plan.
4. ELIGIBILITY
Options will be granted under the Plan to non-employee directors of
the Corporation.
5. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall be effective as of the date of adoption by the Board
(the "Effective Date"), subject to approval of the Plan within one year of such
Effective Date by the affirmative votes of the holders of a majority of the
shares present, or represented, and entitled to vote at a duly held meeting of
the stockholders of the Corporation at which a quorum is present, either in
person or by proxy, or by written consent in accordance with applicable state
law and the Certificate of Incorporation or the Bylaws of the Corporation;
provided, however, that upon approval of the Plan by the stockholders of the
Corporation as set forth above, all options granted under the Plan on or after
the Effective Date shall be fully effective as if the stockholders of the
Corporation had approved the Plan on the Effective Date. If the stockholders
fail to approve the Plan within one year of such Effective Date, any options
granted hereunder shall be null, void and of no effect. The Plan shall
terminate on the date ten years after the Effective Date.
6. GRANT OF OPTIONS
6.1. FORMULA GRANTS
On the Effective Date, each nonemployee director then serving on the
Board shall be granted Options to purchase 10,000 shares of Stock. Thereafter,
the Board shall grant to each nonemployee director of the Corporation, upon such
person's initial election or appointment to serve as such a director, Options to
purchase 10,000 shares of Stock.
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6.2. DISCRETIONARY GRANTS
The Board may, at any time and from time to time prior to the
date of termination of the Plan, grant to any nonemployee director then serving
on the Board Options to purchase such number of shares of Stock on such terms
and conditions as the Board may determine. Without limiting the foregoing, the
Board may at any time, with the consent of the Optionee, amend the terms of
outstanding Options or issue new Options in exchange for the surrender and
cancellation of outstanding Options. The date on which the Board approves the
grant of an Option (or such later date as is specified by the Board) shall be
considered the date on which such Option is granted.
7. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements") executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same
time need not contain similar provisions; provided, however, that all such
Option Agreements shall comply with all terms of the Plan.
8. OPTION PRICE
The purchase price of each share of the Stock subject to an Option
granted pursuant to Section 6.1 (the "Option Price") shall be the fair market
value of the Stock (the "Market Price") as determined by the Board. The Option
Price of each share of Stock subject to an Option granted pursuant to Section
6.2 shall be fixed by the Board and stated in each Option Agreement. In the
event that the Stock is listed on an established national or regional stock
exchange, is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, or is publicly traded on an established
securities market, in determining the fair market value of the Stock, the Board
shall use the closing price of the Stock on such exchange or System or in such
market (the highest such closing price if there is more that one such exchange
or market) on the trading date immediately before the Option is granted (or, if
there is no such closing price, then the Board shall use the mean between the
high and low prices on such date), or, if no sale of the Stock had been made on
such day, on the next preceding day on which any such sale shall have been made.
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9. TERM AND EXERCISE OF OPTIONS
9.1. TERM
Each Option granted pursuant to Section 6.1 shall terminate
and all rights to purchase shares thereunder shall cease upon the expiration of
ten years and 30 days from the date such Option is granted. Each Option
granted pursuant to Section 6.2 shall terminate and all rights to purchase
shares thereunder shall cease upon the date determined by the Board.
9.2. OPTION PERIOD AND LIMITATIONS ON EXERCISE
The Optionee may exercise the Option granted pursuant to Section
6.1 (subject to the limitations on exercise set forth in this Plan or in the
Option Agreement relating to such Option), in installments as follows: on the
second anniversary of the date of grant of the Option, as set forth in Section
6.1 above, the Option shall be exercisable in respect of 50 percent of the
number of shares specified in Section 6.1 above, and the Option shall be
exercisable in respect of an additional 25 percent of the number of shares
specified in Section 6.1 above on each of the third and fourth anniversaries of
the date of grant, as set forth in Section 6.1 above. The foregoing
installments, to the extent not exercised, shall accumulate and be exercisable,
in whole or in part, at any time and from time to time, after becoming
exercisable and prior to the termination of the Option; provided, that no single
exercise of the Option shall be for less than 100 shares, unless the number of
shares purchased is the total number at the time available for purchase under
this Option. The Optionee may exercise the Option granted pursuant to Section
6.2 (subject to the limitations on exercise set forth in this Plan or in the
Option Agreement relating to such Option) in whole or in part, at any time and
from time to time, over a period commencing on or after the date of grant and,
to the extent that the Board determines and sets forth a termination date for
such Option in the Option Agreement (including any amendment thereto), ending
upon the stated expiration or termination date.
9.3. METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at its principal office
addressed to the attention of the President, of written notice of exercise,
which notice shall specify the number of shares with respect to which the
Option is being exercised and shall be accompanied by payment in full of the
Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of 100 shares
or the maximum number of shares available for purchase under the Option at the
time of exercise. Payment of the Option Price for the shares of
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Stock purchased pursuant to the exercise of an Option shall be made, as
determined by the Board and set forth in the Option Agreement pertaining to an
Option, either (i) in cash or by check payable to the order of the Corporation
(which check may, in the discretion of the Corporation, be required to be
certified); (ii) through the tender to the Corporation of shares of Stock,
which shares shall be valued, for purposes of determining the extent to which
the Option Price has been paid thereby, at their fair market value (determined
by the Board in good faith) on the date of exercise; or (iii) by a combination
of the methods described in (i) and (ii). An attempt to exercise any Option
granted hereunder other than as set forth above shall be invalid and of no
force and effect. Notwithstanding the foregoing, payment in full of the Option
Price need not accompany the written notice of exercise provided the notice
directs that the Stock certificate of certificates for the shares for which the
Option is exercised be delivered to a licensed broker acceptable to the
Corporation as the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the broker tenders
to the Corporation cash (or cash equivalents acceptable to the Corporation).
Promptly after the exercise of an Option and the payment in full
of the Option Price of the shares of Stock covered thereby, the individual
exercising the Option shall be entitled to the issuance of a Stock certificate
or certificates evidencing his ownership of such shares. An individual holding
or exercising an Option shall have none of the rights of a stockholder until
the shares of Stock covered thereby are fully paid and issued to him, and,
except as provided in Section 17 below, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date of
such issuance.
10. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetency, the Optionee's guardian or legal
representative) may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
11. SERVICE TERMINATION
Except as otherwise provided in the Optionee's Option Agreement,
upon the termination of an Optionee's service as a director of the Corporation
or a Subsidiary, other than by reason of the death or permanent and total
disability of such Optionee, any Option granted to an Optionee pursuant to the
Plan shall terminate, and such Optionee shall have no further right to purchase
shares of Stock pursuant to such Option.
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12. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
12.1. DEATH
Except as otherwise provided in the Optionee's Option Agreement,
if an Optionee dies while in the service of the Corporation or an affiliate or
Subsidiary, the executors or administrators or legatees or distributees of such
Optionee's estate shall have the right (subject to the general limitations on
exercise set forth in Section 9.2 above), at any time within one year after the
date of such Optionee's death and prior to termination of the Option pursuant to
Section 9.1 above, to exercise any Option held by such Optionee at the date of
such Optionee's death, whether or not such Option was exercisable immediately
prior to such Optionee's death.
12.2. DISABILITY
Except as otherwise provided in the Optionee's Option Agreement,
if an Optionee's service is terminated by reason of the permanent and total
disability of the Optionee, then such Optionee shall have the right (subject to
the general limitations on exercise set forth in Section 9.2 above), at any time
within one year after such termination of service and prior to termination of
the Option pursuant to Section 9.1 above, to exercise, in whole or in part, any
Option held by such Optionee at the date of such termination, whether or not
such Option was exercisable immediately prior to such termination. Whether such
termination is to be considered by reason of permanent and total disability for
purposes of this Plan shall be determined by the Board, which determination
shall be final and conclusive.
13. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds of
the Corporation.
14. SECURITIES ACT OF 1933
The Corporation shall not be required to sell or issue any shares
of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or the
Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act of 1933, as
amended (the "Securities Act"), upon exercise of any Option, unless a
registration statement under such Act is in effect
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with respect to the shares of Stock covered by such Option, the Corporation
shall not be required to sell or issue such shares unless the Corporation has
received evidence satisfactory to it that the holder of such Option may acquire
such shares pursuant to an exemption from registration under such Act. Any
determination in this connection by the Corporation shall be final, binding,
and conclusive. The Corporation may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act. The
Corporation shall not be obligated to take any affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option shall not be
exercisable unless and until the shares of Stock covered by such Option are
registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
15. SECURITIES EXCHANGE ACT OF 1934: RULE 16B-3
15.1. GENERAL
The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
from and after the date on which the Corporation first registers a class of
equity security under Section 12 of the Exchange Act (the "Registration Date").
From and after the Registration Date, any provision inconsistent with Rule
16b-3 (as in effect on the Registration Date) shall, to the extent permitted by
law and determined to be advisable by the Board be inoperative and void.
Moreover, in the event the Plan does not include a provision required by Rule
16b-3 to be stated therein, such provision (other than one relating to
eligibility requirements and the amount and timing of awards) shall be deemed
automatically to be incorporated into the Plan insofar as participant is
subject to Section 16 are concerned.
15.2. ADDITIONAL RESTRICTION ON TRANSFER OF STOCK
From and after the Registration Date, no director, officer or
other "insider" of the Corporation subject to Section 16 of the Exchange Act
shall be permitted to sell Stock (which such "insider" had received upon
exercise of an Option) during the six months immediately following the grant of
such Option.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend
or terminate the Plan as to any shares of Stock as to which Options have not
been granted; except that any amendment or alteration to the Plan shall be
subject to the approval of the Corporation's stockholders not later than the
annual meeting next following such Board action if such stockholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to stockholders for approval. Except as
permitted under Section 17 hereof, no amendment, suspension or termination of
the Plan shall, without the consent of the holder of the Option, alter or
impair rights or obligations under any Option theretofore granted under the
Plan.
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17. EFFECT OF CHANGES IN CAPITALIZATION
17.1. CHANGES IN STOCK
If the outstanding shares of Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of the conversion of the outstanding
shares of Preferred Stock to shares of Common Stock of the Corporation pursuant
to the terms of the Certificate of Incorporation of the Corporation, or by
reason of any recapitalization, reclassification, stock split-up, combination
of shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Corporation, occurring after the Effective Date
of the Plan, the number and kinds of shares for the purchase of which Options
may be granted under the Plan shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which
Options are outstanding shall be adjusted proportionately and accordingly, so
that the proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding but shall include
a corresponding proportionate adjustment in the Option Price per share.
17.2. REORGANIZATION WITH CORPORATION SURVIVING
Subject to Section 17.3 hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate
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Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such
reorganization, merger or consolidation.
17.3. OTHER REORGANIZATIONS; SALE OF ASSETS/STOCK
Upon the dissolution or liquidation of the Corporation, or upon a
merger, consolidation or reorganization of the Corporation with one or more
other corporations in which the Corporation is not the surviving corporation, or
upon a sale of substantially all of the assets of the Corporation to another
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Corporation is the surviving corporation) approved
by the Board which results in any person or entity owning 80 percent or more of
the combined voting power of all classes of stock of the Corporation, the Plan
and all Options outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Options theretofore
granted, or for the substitution for such Options of new options covering the
stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
(subject to the general limitations on exercise set forth in Section 9.2 above),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Board in its sole discretion shall
designate, to exercise such Option in whole or in part, whether or not such
Option was otherwise exercisable at the time such termination occurs and without
regard to any installment limitation on exercise imposed pursuant to Section 9.2
above, but subject to any additional limitations that the Board may, in its sole
discretion, include in any Option Agreement. The Board shall send written
notice of an event that will result in such a termination to all individuals who
hold Options not later than the time at which the Corporation gives notice
thereof to its stockholders.
17.4. ADJUSTMENTS
Adjustments under this Section 17 related to stock or securities
of the Corporation shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.
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17.5. NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to continue as a member of the Board or interfere in
any way with the right of the Corporation to terminate such relationship.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to
the stockholders of the Corporation for approval shall be construed as creating
any limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
* * * *
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