<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:
-------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
5) Total fee paid:
-------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
-------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE> 2
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GEORGIA 30309
April , 1999
--
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of MindSpring Enterprises, Inc., to be held on Tuesday, May 25,
1999 at 10:00 a.m. (local time) at the High Museum of Art, Hill Auditorium, 1280
Peachtree Street, NE, Atlanta, Georgia.
At this meeting, you will be asked to vote, in person or by proxy, on the
following matters: (i) the election of one director to serve on the Board of
Directors for a three-year term; (ii) the approval of an amendment to the
Company's Amended and Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of the Company's Common Stock; (iii)
the approval of the Company's 1995 Stock Option Plan as amended to increase the
number of shares of the Company's Common Stock that may be issued thereunder;
(iv) the ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors; and (v) 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 1999 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 MAY 25, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of MindSpring Enterprises, Inc. (the "Company") will be held
on Tuesday, May 25, 1999 at 10:00 a.m. (local time) at the High Museum of Art,
Hill Auditorium, 1280 Peachtree Street, NE, Atlanta, Georgia, to consider and
act upon the following proposals:
1. To elect one director to serve on the Board of Directors for a
three-year term and until his successor is elected and qualified;
2. To approve and adopt an amendment to Article 4 of the Company's
Amended and Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of the Company's Common
Stock;
3. To approve the Company's 1995 Stock Option Plan as amended to
increase the number of shares of the Company's Common Stock that
may be issued thereunder;
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999;
and
5. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. Only holders of Common Stock of record at the
close of business on that date will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof. A list of the Company's stockholders
entitled to vote at the Annual Meeting will be open to the examination of any
stockholder for any purpose germane to the meeting during ordinary business
hours for a period of ten days before the Annual Meeting at the Company's
offices. All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
------------------------------------
Charles M. Brewer
Chairman and Chief Executive Officer
Atlanta, Georgia
April , 1999
--
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME
PRIOR TO THE TIME IT IS VOTED.
- --------------------------------------------------------------------------------
<PAGE> 4
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GEORGIA 30309
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1999
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are being furnished, on or about April __, 1999, 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 1999 Annual Meeting of Stockholders of the Company (the "Annual Meeting") to
be held on Tuesday, May 25, 1999 at 10:00 a.m. (local time) at the High Museum
of Art, Hill Auditorium, 1280 Peachtree Street, NE, Atlanta, Georgia, and any
adjournment thereof.
If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED: (i) "FOR" PROPOSAL 1 TO ELECT THE BOARD OF
DIRECTORS' NOMINEE FOR DIRECTOR; (ii) "FOR" PROPOSAL 2 TO APPROVE AN AMENDMENT
TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED,
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK; (iii)
"FOR" PROPOSAL 3 TO APPROVE THE COMPANY'S 1995 STOCK OPTION PLAN AS AMENDED TO
INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK THAT MAY BE ISSUED
THEREUNDER; AND (iv) "FOR" PROPOSAL 4 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 approximately $12,000 for these services, plus reimbursement of
out-of-pocket expenses.
The securities that may be voted at the Annual Meeting consist of shares
of Common Stock, par value $.01 per share ("Common Stock"), of the Company. Each
outstanding share of Common Stock entitles its owner to one vote on each matter
as to which a vote is taken at the Annual Meeting. The close of business on
March 31, 1999 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, 28,918,264 shares of Common Stock were outstanding
and entitled to vote. The presence, in person or by proxy, of at least a
majority of the shares of Common Stock issued and outstanding and entitled to
vote on the Record Date is necessary to constitute a quorum at the Annual
Meeting.
Assuming the presence of a quorum at the Annual Meeting, a plurality of
the votes present in person or represented by proxy and entitled to vote is
required for election of the director, a majority of the votes of the
outstanding shares of Common Stock is required to approve the amendment to the
Company's Amended and Restated Certificate of Incorporation, as amended, (the
"Certificate of Incorporation"), and a majority of the votes
1
<PAGE> 5
present in person or represented by proxy and entitled to vote is required to
approve the Company's 1995 Stock Option Plan as amended and to ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the 1999 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 present in person or
represented by proxy at the Annual Meeting and entitled to vote 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 and 4. 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
Proposal 2 is approved at the Annual Meeting. Broker non-votes on Proposal 2
will have the same effect as a vote "against" Proposal 2.
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.
--------------------
2
<PAGE> 6
ELECTION OF DIRECTOR
(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 five directors, divided
into three classes of directors serving staggered three-year terms. Mr. O. Gene
Gabbard is serving for a term expiring in 1999, Messrs. Michael S. McQuary and
William H. Scott, III are serving for terms expiring in 2000 and Messrs. Charles
M. Brewer and Campbell B. Lanier, III are serving for terms expiring in 2001.
Effective February 19, 1999, Mr. Michael G. Misikoff resigned his position as
director for a term expiring in 1999. Subsequent to Mr. Misikoff's resignation,
the Board of Directors reduced the number of directors to five. At the Annual
Meeting, one director will be elected for a three-year term to fill the one
position in Class I, the term of which expires at the Annual Meeting. As
described below, the Board of Directors' nominee for Class I is Mr. O. Gene
Gabbard.
Unless otherwise instructed on the proxy, properly executed proxies will
be voted for the election of Mr. Gabbard as director. The Board of Directors
believes that Mr. Gabbard will stand for election and will serve if elected.
However, if Mr. Gabbard 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 as the Board of Directors may recommend. Directors are elected by a
plurality vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
ITS NOMINEE FOR DIRECTOR.
INFORMATION AS TO THE NOMINEE AND CONTINUING DIRECTORS
The following table sets forth certain information regarding the Board of
Directors' nominee for election as director and those directors who will
continue to serve as such after the Annual Meeting.
<TABLE>
<CAPTION>
AGE AT DIRECTOR POSITION(S) HELD TERM
NAME FEBRUARY 28,1999 SINCE (1) WITH THE COMPANY EXPIRES
------------------------------------ ---------------- --------- ----------------------------------- -------
<S> <C> <C> <C> <C>
NOMINEE
O. Gene Gabbard (2)(3).............. 58 1995 1999
CONTINUING DIRECTORS
Charles M. Brewer................... 40 1994 Chairman, Chief Executive Officer 2001
Campbell B. Lanier, III (2)(3)...... 48 1994 2001
Michael S. McQuary.................. 39 1995 President, Chief Operating Officer 2000
William H. Scott, III (2)(3)........ 51 1994 2000
</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 the nominee
for director and the four directors whose terms of office will continue after
the Annual Meeting are set forth below.
3
<PAGE> 7
Charles M. Brewer founded MindSpring and has served as Chief Executive
Officer and Director of MindSpring since its inception in February 1994 and as
Chairman since March 1996. He also served as the President of MindSpring from
its inception until March 1996 and as the Secretary and Treasurer of MindSpring
from its inception until January 1995. From May 1993 to January 1994, Mr. Brewer
developed the concept for MindSpring and evaluated its prospects. Prior to
starting MindSpring, he served as Chief Executive Officer of AudioFax, Inc., 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 an MBA from Stanford University.
O. Gene Gabbard has been a Director of MindSpring 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,
and Powertel, Inc. ("Powertel"), a wireless telecommunications company formerly
known as InterCel, Inc., and as a director and Chairman of ClearSource, Inc., a
provider of broadband telecommunications services. From August 1990 through
January 1993, he served as Executive Vice President and Chief Financial Officer
of MCI Communications Corporation, a telecommunications company. 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 MindSpring 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 Holdings, Inc. ("KNOLOGY"), a broadband
telecommunications services company formerly known as CyberNet Holding, Inc.,
Vista Eyecare, Inc., a full service optical retailer, K&G Men's Centers, a
discount retailer of men's clothing, Innotrac Corporation ("Innotrac"), which
provides customized, technology-based marketing support services, Vice Chairman
of the Board of AvData Systems, Inc. ("AvData"), a provider of network
management services, and Chairman of the Board of Powertel. Mr. Lanier has
served as a Managing Director of South Atlantic Private Equity Fund IV, Limited
Partnership since 1997.
Michael S. McQuary has been the President of MindSpring since March 1996,
the Chief Operating Officer of MindSpring since September 1995, and a Director
of MindSpring since December 1995. He also served as MindSpring's Executive Vice
President from October 1995 to March 1996 and MindSpring's Executive Vice
President of Sales and Marketing from July 1995 to September 1995. Prior to
joining MindSpring, 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 an MBA from Pepperdine
University.
William H. Scott, III has been a Director of MindSpring 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. He is also an officer and director of several ITC Holding
subsidiaries. Mr. Scott is a director of ITC/\DeltaCom, KNOLOGY, Powertel,
Innotrac and AvData.
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.
4
<PAGE> 8
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, 1998, the Board of Directors held 11
meetings. During the same period, the Compensation Committee met nine times and
the Audit Committee met three times. During the fiscal year ended December 31,
1998, no director attended fewer than 75% of the total number of all meetings of
the Board of Directors and any committee on which he served with the exception
of Mr. Gabbard who attended 65% of the total number of all meetings of the Board
of Directors and any committee 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
pursuant to the Company's Directors Stock Option Plan (the "Directors Stock
Option Plan"). Under the Directors Stock Option Plan, 210,000 shares of Common
Stock are authorized for issuance to non-employee directors. Grants of options
to purchase 30,000 shares of Common Stock are generally made to directors 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. In addition, the Board may make discretionary grants of
options to non-employee directors under the Directors Stock Option Plan. In
1998, each of Messr. Lanier, Scott and Gabbard received a grant of 15,000
options. Options are exercisable at the fair market value of the Common Stock
(as determined by the Board) on the date of grant. All share data in this
paragraph reflect a 3-for-1 split of the Common Stock effected on July 24, 1998.
5
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
All share data in this discussion of Executive Compensation and Other
Information reflect a 3-for-1 split of the Common Stock effected on July 24,
1998.
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, 1998 (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) 1998 $ 163,750 $ 107,032 17,841
Chairman and Chief Executive Officer 1997 150,000 65,550 7,314
1996 84,000 20,000 --
Michael S. McQuary (3) 1998 $ 136,458 $ 71,355 17,367
President and Chief Operating Officer 1997 125,000 43,700 7,314
1996 84,000 36,035 116,238
Michael G. Misikoff (4) 1998 $ 114,625 $ 37,461 --
Executive Vice President, Chief Financial 1997 105,000 22,943 3,072
Officer, Secretary and Treasurer 1996 84,000 6,300 --
James T. Markle (5) 1998 $ 104,800 $ 41,100 2,500
Executive Vice President of Network 1997 96,000 20,976 2,808
Services 1996 96,000 6,030 --
Gregory J. Stromberg (6) 1998 $ 91,700 $ 35,963 13,348
Executive Vice President 1997 88,250 18,354 2,460
1996 62,500 6,150 6,000
</TABLE>
- --------------------------
(1) A portion of the bonuses paid to Named Executive Officers of the Company
may be 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 17,841 shares of the Company's
Common Stock in February 1999 for services performed in 1998 and options
to purchase 7,314 shares of the Company's Common Stock in January 1998
for services performed in 1997.
(3) Mr. McQuary was granted options to purchase 17,367 shares of the
Company's Common Stock in February 1999 for services performed in 1998,
options to purchase 7,314 shares of the Company's Common Stock in January
1998 for services performed in 1997 and options to purchase 38,736 shares
of the Company's Common Stock in February 1997 for services performed in
1996.
(4) Mr. Misikoff was granted options to purchase 3,072 shares of the
Company's Common Stock in January 1998 for services performed in 1997.
Mr. Misikoff resigned his positions as director and executive officer of
the Company effective February 19, 1999.
(5) Mr. Markle was granted options to purchase 2,808 shares of the Company's
Common Stock in January 1998 for services performed in 1997. Mr. Markle
resigned his position as executive officer of the Company effective
February 28, 1999.
6
<PAGE> 10
(6) Mr. Stromberg was granted options to purchase a total of 13,348 shares of
the Company's Common Stock in December 1998 and February 1999 for
services performed in 1998 and options to purchase 2,460 shares of the
Company's Common Stock in January 1998 for services performed in 1997.
STOCK OPTION GRANTS IN FISCAL YEAR 1998
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, 1998 All such grants were made under the Company's 1995 Stock
Option Plan.
<TABLE>
<CAPTION>
OPTION GRANTS DURING 1998
------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
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
OPTIONS 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 7,314 .85% $ 12.03 1/27/98 1/27/03 $ 24,309 $ 53,717
Michael S. McQuary 7,314 .85% $ 10.94 1/27/98 1/27/08 $ 50,321 $ 127,524
Michael G. Misikoff 3,072 .36% $ 10.94 1/27/98 1/27/08 $ 21,136 $ 53,562
James T. Markle 2,808 .33% $ 10.94 1/27/98 1/27/08 $ 19,319 $ 48,959
2,500 .29% $ 60.69 12/18/98 12/18/08 $ 95,419 $ 241,811
Gregory J. Stromberg 2,460 .29% $ 10.94 1/27/98 1/27/08 $ 16,925 $ 42,891
2,500 .29% $ 60.69 12/18/98 12/18/08 $ 95,419 $ 241,811
- -------------------------
</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, 1998, the number of securities underlying unexercised options
at 1998 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 VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(2)(3)
SHARES -----------------------------------------------------------
ACQUIRED ON VALUE
EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Brewer -- -- -- 7,314 -- $ 358,627
Michael S. McQuary 12,500 $ 203,913 147,456 123,537 $ 8,847,633 7,225,694
Michael G. Misikoff 38,737 1,323,450 -- 41,807 -- 2,511,119
James T. Markle 6,900 330,801 51,201 24,676 3,115,719 1,320,279
Gregory J. Stromberg 12,500 425,125 14,490 16,457 862,685 807,720
</TABLE>
7
<PAGE> 11
- ----------------------
(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,
1998.
(3) Based on a per share price of $61.063 on December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the year ended December 31,
1998 were Messrs. Gabbard, Lanier and Scott.
As of February 28, 1999, ITC Holding beneficially owned approximately
18.5% 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 February 28, 1998, Messrs. Lanier, Scott and
Gabbard owned approximately 19%, less than 1.0% and less than 1.0%,
respectively, of the common stock of ITC Holding. As of February 28, 1998, Mr.
Brewer 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, which until October 20, 1997 was owned by
ITC Holding and a substantial portion of which is now owned by substantially the
same stockholders as ITC Holding. The Company pays ITC/\DeltaCom approximately
$254,000 per month for these services. Charges from ITC/\DeltaCom totaled
approximately $3,672,000 for the year ended December 31, 1998, of which the
Company had paid approximately $3,493,929 as of December 31, 1998.
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 $18,000 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 $219,736 for the year ended December 31, 1998.
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 1998.
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 1998, 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
8
<PAGE> 12
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 1998:
Base Salaries
Base salaries for executive officers are initially determined by
evaluating the responsibilities of the position, the experience and knowledge of
the individual, and the competitive marketplace for executive talent, including
a comparison to base salaries paid for similar positions at other companies
which are deemed appropriate comparisons for compensation purposes. Base
salaries for executive officers are reviewed annually by the Compensation
Committee and the Board of Directors.
Annual salary adjustments are recommended by the Chief Executive Officer
and 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 1998 were based upon
the achievement of such financial objectives and certain operating objectives.
Stock Option Grants
Pursuant to the Company' 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
9
<PAGE> 13
The Company has adopted a contributory retirement plan (the "401(k)
Plan") for all of its employees (including executive officers) with at least one
month of service to the Company. The 401(k) Plan provides that each participant
may contribute up to 15% of his or her salary (not to exceed the annual
statutory limit).
Chief Executive Officer Compensation
The executive compensation policy described above is followed in setting
Mr. Brewer's compensation. Mr. Brewer generally participates in the same
executive compensation plans and arrangements available to the other senior
executives. Accordingly, his compensation consists of an annual base salary, an
annual cash bonus and 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, 1998 consisted
of a base salary of $163,750 and a $107,032 cash bonus. In February 1999, Mr.
Brewer was granted stock options to purchase 17,841 shares of Common Stock for
services performed in 1998. Mr. Brewer's salary and bonus compensation for 1998
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,
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
10
<PAGE> 14
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 $2.96
(as adjusted to reflect a 3-for-1 split of the Common Stock effected on July 24,
1998), is compared to the cumulative total return of the CRSP Total Return Index
for the Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Stock Market Index")
and the CRSP Total Return Index for Nasdaq Computer and Data Processing Services
Stocks (the "Nasdaq Computer and DP Index") during that same period.
COMPARISON OF THIRTY-THREE MONTH CUMULATIVE TOTAL RETURN*
AMONG MINDSPRING ENTERPRISES, INC.,
THE NASDAQ STOCK MARKET INDEX AND THE NASDAQ COMPUTER AND DP INDEX
<TABLE>
<CAPTION>
MINDSPRING NASDAQ STOCK NASDAQ COMPUTER AND
ENTERPRISES, INC. MARKET (U.S. COMPANIES) DP INDEX
<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 123.94 113.19 114.53
December 31, 1996 69.01 118.75 119.09
March 31, 1997 80.28 112.31 110.54
June 30, 1997 118.31 132.89 141.74
September 30, 1997 243.66 155.34 155.01
December 31, 1997 378.87 145.49 146.30
March 31, 1998 723.94 170.27 193.26
June 30, 1998 1,159.15 174.99 214.48
September 30, 1998 1,402.82 158.45 202.25
December 31, 1998 2,064.08 205.14 262.19
</TABLE>
* $100 invested on March 14, 1996, including reinvestment of dividends.
Fiscal year ending December 31, 1998.
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 "Compensation
Committee Interlocks and Insider Participation."
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (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. Directors, officers and greater than ten
percent beneficial owners are required by the SEC's regulations to furnish the
Company with copies of all Section 16(a) forms they file.
11
<PAGE> 15
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 Forms 5 were required, the Company believes that during the year ended
December 31, 1998, all Section 16(a) filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
satisfied.
12
<PAGE> 16
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL 2)
On March 26, 1999, 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
400,000,000 shares from 60,000,000 shares, and as a result, to increase the
Company's total authorized shares of capital stock to 401,000,000 from
61,000,000. 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 to this
Proxy Statement. 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 400,000,000. 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 61,000,000 shares
of capital stock, divided into two classes as follows: (i) 60,000,000 shares of
Common Stock and (ii) 1,000,000 shares of serial preferred stock, par value $.01
per share (the "Preferred Stock"), of which 28,918,264 shares of Common Stock
and no shares of Preferred Stock were issued and outstanding on the Record Date.
As of the Record Date, 2,316,458 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 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.
13
<PAGE> 17
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.
14
<PAGE> 18
APPROVAL OF THE COMPANY'S 1995 STOCK OPTION PLAN
AS AMENDED TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
THAT MAY BE ISSUED THEREUNDER
(PROPOSAL 3)
On March 26, 1999, 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 4,500,000 shares from 3,000,000. The Board of Directors further
directed that the entire 1995 Stock Option Plan, as so amended, be submitted to
the stockholders for approval in order for awards under the plan to qualify
under the exception to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), as "qualified performance-based compensation" if the
requirements of the exception are otherwise satisfied. At the Annual Meeting,
the stockholders of the Company will be asked to consider and vote to approve
the 1995 Stock Option Plan as so amended. Unless otherwise instructed on the
proxy, properly executed proxies will be voted in favor of approving the 1995
Stock Option Plan as amended. The affirmative vote of a majority of the votes
present in person or represented by proxy at the Annual Meeting is required to
approve Proposal 3.
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 approval of the 1995 Stock Option Plan as amended to increase
the aggregate number of stock options available thereunder will afford the
Company additional flexibility in making awards deemed necessary in the future.
This 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.
Section 162(m) of the Code generally provides that no federal income tax
business expense deduction is allowed for annual compensation in excess of $1
million paid by a publicly traded corporation to its chief executive officer and
the four other most highly compensated officers. However, there is no limitation
under the Code on the deductibility of "qualified performance-based
compensation." To satisfy this definition, (1) the compensation must be paid
solely on account of the attainment of one or more preestablished, objective
performance goals; (2) the performance goal under which compensation is paid
must be established by a compensation committee comprised solely of two or more
directors who qualify as "outside directors" for purposes of the exception; (3)
the material terms under which the compensation is to be paid must be disclosed
to and subsequently approved by stockholders of the corporation before payment
is made; and (4) the compensation committee must certify in writing before
payment of the compensation that the performance goals and any other material
terms were in fact satisfied.
In the case of compensation attributable to stock options, the
performance goal requirement is deemed satisfied, and the certification
requirement is inapplicable, if (1) the grant or award is made by the
compensation committee; (2) the plan under which the option is granted states
the maximum number of shares with respect to which options may be granted to an
employee during a specified period; and (3) under the terms of the option, the
amount of compensation is based solely on an increase in the value of the stock
after the date of grant. Under the Code, a director is an "outside director" if
he or she is not a current employee of the corporation; is not a former employee
who receives compensation for prior services (other than under a qualified
retirement plan); has not been an officer of the corporation; and does not
receive, directly or indirectly (including amounts paid to an entity that
employs the director or in which the director has at least a 5% ownership
interest), remuneration from the corporation in any capacity other than as a
director. The regulations provide that the material terms of a performance goal
will be approved by stockholders for purposes of the foregoing rules if, in a
separate vote, affirmative votes are cast by a majority of the voting shares.
The following is a summary description of the material provisions of the
1995 Stock Option Plan, as amended, which was originally approved by the
stockholders of the Company effective December 27, 1995. This summary is
qualified in its entirety by the complete text of the 1995 Stock Option Plan,
which is included as Attachment B to this Proxy Statement.
15
<PAGE> 19
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
Under the Company's 1995 Stock Option Plan, 4,500,000 shares of Common
Stock are reserved and authorized for issuance upon the exercise of options
issued pursuant to the 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, 1999, options to purchase
3,000,000 shares of Common Stock had been granted (net of forfeitures) under
the 1995 Stock Option Plan, at exercise prices ranging from $.21 to $102.875 per
share.
The option exercise price for incentive stock options granted under the
1995 Stock Option Plan may not be less than 100% of the fair market value of the
Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding Common Stock). In the case of an option not intended to
constitute an incentive stock option, the option price shall be not less than
the par value of the stock covered by the option. The maximum option term is 10
years (or five years in the case of an incentive stock option granted to an
optionee beneficially owning more than 10% of the outstanding Common Stock).
Options generally become exercisable as follows: (i) 50% of the options become
exercisable two years after the 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
16
<PAGE> 20
any, will be taxed at applicable capital gain tax rates. The Company will be
allowed a business expense deduction to the extent the optionee recognizes
ordinary income, subject to Section 162(m) of the Code as summarized below.
If an optionee exercises an incentive stock option by tendering shares of
Common Stock with a fair market value equal to part or all of the option
exercise price, the exchange of shares will be treated as a nontaxable exchange
(except that this treatment would not apply if the optionee had acquired the
shares being transferred pursuant to the exercise of an incentive stock option
and had not satisfied the holding period requirement summarized above). If the
exercise is treated as a tax free exchange, the optionee would have no taxable
income from the exchange and exercise (other than alternative minimum taxable
income as noted above) and the tax basis of the shares of Common Stock exchanged
would be treated as the substituted basis for the shares of Common Stock
received. If the optionee used shares received pursuant to the exercise of an
incentive stock option (or another 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 "qualified 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
17
<PAGE> 21
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL 4)
The Board of Directors has appointed Arthur Andersen LLP ("Arthur
Andersen") as the Company's independent auditors for the fiscal year ending
December 31, 1999, 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, 1999. The affirmative vote of a majority
of the votes present in person or represented by proxy at the Annual Meeting is
required to approve Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 4.
18
<PAGE> 22
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of February 28, 1999
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 COMMON
BENEFICIAL STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP (1) -----------------
------------------------ -------------
<S> <C> <C>
ITC Service Company, Inc. (2)(3)............. 5,324,067 18.5%
Charles M. Brewer (4)......................... 2,320,003 8.1%
O. Gene Gabbard (5)(6)........................ 12,500 *
Campbell B. Lanier, III (6)(7)................ 7,500 *
James T. Markle (8)........................... 71,549 *
Michael S. McQuary (9)........................ 306,695 1.1%
Michael G. Misikoff (10)...................... 232,857 *
William H. Scott, III (6)(11)................. 13,500 *
Gregory J. Stromberg (12)..................... 25,465 *
All executive officers and directors
as a group (10 persons) (13)............... 2,780,956 9.6%
</TABLE>
- -----------------------------
* Less than one percent.
(1) In accordance with Rule 13d-3 under 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 February 28, 1999.
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 7,500 shares of common stock that Mr. Gabbard has the right to
purchase within 60 days from February 28, 1999 pursuant to options.
(6) Mr. Lanier is Chairman of the Board, Chief Executive Officer and an owner
of approximately 19% of the common stock of ITC Holding (as of February
28, 1999). Mr. Scott is the President and a director of ITC Holding and
is an owner of less than 1.0% of its common stock (as of February 28,
1999). Mr. Gabbard is a director of ITC Holding and an owner of less than
1% of its common stock (as of February 28, 1999). Each of Messrs. Lanier,
Scott and Gabbard disclaims beneficial ownership of the shares of the
Company's common stock held by ITC Holding.
19
<PAGE> 23
(7) Includes 7,500 shares of common stock that Mr. Lanier has the right to
purchase within 60 days from February 28, 1999 pursuant to options.
(8) Includes 70,569 shares of common stock that Mr. Markle has the right to
purchase within 60 days from February 28, 1999 pursuant to options. Mr.
Markle resigned his position as executive officer of the Company
effective February 28, 1999.
(9) Includes 178,436 shares of common stock that Mr. McQuary has the right to
purchase within 60 days from February 28, 1999 pursuant to options.
(10) Mr. Misikoff resigned his positions as director and executive officer of
the Company effective February 19, 1999.
(11) Includes 7,500 shares of common stock that Mr. Scott has the right to
purchase within 60 days from February 28, 1999 pursuant to options. Mr.
Scott's beneficial ownership of MindSpring includes 1,000 shares of
common stock held in trust for Mr. Scott's minor daughter, of which Mr.
Scott's wife is trustee.
(12) Includes 14,865 shares of common stock that Mr. Stromberg has the right
to purchase within 60 days from February 28, 1999 pursuant to options.
(13) Includes 293,618 shares of common stock that such persons have the right
to purchase within 60 days from February 28, 1999 pursuant to options.
Does not include shares owned by Mr. Misikoff who resigned his positions
as director and executive officer of the Company effective February 19,
1999.
20
<PAGE> 24
DATE OF SUBMISSION OF STOCKHOLDER PROPOSALS
TO BE INCLUDED IN PROXY MATERIALS
Any proposal or proposals intended to be presented by any stockholder at
the 2000 Annual Meeting of Stockholders must be received by the Company by
December 15, 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
April , 1999
--
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1998 ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY IS REQUIRED TO
FILE AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 WITH THE
SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN, FREE OF CHARGE, A
COPY OF THE COMPANY'S 1998 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.
21
<PAGE> 25
ATTACHMENT A
MINDSPRING ENTERPRISES, INC.
AMENDED ARTICLE 4 TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
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 401,000,000 divided into two classes as follows: (i) Four
Hundred Million (400,000,000) 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.
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
<PAGE> 26
(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.
<PAGE> 27
ATTACHMENT B
AMENDED AND RESTATED
STOCK OPTION PLAN
OF
MINDSPRING ENTERPRISES, INC.
<PAGE> 28
TABLE OF CONTENTS
Page
----
1. PURPOSE..................................................................1
2. ADMINISTRATION...........................................................1
2.1. The Board..........................................................1
2.2. The Committee......................................................2
2.3. No Liability.......................................................2
3. STOCK....................................................................2
4. ELIGIBILITY..............................................................2
5. EFFECTIVE DATE AND TERM OF THE PLAN......................................3
5.1. Effective Date.....................................................3
5.2. Term...............................................................3
6. GRANT OF OPTIONS.........................................................3
7. LIMITATION ON INCENTIVE STOCK OPTIONS....................................3
8. OPTION AGREEMENTS........................................................4
9. OPTION PRICE.............................................................4
10. TERM AND EXERCISE OF OPTIONS.............................................4
10.1. Term and Exercise..................................................4
10.2. Option Period and Limitations on Exercise..........................5
10.3. Method of Exercise.................................................5
11. TRANSFERABILITY OF OPTIONS...............................................6
12. TERMINATION OF EMPLOYMENT................................................6
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY...............................7
13.1. Death.............................................................7
13.2. Disability........................................................8
14. USE OF PROCEEDS..........................................................8
15. SECURITIES ACT OF 1933...................................................8
16. SECURITIES EXCHANGE ACT OF 1934: RULE 16B-3..............................9
16.1. General...........................................................9
16.2. Compensation Committee............................................9
16.3. Action by the Board...............................................9
16.4. Additional Restriction on Transfer of Stock.......................10
16.5. Additional Requirement of Stockholders' Approval..................10
17. AMENDMENT AND TERMINATION OF THE PLAN....................................10
18. EFFECT OF CHANGES IN CAPITALIZATION......................................10
18.1. Changes in Stock..................................................10
18.2. Reorganization With Corporation Surviving.........................11
18.3. Other Reorganizations; Sale of Assets/Stock.......................11
18.4. Adjustments.......................................................12
18.5. No Limitations on Corporation.....................................12
19. DISCLAIMER OF RIGHTS.....................................................12
20. NONEXCLUSIVITY OF THE PLAN...............................................12
-i-
<PAGE> 29
AMENDED AND RESTATED STOCK OPTION PLAN
Mindspring Enterprises, Inc., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 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 subsidiaries. Each 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"), except to the extent that any such
Option would exceed the limitations set forth in Section 7 below and except for
Options specifically designated at the time of grant as not being "incentive
stock options."
2. ADMINISTRATION
2.1. THE 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 8 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.
1
<PAGE> 30
2.2. THE COMMITTEE
The Board may from time to time appoint a Compensation Committee
(the "Committee"). The Board, in its sole discretion, may provide that the role
of the Committee shall be limited to making recommendations to the Board
concerning any determinations to be made and actions to be taken by the Board
pursuant to or with respect to the Plan, or the Board may delegate to the
Committee such powers and authorities related to the administration of the Plan,
as set forth in Section 2.1 above, as the Board shall determine, consistent with
the Certificate of Incorporation and By-laws of the Corporation and applicable
law. In the event that the Plan or any Option granted or Option Agreement
entered into hereunder provides for any action to be taken by or determination
to be made by the Board, such action may be taken by or such determination may
be made by the Committee if the power and authority to do so has been delegated
to the Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.
2.3. NO LIABILITY
No member of the Board or of the Committee 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.
3. STOCK
The stock that may be issued pursuant to Options granted under the
Plan shall be shares of Common Stock and/or shares of Preferred Stock of the
Corporation (such shares of Common Stock and Preferred Stock being collectively
referred to herein as 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
4,500,000 shares of Stock, which number of shares is subject to adjustment as
provided in Section 18 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 may be granted under the Plan to any employee of the
Corporation or any "subsidiary corporation" thereof within the meaning of
Section 424(f) of the Code (a "Subsidiary") (including any such employee who is
an officer or director of the Corporation or any Subsidiary) as the Board shall
determine and designate from time to time prior to expiration or termination of
the
2
<PAGE> 31
Plan. An individual may hold more than one Option, subject to such restrictions
as are provided herein. The maximum number of shares of Stock subject to Options
that may be granted under the Plan to any employee of the Corporation or any
Subsidiary is 600,000 shares in any calendar year (subject to adjustment
pursuant to Section 18 hereof).
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. EFFECTIVE DATE
The Plan shall become effective as of the date of adoption by the
Board, subject to stockholders' approval of the Plan within one year of such
effective date by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of all
outstanding stock is present, either in person or by proxy, and voting on the
matter, or by written consent in accordance with applicable state law and the
articles of incorporation and by-laws 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.
5.2. TERM
The Plan shall terminate on the date ten years after the effective
date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at
any time and from time to time prior to the date of termination of the Plan,
grant to such eligible individuals as the Board may determine ("Optionees")
Options to purchase such number of shares of the Stock on such terms and
conditions as the Board may determine, including any terms or conditions which
may be necessary to qualify such Options as "incentive stock options" under
Section 422 of the Code. The date on which the Board approves the grant of an
Option shall be considered the date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option shall constitute an Incentive Stock Option only to the
extent that the aggregate fair market value (determined at the time the Option
is granted) of the Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee's employer corporation and its
parent and subsidiary
3
<PAGE> 32
corporations within the meaning of Section 422(d) of the Code) does not exceed
$100,000.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements") to be 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.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement. In the case of an Option that is intended to constitute an Incentive
Stock Option, the option price shall be not less than the greater of par value
or 100 percent of the fair market value of a share of the Stock covered by the
Option on the date the Option is granted (as determined in good faith by the
Board); provided, however, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than ten percent), the Option Price of an Option which is intended to be an
Incentive Stock Option shall be not less than the greater of par value or 110
percent of the fair market value of a share of the Stock covered by the Option
at the time such Option is granted. 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 in 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 than one such exchange or market) on the date the Option is
granted (or, if there is no such closing price, then the Board shall use the
mean between the highest bid and lowest asked prices or between the high and low
prices on such date), or, if no sale of the Stock has been made on such day, on
the next preceding day on which any such sale shall have been made. 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.
10. TERM AND EXERCISE OF OPTIONS
10.1. TERM AND EXERCISE
Each Option granted under the Plan shall terminate and all rights to
purchase shares thereunder shall cease upon the expiration of ten years (ten
years
4
<PAGE> 33
and 30 days, in the case of an Option which is not designated as an Incentive
Stock Option) from the date such Option is granted, or on such date prior
thereto as may be fixed by the Board and stated in the Option Agreement relating
to such Option; provided, however, that in the event the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock
ownership of more than ten percent), an Option granted to such Optionee which is
intended to be an Incentive Stock Option shall in no event be exercisable after
the expiration of five years from the date it is granted.
10.2. OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable, 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 ending upon the expiration or termination of the Option,
as the Board shall determine and set forth in the Option Agreement relating to
such Option. Without limiting the foregoing, the Board, subject to the terms and
conditions of the Plan, may in its sole discretion provide that an Option may
not be exercised in whole or in part for a stated period or periods of time
during which such Option is outstanding; provided, however, that any such
limitation on the exercise of an Option contained in any Option Agreement may be
rescinded, modified or waived by the Board, in its sole discretion, at any time
and from time to time after the date of grant of such Option, so as to
accelerate the time at which the Option may be exercised. Notwithstanding any
other provisions of the Plan, no Option shall be exercisable in whole or in part
prior to the date the Plan is approved by the stockholders of the Corporation as
provided above.
10.3. 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 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 in the manner described in Section 9 above) on the date of exercise;
or (iii) by a combination of the methods described in (i) and (ii);
5
<PAGE> 34
provided, however, that the Board may in its discretion impose and set forth in
the Option Agreement pertaining to an Option such limitations or prohibitions on
the use of shares of Stock to exercise Options as it deems appropriate.
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 or 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) equal to the Option
Price. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. 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. A separate Stock certificate or certificates shall be issued for
any shares purchased pursuant to the exercise of an Option which is an Incentive
Stock Option, which certificate or certificates shall not include any shares
which were purchased pursuant to the exercise of an Option which is not an
Incentive Stock Option. 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 18 below,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
11. 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.
12. TERMINATION OF EMPLOYMENT
On the 30th day following the termination of the employment of an
Optionee with the Corporation or a Subsidiary, other than by reason of the death
or "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) 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; provided, however, that in the event
that such termination of employment is by reason of the Optionee's retirement
with the consent of the Corporation or a Subsidiary in accordance with the
normal retirement policies of the Corporation or a Subsidiary, as the case may
be, then such Optionee shall have the right (subject to the general limitations
on exercise set forth in Section 10 above), at any time within three months
after such retirement
6
<PAGE> 35
and prior to termination of the Option pursuant to Section 10 above, to
exercise, in whole or in part, any Option held by such Optionee at the date of
such retirement, whether or not such Option was exercisable immediately prior to
such retirement; provided further, that the Board may provide, by inclusion of
appropriate language in any Option Agreement, that an Optionee may (subject to
the general limitations on exercise set forth in Section 10 above), in the event
of termination of employment of the Optionee with the Corporation or a
Subsidiary, exercise an Option, in whole or in part, at any time subsequent to
such termination of employment and prior to termination of the Option pursuant
to Section 10 above, either subject to or without regard to any installment
limitation on exercise imposed pursuant to Section 10 above, as the Board, in
its sole and absolute discretion, shall determine and set forth in the Option
Agreement. Whether a termination of employment is to be considered by reason of
retirement with the consent of the Corporation or a Subsidiary in accordance
with the normal retirement policies of the Corporation or a Subsidiary, as the
case may be, and whether a leave of absence or leave on military or government
service shall constitute a termination of employment for purposes of the Plan,
shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment with the
Corporation or a Subsidiary shall not be deemed to occur if the Optionee is
immediately thereafter employed with the Corporation or any other Subsidiary.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
13.1. DEATH
If an Optionee dies while employed by the Corporation or a
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 10 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 10 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; provided, however, that the Board may provide by
inclusion of appropriate language in any Option Agreement that, in the event of
the death of an Optionee, the executors or administrators or legatees or
distributees of such Optionee's estate may exercise an Option (subject to the
general limitations on exercise set forth in Section 10 above), in whole or in
part, at any time subsequent to such Optionee's death and prior to termination
of the Option pursuant to Section 10 above, either subject to or without regard
to any installment limitation on exercise imposed pursuant to Section 10 above,
as the Board, in its sole and absolute discretion, shall determine and set forth
in the Option Agreement.
7
<PAGE> 36
13.2. DISABILITY
If an Optionee terminates employment with the Corporation or a
Subsidiary by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Optionee, then such Optionee shall have
the right (subject to the general limitations on exercise set forth in Section
10 above), at any time within one year after such termination of employment and
prior to termination of the Option pursuant to Section 10 above, to exercise, in
whole or in part, any Option held by such Optionee at the date of such
termination of employment, whether or not such Option was exercisable
immediately prior to such termination of employment; provided, however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that an Optionee may (subject to the general limitations on exercise set forth
in Section 10 above), in the event of the termination of employment of the
Optionee with the Corporation or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option, in whole or in part, at any time subsequent to
such termination of employment and prior to termination of the Option pursuant
to Section 10 above, either subject to or without regard to any installment
limitation on exercise imposed pursuant to Section 10 above, as the Board, in
its sole and absolute discretion, shall determine and set forth in the Option
Agreement. Whether a termination of employment 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.
14. 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.
15. 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 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
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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.
16. SECURITIES EXCHANGE ACT OF 1934: RULE 16B-3
16.1. 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 Committee (constituted in accordance with
Section 10) or the Board (acting pursuant to Section 10), be inoperative and
void. Moreover, in the event that 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 or timing of awards) shall be deemed
automatically to be incorporated into the Plan insofar as participants subject
to Section 16 are concerned. In addition, from and after the Registration Date
the provisions set forth in Sections 16.2 through 16.5 shall apply.
16.2. COMPENSATION COMMITTEE
From and after the Registration Date, the Committee appointed
pursuant to Section 2.2 shall consist of not fewer than two members of the
Board, neither of whom, during the twelve months prior to service on such
Committee, shall have been granted an Option under this Plan and each of whom
shall qualify (at the time of appointment to the Committee and during all
periods of service on the Committee) in all respects as a "disinterested person"
as defined in Rule l6b-3.
16.3. ACTION BY THE BOARD
From and after the Registration Date, the Board may act under the
Plan other than by, or in accordance with the recommendations of, the Committee,
constituted as set forth in Section 2.2 above, only if all members of the Board
are "disinterested persons" as defined in Rule 16b-3.
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16.4. 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.
16.5. ADDITIONAL REQUIREMENT OF STOCKHOLDERS' APPROVAL
From and after the Registration Date, no amendment by the Board
shall, without approval by a majority of the votes cast at a duly held meeting
of the stockholders of the Corporation at which a quorum representing a majority
of all outstanding stock is present, either in person or by proxy, and voting on
the amendment, or by written consent in accordance with applicable state law and
the articles of incorporation and by-laws of the Corporation, materially
increase the benefits accruing to eligible individuals under the Plan or take
any other action that would require the approval of such stockholders pursuant
to Rule 16b-3.
17. 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; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of all
outstanding stock is present, either in person or by proxy, and voting on the
amendment, or by written consent in accordance with applicable state law and the
articles of incorporation and by-laws of the Corporation, materially change the
requirements as to eligibility to receive Options or increase the maximum number
of shares of Stock in the aggregate that may be sold pursuant to Options granted
under the Plan (except as permitted under Section 18 hereof). Except as
permitted under Section 18 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.
18. EFFECT OF CHANGES IN CAPITALIZATION
18.1. 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
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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.
18.2. REORGANIZATION WITH CORPORATION SURVIVING
Subject to Section 18.3 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 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.
18.3. 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 10 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
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<PAGE> 40
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 10
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.
18.4. ADJUSTMENTS
Adjustments under this Section 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.
18.5. 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.
19. 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 remain in the employ of the Corporation or any
Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary.
20. 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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MINDSPRING ENTERPRISES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1999
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 S. McQuary, 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 1999 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Tuesday, May 25, 1999 at 10:00 a.m. (local time) at the
High Museum of Art, Hill Auditorium, 1280 Peachtree Street, NE, Atlanta,
Georgia, upon the following matters and any other matter as may properly come
before the Annual Meeting or any adjournments thereof.
1. Election of one Class I Director to serve on the Board of Directors:
Class I Director:
O. Gene Gabbard
[ ] FOR the nominee listed above (except as marked to the contrary
below).
[ ] WITHHOLD AUTHORITY to vote for the nominee listed above.
2. Proposal to approve the amendment to Article 4 of the Company's Amended
and Restated Certificate of Incorporation, as amended, to increase the number of
authorized shares of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the Company's 1995 Stock Option Plan as amended to
increase the number of shares of the Company's Common Stock that may be issued
thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
<PAGE> 42
(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 NOMINEE LISTED IN PROPOSAL 1, "FOR" PROPOSALS 2, 3 AND 4, AND IN ACCORDANCE
WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEE LISTED IN PROPOSAL 1,
AND "FOR" PROPOSALS 2, 3 AND 4.
The undersigned hereby acknowledges prior receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement dated April __, 1999 and the 1999
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: _________________ , 1999
----------------------------------------
----------------------------------------
Signature of Stockholder or Authorized
Representative
Please date and sign exactly as name
appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact and other fiduciary
should sign and indicate his or her
full title. In the case of stock
ownership in the name of two or more
persons, all persons should sign.
[ ] I PLAN TO ATTEND THE MAY 25, 1999 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.
